(Exact name of registrant as specified in its charter)

Michigan		38-0478650
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
One Energy Plaza, Detroit, Michigan		48226-1279
(Address of principal executive offices)		(Zip Code)

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 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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

All of the registrant’s 138,632,324 outstanding shares of common stock are owned by DTE Energy Company.

 

 

The Detroit Edison Company
Quarterly Report on Form 10-Q
Quarter Ended March 31, 2011

Table Of Contents

		Page
Definitions			1
Forward-Looking Statements			3
Part I — Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)			5
Consolidated Statements of Financial Position (Unaudited)			6
Consolidated Statements of Cash Flows (Unaudited)			8
Consolidated Statements of Changes in Shareholder’s Equity and Comprehensive Income (Unaudited)			9
Notes to Consolidated Financial Statements (Unaudited)			10
Item 2. Management’s Narrative Analysis of Results of Operations			24
Item 4. Controls and Procedures			27
Part II — Other Information
Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 6. Exhibits			30
Signature			31
EX-4.274
EX-12.40
EX-31.63
EX-31.64
EX-32.63
EX-32.64

Definitions

ASC		Accounting Standards Codification
ASU		Accounting Standards Update
CIM		A Choice Incentive Mechanism authorized by the MPSC that allows Detroit Edison to recover or refund non-fuel revenues lost or gained as a result of fluctuations in electric Customer Choice sales.
Customer Choice		Michigan legislation giving customers the option to choose alternative suppliers for electricity.
Detroit Edison		The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy) and subsidiary companies
DTE Energy		DTE Energy Company, directly or indirectly the parent of Detroit Edison, Michigan Consolidated Gas Company and numerous non-utility subsidiaries
EPA		United States Environmental Protection Agency
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FTRs		Financial transmission rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid.
MDEQ		Michigan Department of Environmental Quality
MISO		Midwest Independent System Operator is an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.
MPSC		Michigan Public Service Commission
NRC		United States Nuclear Regulatory Commission
PSCR		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 costs.
RDM		A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage of electricity
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.
VIE		Variable Interest Entity

Units of Measurement
kWh		Kilowatthour of electricity
MW		Megawatt of electricity
MWh		Megawatthour of electricity

Forward-Looking Statements

Certain information presented herein includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Detroit Edison. Forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause actual future results to be materially different from those contemplated, projected, estimated or budgeted. Many factors may impact forward-looking statements including, but not limited to, the following:

•

economic conditions and population changes in our geographic area resulting in changes in demand, customer conservation, increased thefts of electricity and high levels of uncollectible accounts receivable;

•

changes in the economic and financial viability of suppliers and trading counterparties, and the continued ability of such parties to perform their obligations to the Company;

•

access to capital markets and the results of other financing efforts which can be affected by credit agency ratings;

•

instability in capital markets which could impact availability of short and long-term financing;

•

the timing and extent of changes in interest rates;

•

the level of borrowings;

•

the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;

•

the potential for increased costs or delays in completion of significant construction projects;

•

the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;

•

environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;

•

health, safety, financial, environmental and regulatory risks associated with ownership and operation of nuclear facilities;

•

impact of electric utility restructuring in Michigan, including legislative amendments and Customer Choice programs;

•

employee relations and the impact of collective bargaining agreements;

•

unplanned outages;

•

changes in the cost and availability of coal and other raw materials and purchased power;

•

cost reduction efforts and the maximization of plant and distribution system performance;

•

the effects of competition;

•

impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures;

•

changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;

•

the amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation;

•

the cost of protecting assets against, or damage due to, terrorism or cyber attacks;

•

the availability, cost, coverage and terms of insurance and stability of insurance providers;

•

changes in and application of 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; and

•

binding arbitration, litigation and related appeals.

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 refer 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.

The Detroit Edison Company

		Three Months Ended
		March 31
(in Millions)		2011				2010
Operating Revenues		$	1,192			$	1,146
Operating Expenses
Fuel and purchased power			378				343
Operation and maintenance			329				309
Depreciation and amortization			202				204
Taxes other than income			59				65
Asset (gains) and losses, net			19				(1	)
			987				920
Operating Income			205				226
Other (Income) and Deductions
Interest expense			71				81
Other income			(10	)			(8	)
Other expenses			6				6
			67				79
Income Before Income Taxes			138				147
Income Tax Provision			53				56
Net Income		$	85			$	91

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

		March 31,				December 31,
(in Millions)		2011				2010
ASSETS
Current Assets
Cash and cash equivalents		$	15			$	30
Restricted cash			55				104
Accounts receivable (less allowance for doubtful accounts of $83 and $93, respectively)
Customer			627				690
Affiliates			18				8
Other			78				204
Inventories
Fuel			201				224
Materials and supplies			174				170
Notes receivable
Affiliates			—				97
Other			2				—
Prepaid property taxes			71				44
Other			79				65
			1,320				1,636
Investments
Nuclear decommissioning trust funds			961				939
Other			115				118
			1,076				1,057
Property
Property, plant and equipment			16,178				16,068
Less accumulated depreciation and amortization			(6,484	)			(6,418	)
			9,694				9,650
Other Assets
Regulatory assets			3,243				3,277
Securitized regulatory assets			692				729
Intangible assets			28				25
Notes receivable
Affiliates			—				6
Other			6				—
Other			144				142
			4,113				4,179
Total Assets		$	16,203			$	16,522

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company
Consolidated Statements of Financial Position (Unaudited)

		March 31,				December 31,
(in Millions, Except Shares)		2011				2010
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable
Affiliates		$	55			$	50
Other			296				349
Accrued interest			74				81
Current portion long-term debt, including capital leases			285				308
Regulatory liabilities			—				60
Short-term borrowing — affiliates			131				—
Other			259				279
			1,100				1,127
Long-Term Debt (net of current portion)
Mortgage bonds, notes and other			4,064				4,046
Securitization bonds			559				643
Capital lease obligations			17				20
			4,640				4,709
Other Liabilities
Deferred income taxes			2,175				2,235
Regulatory liabilities			749				714
Asset retirement obligations			1,389				1,354
Unamortized investment tax credit			64				67
Nuclear decommissioning			151				149
Accrued pension liability — affiliates			770				960
Accrued postretirement liability — affiliates			1,028				1,060
Other			118				138
			6,444				6,677
Commitments and Contingencies (Notes 7 and 10)
Shareholder’s Equity
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding			3,196				3,196
Retained earnings			838				829
Accumulated other comprehensive income (loss)			(15	)			(16	)
			4,019				4,009
Total Liabilities and Shareholder’s Equity		$	16,203			$	16,522

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

		Three Months Ended
		March 31
(in Millions)		2011				2010
Operating Activities
Net income		$	85			$	91
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			202				204
Deferred income taxes			19				5
Asset gains (losses), net			19				(1	)
Changes in assets and liabilities, exclusive of changes shown separately (Note 12)			(225	)			76
Net cash from operating activities			100				375
Investing Activities
Plant and equipment expenditures			(219	)			(177	)
Restricted cash for debt redemptions			49				51
Proceeds from sale of nuclear decommissioning trust fund assets			20				59
Investment in nuclear decommissioning trust funds			(28	)			(68	)
Note receivable — affiliates			103				59
Other investments			(4	)			(9	)
Net cash used for investing activities			(79	)			(85	)
Financing Activities
Short-term borrowings			131				—
Redemption of long-term debt			(89	)			(85	)
Dividends on common stock			(76	)			(76	)
Other			(2	)			(2	)
Net cash used for financing activities			(36	)			(163	)
Net Increase in Cash and Cash Equivalents			(15	)			127
Cash and Cash Equivalents at Beginning of the Period			30				34
Cash and Cash Equivalents at End of the Period		$	15			$	161

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

																		Accumulated
										Additional								Other
		Common Stock								Paid In				Retained				Comprehensive
(Dollars in Millions, shares in thousands)		Shares				Amount				Capital				Earnings				Loss				Total
Balance, December 31, 2010			138,632			$	1,386			$	1,810			$	829			$	(16	)		$	4,009
Net income			—				—				—				85				—				85
Dividends declared on common stock			—				—				—				(76	)			—				(76	)
Benefit obligations, net of tax			—				—				—				—				1				1
Balance, March 31, 2011			138,632			$	1,386			$	1,810			$	838			$	(15	)		$	4,019

The following table displays other comprehensive income for the three-month periods ended March 31:

(in Millions)		2011				2010
Net income		$	85			$	91
Other comprehensive income, net of tax:
Benefit obligations, net of taxes			1				1
Comprehensive income		$	86			$	92

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 — BASIS OF PRESENTATION

Corporate Structure

Detroit Edison is an electric utility engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastern Michigan. Detroit Edison is regulated by the MPSC and the FERC. In addition, the Company is regulated by other federal and state regulatory agencies including the NRC, the EPA and the MDEQ.

References in this report to “we,” “us,” “our” or “Company” are to Detroit Edison and its subsidiaries, collectively.

Basis of Presentation

These Consolidated Financial Statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the 2010 Annual Report on Form 10-K.

The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Company’s estimates.

The Consolidated Financial Statements are unaudited, but in the Company’s opinion include all adjustments necessary for a fair presentation of such financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed in these Consolidated Financial Statements and Notes to Consolidated Financial Statements. 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 ending December 31, 2011.

Certain prior year balances were reclassified to match the current year’s financial statement presentation.

Principles of Consolidation

The Company consolidates all majority owned subsidiaries and investments in entities in which it has 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 the Company does not influence the operating policies of an investee, the cost method is used. These consolidated financial statements also reflect the Company’s proportionate interests in certain jointly owned utility plant. The Company eliminates all intercompany balances and transactions.

The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.

The Company has variable interests in VIEs through certain of its long-term purchase contracts. As of March 31, 2011, the carrying amount of assets and liabilities in the Consolidated Statement of Financial Position that relate to its variable interests under long-term purchase contracts are predominately related to working capital accounts and generally represent the amounts owed by the Company for the deliveries associated with the current billing cycle under the contracts. The Company has not provided any form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of its variable interests through these long-term purchase contracts.

In 2001, Detroit Edison financed a regulatory asset related to Fermi 2 and certain other regulatory assets through the sale of rate reduction bonds by a wholly-owned special purpose entity, Securitization. Detroit Edison performs servicing activities including billing and collecting surcharge revenue for Securitization. This entity is a VIE, and is consolidated as the Company is the primary beneficiary. The maximum risk exposure related to Securitization is reflected on the Company’s Consolidated Statements of Financial Position.

The following tables summarize the major balance sheet items at March 31, 2011 and December 31, 2010 restricted for Securitization that are either (1) assets that can be used only to settle its obligations or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary.

		March 31,				December 31,
(in Millions)		2011				2010
ASSETS
Restricted cash		$	55			$	104
Accounts receivable			39				42
Securitized regulatory assets			692				729
Other assets			12				13
		$	798			$	888
LIABILITIES
Accounts payable and accrued current liabilities		$	4			$	17
Current portion long-term debt, including capital leases			158				150
Other current liabilities			62				62
Securitization bonds			559				643
Other long term liabilities			6				6
		$	789			$	878

As of March 31, 2011 and December 31, 2010, Detroit Edison had $5 million and $6 million in Notes receivable, respectively, related to non-consolidated VIEs.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Income Taxes

The Company had $3 million of unrecognized tax benefits at March 31, 2011 and December 31, 2010, that, if recognized, would favorably impact its effective tax rate. The Company has increased its unrecognized tax benefit by $70 million as a result of a change in a tax position taken during the period. During the next twelve months, it is reasonably possible that DTE Energy and its subsidiaries will settle certain federal tax audits. As a result, the Company believes that it is possible that there will be a decrease in unrecognized tax benefits of up to $85 million within the next twelve months. The Company had an income tax receivable of $43 million at March 31, 2011 and $152 million at December 31, 2010 due from DTE Energy.

Stock-Based Compensation

The Company received an allocation of costs from DTE Energy associated with stock-based compensation of $9 million and $6 million for the three months ended March 31, 2011 and March 31, 2010, respectively.

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements and Disclosures

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires details of transfers in and out of Level 1 and 2 fair value measurements and the gross presentation of activity within the Level 3 fair value measurement roll forward. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. The Company adopted ASU 2010-06 effective January 1, 2010, except for the gross presentation of the Level 3 fair value measurement roll forward provision which was adopted in the first quarter of 2011, as permitted.

NOTE 4 — FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at March 31, 2011 and December 31, 2010. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

A fair value hierarchy has been established, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy defined as follows:

•

Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.

•

Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

•

Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2011:

														Net Balance at
(in Millions)		Level 1				Level 2				Level 3				March 31, 2011
Assets:
Nuclear decommissioning trusts		$	624			$	337			$	—			$	961
Other investments			52				53				—				105
Derivative assets — FTRs			—				—				1				1
Total		$	676			$	390			$	1			$	1,067
Liabilities:
Derivative liabilities — Emissions			—				(3	)			—				(3	)
Total		$	—			$	(3	)		$	—			$	(3	)
Net Assets at March 31, 2011		$	676			$	387			$	1			$	1,064

														Net Balance at
(in Millions)		Level 1				Level 2				Level 3				March 31, 2011
Assets:
Current		$	—			$	—			$	1			$	1
Noncurrent			676				390				—				1,066
Total Assets		$	676			$	390			$	1			$	1,067
Liabilities:
Current		$	—			$	(3	)		$	—			$	(3	)
Noncurrent			—				—				—				—
Total Liabilities		$	—			$	(3	)		$	—			$	(3	)
Net Assets at March 31, 2011		$	676			$	387			$	1			$	1,064

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2010:

														Net Balance at
(in Millions)		Level 1				Level 2				Level 3				December 31, 2010
Assets:
Nuclear decommissioning trusts		$	599			$	340			$	—			$	939
Other investments			52				55				—				107
Derivative assets — FTRs			—				—				2				2
Total		$	651			$	395			$	2			$	1,048
Liabilities:
Derivative liabilities — Emissions			—				(3	)			—				(3	)
Total		$	—			$	(3	)		$	—			$	(3	)
Net Assets at December 31, 2010		$	651			$	392			$	2			$	1,045

														Net Balance at
(in Millions)		Level 1				Level 2				Level 3				December 31, 2010
Assets:
Current		$	—			$	—			$	2			$	2
Noncurrent			651				395				—				1,046
Total Assets		$	651			$	395			$	2			$	1,048
Liabilities:
Current		$	—			$	(3	)		$	—			$	(3	)
Noncurrent			—				—				—				—
Total Liabilities		$	—			$	(3	)		$	—			$	(3	)
Net Assets at December 31, 2010		$	651			$	392			$	2			$	1,045

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2011 and 2010:

		Three Months Ended
		March 31
(in Millions)		2011				2010
Asset balance as of beginning of the period		$	2			$	2
Changes in fair value recorded in regulatory assets/liabilities			(1	)			(1	)
Asset balance as of March 31		$	1			$	1
The amount of total gains (losses) included in regulatory assets and liabilities attributed to the change in unrealized gains (losses) related to regulatory assets and liabilities held at March 31, 2011 and 2010		$	—			$	—

Transfers in and transfers out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level and for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Transfers in and transfers out of Level 3 are reflected as if they had occurred at the beginning of the period. No significant transfers between Levels 1, 2 or 3 occurred in the three months ended March 31, 2011 and March 31, 2010.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.

Derivative Assets and Liabilities

Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. The Company considers the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality and basis differential factors. The Company monitors the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Company has obtained an understanding of how these prices are derived. Additionally, the Company selectively corroborates the fair value of its transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period.

Fair Value of Financial Instruments

The fair value of long-term debt is determined by using quoted market prices when available and a discounted cash flow analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value and the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits and notes receivable are not shown as carrying value approximates fair value. See Note 5 for further fair value information on financial and derivative instruments.

March 31, 2011

December 31, 2010

Fair Value

Carrying Value

Fair Value

Carrying Value

Long-Term Debt

$5.2 billion

$4.9 billion

$5.3 billion

$5.0 billion

Nuclear Decommissioning Trust Funds

Detroit Edison has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. This obligation is reflected as an asset retirement obligation on the Consolidated Statements of Financial Position. See Note 6.

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 and the disposal of low-level radioactive waste. Detroit Edison is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates. The Company believes the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning using the NRC formula. The decommissioning assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC. See Note 7.

The decommissioning of Fermi 1 is funded by Detroit Edison. Contributions to the Fermi 1 trust are discretionary.

The following table summarizes the fair value of the nuclear decommissioning trust fund assets:

		March 31				December 31
(in Millions)		2011				2010
Fermi 2		$	930			$	910
Fermi 1			3				3
Low level radioactive waste			28				26
Total		$	961			$	939

The costs of securities sold are determined on the basis of specific identification. The following table sets forth the gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:

		Three Months Ended
		March 31
(in Millions)		2011				2010
Realized gains		$	14			$	9
Realized losses			(8	)			(8	)
Proceeds from sales of securities			20				59

Realized gains and losses from the sale of securities for the Fermi 2 and the low level radioactive waste funds are recorded to the Regulatory asset and Nuclear decommissioning liability. The following table sets forth the fair value and unrealized gains for the nuclear decommissioning trust funds:

		Fair				Unrealized
(in Millions)		Value				Gains
As of March 31, 2011
Equity securities		$	590			$	100
Debt securities			359				10
Cash and cash equivalents			12				—
		$	961			$	110

		Fair				Unrealized
(in Millions)		Value				Gains
As of December 31, 2010
Equity securities		$	572			$	77
Debt securities			361				11
Cash and cash equivalents			6				—
		$	939			$	88

The debt securities at March 31, 2011 and December 31, 2010 had an average maturity of approximately 7 and 6 years, respectively. Securities held in the nuclear decommissioning trust funds are classified as available-for-sale. As Detroit Edison does not have the ability to hold impaired investments for a period of time sufficient to allow for the anticipated recovery of market value, all unrealized losses are considered to be other than temporary impairments.

Unrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset. Detroit Edison recognized $27 million and $26 million of unrealized losses as Regulatory assets at March 31, 2011 and December 31, 2010, respectively. Since the decommissioning of Fermi 1 is funded by Detroit Edison rather than through a regulatory recovery mechanism, there is no corresponding regulatory asset treatment. Therefore, unrealized losses incurred by the Fermi 1 trust are recognized in earnings immediately. There were no unrealized losses recognized for the three months ended March 31, 2011 and March 31, 2010 for Fermi 1 trust assets.

Other Available-For-Sale Securities

The following table summarizes the fair value of the Company’s investment in available-for-sale debt and equity securities, excluding nuclear decommissioning trust fund assets:

		March 31, 2011								December 31, 2010
(in Millions)		Fair Value				Carrying value				Fair Value				Carrying Value
Cash equivalents		$	71			$	71			$	125			$	125
Equity securities			5				5				4				4

As of March 31, 2011, these securities are comprised primarily of money-market and equity securities. Gains related to trading securities held at March 31, 2011 and March 31, 2010 were $3 million and $2 million, respectively.

NOTE 5 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

The Company recognizes all derivatives at their fair value on the Consolidated Statements of Financial Position unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For derivatives that do not qualify or are not designated for hedge accounting, changes in the fair value are recognized in earnings each period.

Detroit Edison’s primary market risk exposure is associated with commodity prices, credit and interest rates. The Company has risk management policies to monitor and manage market risks. The Company uses derivative instruments to manage some of the exposure. Detroit Edison generates, purchases, distributes and sells electricity. Detroit Edison uses forward energy and capacity contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and sales exemption and are therefore accounted for under the accrual method. Other derivative contracts are recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities until realized.

The following represents the fair value of derivative instruments as of March 31, 2011 and December 31, 2010:

		March 31				December 31
(in Millions)		2011				2010
FTRs — Other current assets		$	1			$	2
Emissions — Other current liabilities			(3	)			(3	)
Total derivatives not designated as hedging instrument		$	(2	)		$	(1	)

The effects of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statements of Financial Position were immaterial to both Regulatory assets and Regulatory liabilities for the three months ended March 31, 2011.

The following represents the cumulative gross volume of derivative contracts outstanding as of March 31, 2011:

Commodity		Number of Units
Emissions (Tons)			2,250
FTRs (MW)			21,562

NOTE 6 — ASSET RETIREMENT OBLIGATIONS

A reconciliation of the asset retirement obligations for the three months ended March 31, 2011 follows:

(in Millions)
Asset retirement obligations at December 31, 2010		$	1,366
Accretion			21
Revision in estimated cash flows			19
Liabilities settled			(2	)
Asset retirement obligations at March 31, 2011			1,404
Less amount included in current liabilities			(15	)
		$	1,389

In 2001, Detroit Edison began the final decommissioning of Fermi 1, with the goal of removing the remaining radioactive material and terminating the Fermi 1 license. In the first quarter of 2011, based on management decisions revising the timing and estimate of cash flows, Detroit Edison accrued an additional $19 million with respect to the decommissioning of Fermi 1. Subject to NRC notification, management intends to suspend decommissioning activities and place the facility in safe storage status. The expense amount has been recorded in Asset (gains) and losses, reserves and impairments, net on the Consolidated Statements of Operations.

NOTE 7 — REGULATORY MATTERS

2010 Electric Rate Case Filing

Detroit Edison filed a rate case on October 29, 2010 based on a projected twelve-month period ending March 31, 2012. The filing with the MPSC requested a $443 million increase in base rates that is required to recover higher costs associated with environmental compliance, operation and maintenance of the Company’s electric distribution system and generation plants, inflation, the capital costs of plant additions, the reduction in territory sales, the impact from the expiration of certain wholesale for resale contracts and the increased migration of customers to the electric Customer Choice program. Detroit Edison also proposed certain adjustments which could reduce the net impact on the required increase in rates by approximately $190 million. These adjustments relate to electric Customer Choice migration, pension and other postretirement benefits expenses and the Nuclear Decommissioning surcharge.

Detroit Edison Restoration Expense Tracker Mechanism (RETM) and Line Clearance Tracker (LCT) Reconciliation

In March 2011, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2010 RETM and LCT. The Company’s 2010 restoration expenses were higher than the amount provided in rates. Accordingly, Detroit Edison has requested recovery of approximately $19.5 million.

Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)

In March 2011, Detroit Edison filed an application with the MPSC for approval of its UETM for 2010 requesting authority to refund approximately $7.2 million consisting of costs related to 2010 uncollectible expense.

Detroit Edison Choice Incentive Mechanism (CIM)

In March 2011, Detroit Edison filed an application with the MPSC for approval of its CIM reconciliation for 2010 requesting recovery of approximately $105.2 million.

Energy Optimization (EO) Plans

In April 2011, Detroit Edison filed an application for approval of its reconciliation of its 2010 EO plan expenses. Detroit Edison’s EO reconciliation includes a cumulative $21 million net over-recovery at year end 2010 for the 2010 EO plan.

Power Supply Cost Recovery Proceedings

The PSCR process is designed to allow Detroit Edison to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. Detroit Edison’s power supply costs include fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, urea costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.

The following table summarizes Detroit Edison’s PSCR reconciliation filing currently pending with the MPSC:

				Net Over/(Under)-Recovery,		PSCR Cost of
PSCR Year		Date Filed		Including Interest		Power Sold
2009		March 2010		$15.6 million		$1.2 billion
2010		March 2011		$(52.6) million		$1.2 billion

2010 PSCR Year — The 2010 PSCR reconciliation includes $15.6 million net over-recovery for the 2009 PSCR year. In addition to the net under-recovery of $52.6 million, the 2010 PSCR reconciliation includes an under-recovery of $7.1 million for the reconciliation of the 2007-2008 Pension Equalization Mechanism and an over-refund of $3.8 million for the 2011 refund of the self-implemented rate increase related to the 2009 electric rate case filing.

2011 Plan Year — In September 2010, Detroit Edison filed its 2011 PSCR plan case seeking approval of a levelized PSCR factor of 2.98 mills/kWh below the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.2 billion. The plan also includes approximately $36 million for the recovery of its projected 2010 PSCR under-recovery.

Other

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

NOTE 8 — LONG-TERM DEBT

In April 2011, Detroit Edison remarketed $31 million of Tax-Exempt Revenue Bonds in a long-term rate mode at 2.35% for a three-year term. The final maturity of the issue is October 1, 2024.

NOTE 9 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

In August 2010, Detroit Edison entered into an amended and restated $212 million two-year unsecured revolving credit agreement and a new $63 million three-year unsecured revolving credit agreement with a syndicate of 23 banks that may be used for general corporate borrowings, but are intended to provide liquidity support for the Company’s commercial paper program. No one bank provides more than 8.25% of the commitment in any facility. Borrowings under the facilities are available at prevailing short-term interest rates.

The above agreements require the Company to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreements, “total funded debt” means all indebtedness of the Company and its consolidated

subsidiaries, including capital lease obligations, hedge agreements and guarantees of third parties’ debt, but excluding contingent obligations and nonrecourse and junior subordinated debt. “Capitalization” means the sum of (a) total funded debt plus (b) “consolidated net worth,” which is equal to consolidated total stockholders’ equity of the Company and its consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At March 31, 2011, the total funded debt to total capitalization ratio for Detroit Edison was 0.51 to 1. Should Detroit Edison have delinquent obligations of at least $50 million to any creditor, such delinquency will be considered a default under its credit agreements. Detroit Edison had no outstanding short-term borrowings at March 31, 2011.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Environmental

Air — Detroit Edison is subject to the EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, the EPA and the State of Michigan have issued additional emission reduction regulations relating to ozone, fine particulate, regional haze and mercury air pollution. The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions. To comply with these requirements, Detroit Edison has spent approximately $1.5 billion through 2010. The Company estimates Detroit Edison will make capital expenditures of over $230 million in 2011 and up to $2.1 billion of additional capital expenditures through 2020 based on current regulations. Further, additional rulemakings are expected over the next few years which could require additional controls for sulfur dioxide, nitrogen oxides and hazardous air pollutants. The EPA’s proposed National Emission Standards for Hazardous Air Pollutants from Coal and Oil-Fired Electric Utility Steam Generating Units rule (covering mercury and other air pollutants) was issued on March 16, 2011 for review and comment. DTE Energy is reviewing potential impacts of the proposed rule. The EPA will be accepting input on the proposal and may modify it prior to finalization, scheduled for November 2011. It is not possible to quantify the impact of this and other expected rulemakings at this time.

In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five of Detroit Edison’s power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a recent project and outage at Unit 2 of the Monroe Power Plant.

On August 5, 2010, the United States Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA is requesting the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA is requesting the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison’s fleet of coal-fired power plants until the new control equipment is operating. In January 2011, the EPA’s motion for preliminary injunction was denied and the liability phase of the civil suit has been scheduled for trial in September 2011.

DTE Energy and Detroit Edison believe that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV and the result of the civil action, Detroit Edison could also be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit Edison cannot predict the financial impact or outcome of this matter, or the timing of its resolution.

Water — In response to an EPA regulation, 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 completed studies and expected future studies, Detroit Edison may be required to install additional control technologies to reduce the impacts of the water intakes. Initially, it was estimated that Detroit Edison could incur up

to approximately $55 million in additional capital expenditures over the four to six years subsequent to 2008 to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that has resulted in a delay in compliance dates. The decision also raised the possibility that Detroit Edison may have to install cooling towers at some facilities at a cost substantially greater than was initially estimated for other mitigative technologies. In 2008, the Supreme Court agreed to review the remanded cost-benefit analysis provision of the rule and in April 2009 upheld the EPA’s use of this provision in determining best technology available for reducing environmental impacts. On March 28, 2011, the EPA issued a revised rule, which is currently under review. A final rule is scheduled to be issued in mid-2012. The EPA has also issued an information collection request to begin a review of steam electric effluent guidelines. It is not possible at this time to quantify the impacts of these developing requirements.

Contaminated Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. The facilities, which produced gas, have been designated as manufactured gas plant (MGP) sites. Detroit Edison conducted remedial investigations at contaminated sites, including three former MGP sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, the Company is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At March 31, 2011 and December 31, 2010, the Company had $9 million accrued for remediation. Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company’s financial position and cash flows.

Landfill — Detroit Edison owns and operates a permitted engineered ash storage facility at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction.

The EPA has published proposed rules to regulate coal ash under the authority of the Resources Conservation and Recovery Act (RCRA). The proposed rule published on June 21, 2010 contains two primary regulatory options to regulate coal ash residue. The EPA is currently considering either designating coal ash as a “Hazardous Waste” as defined by RCRA or regulating coal ash as non-hazardous waste under RCRA. Agencies and legislatures have urged the EPA to regulate coal ash as a non-hazardous waste. If the EPA designates coal ash as a hazardous waste, the agency could apply some, or all, of the disposal and reuse standards that have been applied to other existing hazardous wastes to disposal and reuse of coal ash. Some of the regulatory actions currently being contemplated could have a significant impact on our operations and financial position and the rates we charge our customers. It is not possible to quantify the impact of those expected rulemakings at this time.

Other

In 2011, the EPA finalized a new set of regulations regarding the identification of non-hazardous secondary materials that are considered solid waste, industrial boiler and process heater maximum achievable control technologies (MACT) for major and area sources, and commercial/industrial solid waste incinerator new source performance standard and emission guidelines. This new set of regulations may impact our existing operations and may require us, in certain instances, to install new air pollution control devices. The new MACT regulations for industrial boilers provide three years for compliance with the major and area source standards. The Company is currently assessing the impact on current operations to determine the financial impact, if any, to comply with the new standards.

Nuclear Operations

Property Insurance

Detroit Edison maintains 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 the insurance policies.

Detroit Edison maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2’s unavailability due to an insured event. This policy has a 12-week waiting period and provides 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.

In 2007, the Terrorism Risk Insurance Extension Act of 2005 (TRIA) was extended through December 31, 2014. A major change in the extension is the inclusion of “domestic” acts of terrorism in the definition of covered or “certified” acts. For multiple terrorism losses caused by acts of terrorism not covered under the TRIA 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 of January 1, 2011, as required by federal law, Detroit Edison maintains $375 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 2005, deferred premium charges up to $117.5 million could be levied against each licensed nuclear facility, but not more than $17.5 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.

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 accounted for as 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 and the proposed fiscal year 2011 federal budget recommends termination of funding for completion of the government’s long-term storage facility. 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 Federal Nuclear Waste Policy Act of 1982. Detroit Edison currently employs a spent nuclear fuel storage strategy utilizing a fuel pool. In 2011, the Company expects to begin loading spent nuclear fuel into an on-site dry cask storage facility which is expected to provide sufficient storage capability for the life of the plant as defined by the original operating license. Issues relating to long-term waste disposal policy and to the disposition of funds contributed by Detroit Edison ratepayers to the federal waste fund await future governmental action.

Guarantees

In certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity’s obligation in the event it fails to perform. The Company may provide guarantees in certain indemnification agreements. Finally, the Company may provide indirect guarantees for the indebtedness of others.

Labor Contracts

There are several bargaining units for the Company’s approximately 2,700 represented employees. In the 2010 third quarter, a new three-year agreement was ratified covering approximately 2,400 represented employees. The remaining represented employees are under a contract that expires in August 2012.

Purchase Commitments

As of March 31, 2011, the Company was party to numerous long-term purchase commitments relating to a variety of goods and services required for the Company’s business. These agreements primarily consist of fuel supply commitments. The Company estimates that these commitments will be approximately $2.6 billion from 2011 through 2026. Certain of these commitments are with variable interest entities where the Company determined it was not the primary beneficiary as it does not have significant exposure to losses.

The Company also estimates that 2011 capital expenditures will be approximately $1.3 billion. The Company has made certain commitments in connection with expected capital expenditures.

Bankruptcies

The Company purchases and sells electricity from and to numerous companies operating in the steel, automotive, energy, retail and other industries. Certain of its customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The Company regularly reviews contingent matters relating to these customers and its purchase and sale contracts and records provisions for amounts considered at risk of probable loss. The Company believes its accrued amounts are adequate for probable loss. The final resolution of these matters may have a material effect on its consolidated financial statements.

Other Contingencies

The Company is involved in certain other 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, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that it can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Company’s operations or financial statements in the periods they are resolved.

See Notes 5 and 7 for a discussion of contingencies related to derivatives and regulatory matters.

NOTE 11 — RETIREMENT BENEFITS AND TRUSTEED ASSETS

The following details the components of net periodic benefit costs for pension benefits and other postretirement benefits:

										Other Postretirement
(in Millions)		Pension Benefits								Benefits
Three Months Ended March 31		2011				2010				2011				2010
Service cost		$	15			$	13			$	13			$	13
Interest cost			39				38				23				24
Expected return on plan assets			(42	)			(43	)			(16	)			(13	)
Amortization of:
Net actuarial loss			23				18				11				9
Prior service cost			1				1				(4	)			—
Net transition liability			—				—				1				1
Net periodic benefit cost		$	36			$	27			$	28			$	34

Pension and Other Postretirement Contributions

In January 2011, the Company contributed $200 million to its pension plans.

In January 2011, the Company contributed $36 million to its other postretirement benefit plans. At the discretion of management, the Company may make up to an additional $90 million contribution to its other postretirement benefit plans by the end of 2011.

NOTE 12 — SUPPLEMENTAL CASH FLOW INFORMATION

The following provides detail of the changes in assets and liabilities that are reported in the Consolidated Statements of Cash Flows:

		Three Months Ended March 31
(in Millions)		2011				2010
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable, net		$	55			$	75
Inventories			18				—
Accrued pension liability — affiliates			(190	)			(93	)
Accounts payable			(15	)			21
Accrued PSCR refund			(4	)			(3	)
Income taxes receivable/payable			26				77
Postretirement obligation — affiliates			(32	)			6
Other assets			(18	)			(9	)
Other liabilities			(65	)			2
		$	(225	)		$	76

Part I — Item 2.

The Detroit Edison Company

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

Detroit Edison’s results for the three months ended March 31, 2011 as compared to the comparable 2010 period are discussed below:

		Three Months Ended
		March 31
(in Millions)		2011				2010
Operating Revenues		$	1,192			$	1,146
Fuel and Purchased Power			378				343
Gross Margin			814				803
Operation and Maintenance			329				309
Depreciation and Amortization			202				204
Taxes Other Than Income			59				65
Asset (Gains) and Losses, Net			19				(1	)
Operating Income			205				226
Other (Income) and Deductions			67				79
Income Tax Provision			53				56
Net Income		$	85			$	91
Operating Income as a Percentage of Operating Revenues			17	%			20	%

Gross margin increased $11 million in the first quarter of 2011. Revenues associated with certain tracking mechanisms and surcharges are offset by related expenses elsewhere in the Statement of Operations. The following table details changes in various gross margin components relative to the comparable prior period:

(in Millions)		Three Months
Base sales, net of RDM and CIM		$	7
Energy optimization incentive			9
Restoration tracker			5
Electric Choice implementation surcharge elimination			(6	)
Securitization bond and tax surcharge			(3	)
Other			(1	)
Increase in gross margin		$	11

		Three Months Ended
		March 31
(in Thousands of MWh)		2011				2010
Electric Sales
Residential			3,889				3,665
Commercial			3,993				3,942
Industrial			2,341				2,475
Other			798				802
			11,021				10,884
Interconnection sales (1)			306				1,310
Total Electric Sales			11,327				12,194
Electric Deliveries
Retail and Wholesale			11,021				10,884
Electric Customer Choice, including self generators(2)			1,302				1,103
Total Electric Sales and Deliveries			12,323				11,987

		Three Months Ended
Power Generated and Purchased		March 31
(in Thousands of MWh)		2011				2010
Power Plant Generation
Fossil			8,058				9,520
Nuclear			1,706				2,200
			9,764				11,720
Purchased Power			2,477				1,322
System Output			12,241				13,042
Less Line Loss and Internal Use			(914	)			(848	)
Net System Output			11,327				12,194
Average Unit Cost ($/MWh)
Generation (1)		$	20.80			$	18.78
Purchased Power		$	40.79			$	32.30
Overall Average Unit Cost		$	24.84			$	20.15

Operation and maintenance expense increased $20 million in the first quarter of 2011 due primarily to increased power plant generation outages of $9 million, higher employee benefit related expenses of $8 million, higher storm and line clearance expenses of $6 million and higher energy optimization and renewable energy expenses of $4 million, partially offset by reduced uncollectible expenses of $6 million.

Asset (gains) and losses, net decreased $20 million due to an accrual of $19 million in the first quarter of 2011 resulting from management’s revisions of the timing and estimate of cash flows for the decommissioning of Fermi 1. See Note 6 of the Notes to the Consolidated Financial Statements.

Outlook — We continue to move forward in our efforts to improve the operating performance and cash flow of Detroit Edison. The 2010 MPSC order provided for an uncollectible expense tracking mechanism which financially assists in mitigating the impacts of economic conditions in our service territory and a revenue decoupling mechanism that addresses changes in average customer usage due to general economic conditions, weather and conservation. These and other tracking mechanisms and surcharges are expected to result in lower earnings volatility.

We expect that our planned significant environmental and renewable energy investments will result in earnings growth. Looking forward, additional factors may impact earnings such as volatility in prices for coal and other commodities, increased transportation costs, investment returns and changes in discount rate assumptions in benefit plans and health care costs, lower levels of wholesale sales due to contract expirations, and uncertainty of legislative or regulatory actions regarding climate change. We expect to continue our efforts to improve productivity and decrease our costs while improving customer satisfaction with consideration of customer rate affordability.

Detroit Edison filed a rate case on October 29, 2010 based on a projected twelve-month period ending March 31, 2012. The filing with the MPSC requested a $443 million increase in base rates. Detroit Edison also proposed certain adjustments which could reduce the net impact on the required increase in rates by approximately $190 million. Detroit Edison plans to self-implement $107 million of its requested annual increase on April 28, 2011. This increase will remain in place until a final order is issued by the MPSC, which is expected by October 2011. If the final rate case order does not support the self-implemented rate increase, Detroit Edison must refund the difference with interest.

Environmental Matters

Global Climate Change

The EPA has promulgated the Greenhouse Gas Tailoring rule that regulates greenhouse gases as pollutants under the EPA’s new source permitting and major source operating permit programs, and that requires a Best Available Control Technology (BACT) determination for new and modified major sources of GHG. In addition, the EPA will be issuing proposed GHG performance standards for new and modified electric generating units in July 2011. Comprehensive climate change and energy legislation was passed out of the U.S. House in 2009, but the Senate was unable to agree on passage of a climate bill. In the current U.S. Congress, efforts are focused on delaying the EPA’s regulation of GHGs with no expectation of enacting a comprehensive national climate program. Pending or future regulatory or legislative actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission offsets from market sources and the retirement of facilities where control equipment is not economical. We would seek to recover these incremental costs through increased rates charged to our utility customers. Increased costs for energy produced from traditional sources could also increase the economic viability of energy produced from renewable and/or nuclear sources and energy efficiency initiatives and the development of market-based trading of carbon offsets providing business opportunities for our utility and non-utility segments. It is not possible to quantify these impacts on Detroit Edison or its customers at this time.

See Note 10 of the Notes to Consolidated Financial Statements for additional information regarding environmental matters.

Part I — Item 4.

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 Detroit Edison’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2011, which is the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.

(b) Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II — Other Information

Item 1.		— Legal Proceedings

The Company is 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. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on its operations or financial statements in the periods they are resolved.

In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five of Detroit Edison’s power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a recent project and outage at Unit 2 of the Monroe Power Plant.

On August 5, 2010, the United States Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA requested the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA requested the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison’s fleet of coal-fired power plants until the new control equipment is operating. In January 2011, the EPA’s motion for preliminary injunction was denied and the liability phase of the civil suit has been scheduled for trial in September 2011.

DTE Energy and Detroit Edison believe that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV and the result of the civil action, Detroit Edison could also be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit Edison cannot predict the financial impact or outcome of this matter, or the timing of its resolution.

For additional discussion on legal matters, see Note 10 of the Notes to Consolidated Financial Statements

Item 1A.		— Risk Factors

There are various risks associated with the operations of Detroit Edison. To provide a framework to understand the operating environment of Detroit Edison, we have provided a brief explanation of the more significant risks associated with our businesses in Part 1, Item 1A. Risk Factors in the Company’s 2010 Form 10-K. Although we have tried to identify and discuss key risk factors, others could emerge in the future. In addition to the risk factors set forth in our 10-K, the following updated risks could affect our performance.

Operation of a nuclear facility subjects us to risk. Ownership of an operating nuclear generating plant subjects us to significant additional risks. These risks include, among others, plant security, environmental regulation and remediation, changes in federal nuclear regulation and operational factors that can significantly impact the performance and cost of operating a nuclear facility. While we maintain 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.

Construction and capital improvements to our power facilities subject us to risk. We are managing ongoing and planning future significant construction and capital improvement projects at multiple power generation and

distribution facilities. Many factors that could cause delay or increased prices for these complex projects are beyond our control, including the cost of materials and labor, subcontractor performance, timing and issuance of necessary permits, construction disputes and weather conditions. Failure to complete these projects on schedule and on budget for any reason could adversely affect our financial performance and operations at the affected facilities.

Item 6.		— Exhibits

Exhibit
Number		Description
Exhibits filed herewith:
4-274		Supplemental Indenture, dated as of March 1, 2011, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee (2011 Series AT)
12-40		Computation of Ratio of Earnings to Fixed Charges
31-63		Chief Executive Officer Section 302 Form 10-Q Certification
31-64		Chief Financial Officer Section 302 Form 10-Q Certification
Exhibits furnished herewith:
32-63		Chief Executive Officer Section 906 Form 10-Q Certification
32-64		Chief Financial Officer Section 906 Form 10-Q Certification

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.

		THE DETROIT EDISON COMPANY
		(Registrant)
Date: April 27, 2011		/S/ PETER B. OLEKSIAK
		Peter B. Oleksiak
		Vice President and Controller and
		Chief Accounting Officer