NRC-02-0032, DTE Energy Corp., Consolidated Statement of Operations

DTE Energy Corp., Consolidated Statement of Operations

ML021090189
Person / Time
Site:	Fermi
Issue date:	04/08/2002
From:	Detroit Edison
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
NRC-02-0032
Download: ML021090189 (30)

Text

DTE Energy Company Consolidated Statement of OPERATIONS Year Ended December 31 (in Millions, Except per Share Amounts) 2001 2000 1999 Operating Revenues $ 7,849 $ 5,597 $ 4,728 Operating Expenses Fuel, purchased power and gas 3,950 2,233 1,335 Operation and maintenance 1,828 1,455 1,480 Depreciation, depletion and amortization 795 758 735 Taxes other than income 312 296 277 Merger and restructuring charges 268 25 Total Operating Expenses 7,153 4,767 3,827 Operating Income 696 830 901 Interest Expense and Other Interest expense 468 336 340 Other - net 9 17 18 Total Interest Expense and Other 477 353 358 Income Before Income Taxes 219 477 543 Income Tax Provision (Benefit) (110) 9 60 Income Before Accounting Change 329 468 483 3

Cumulative Effect of Accounting Change Net Income $ 332 $ 468 $ 483 Basic Earnings per Common Share Before accounting change $ 2.15 $ 3.27 $ 3.33

.02 -

Cumulative effect of accounting change Total $ 2.17 $ 3.27 $ 3.33 Diluted Earnings per Common Share Before accounting change $ 2.14 $ 3.27 $ 3.33 Cumulative effect of accounting change .02 -

Total $ 2.16 $ 3.27 $ 3.33 Average Common Shares Basic 153 143 145 Diluted 154 143 145 Dividends Declared per Common Share $ 2.06 $ 2.06 $ 2.06 (See Notes to Consolidated Financial Statements.)

DTE Energy 2001 Annual Report 37

DTE Energy Company Consolidated Statement of FINANCIAL POSITION December 31 (in Millions, Except Shares) 2001 2000 ASSETS Current Assets Cash and cash equivalents $ 268 $ 64 Restricted cash 157 88 Accounts receivable Customer (less allowance for doubtful accounts of $57 and $21, respectively) 851 562 Accrued unbilled revenues 242 188 Other 259 88 Inventories Fuel and gas 343 193 Materials and supplies 162 142 Assets from risk management and trading activities 400 289 Deferred income taxes 47 Other all

3[I 2.826 1 RR?

2.826 165529 Investments Nuclear decommissioning trust funds 417 398 Other 615 615269R 667 1.032 1,032 667 Property Property, plant and equipment 17,067 13,162 Less accumulated depreciation and depletion ft; 77I;)

172I 175241

.q R4.3 7 qR7 Other Assets Goodwill 2,003 24 Regulatory assets 1,204 2,688 Securitized regulatory assets 1,692 Assets from risk management and trading activities 149 Other 779 238 5,827 2,950 Total Assets $ 19,228 $ 12,656 (See Notes to Consolidated Financial Statements.)

38 www.dteenergy.com Financial Statements

December 31 (in Millions, Except Shares) 2001 2000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 697 404 Accrued interest 118 59 Dividends payable 84 73 Accrued payroll 108 103 Short-term borrowings 681 503 Income taxes 54 116 Current portion long-term debt, including capital leases 516 297 Liabilities from risk management and trading activities 425 280 Other 495 212 3,178 2,047 Other Liabilities Deferred income taxes 1,478 1,801 Regulatory liabilities 187 3 Unamortized investment tax credit 180 167 Liabilities from risk management and trading activities 313 Other 1,375 590 3,533 2,561 Long-Term Debt Mortgage bonds, notes and other 5,892 3,894 Securitization bonds 1,673 Capital lease obligations 89 145 7,654 4,039 Commitments and Contingencies (Notes 1, 4, 5, 12-15)

Enterprises - Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding Solely Debentures of Enterprises 274 Shareholders' Equity Common stock, without par value, 400,000,000 shares authorized, 161,133,959 and 142,651,172 shares issued and outstanding, respectively 2,811 1,912 Retained earnings 1,846 2,097 Accumulated other comprehensive loss (68) 4,589 4,009 Total Liabilities and Shareholders' Equity $ 19,228 $ 12,656 (See Notes to Consolidated Financial Statements.)

DTE Energy 2001 Annual Report 39

DTE Energy Company Consolidated Statement of CASH FLOWS Year Ended December 31 (in Millions) 2001 2000 1999 Operating Activities Net Income $ 332 $ 468 $ 483 Adjustments to reconcile net income to net cash from operating activities:

Depreciation, depletion and amortization 766 758 735 Goodwill amortization 29 Merger and restructuring charges 215 Deferred income taxes (7) (133) 26 Changes in assets and liabilities:

Accounts receivable (2) (140) (93)

Inventories (76) 8 (6)

Prepaid pensions (14) 65 (51)

Payables (224) 196 19 Risk management and trading activities (80) 8 (16)

Other (128) (215) (13)

Net cash from operating activities 811 1,015 1,084 Investing Activities Plant and equipment expenditures (1,096) (749) (739)

Acquisition of MCN Energy, net of cash acquired (1,212) -

Proceeds from sale of assets 216 -

Restricted cash for debt redemptions (70) 43 (10)

Other investments (124) 32 37 Net cash used for investing activities (2,286) (674) (712)

Financing Activities Issuance of long-term debt 4,254 273 265 Redemption of long-term debt (1,423) (331) (548)

Short-term borrowings, net (282) 116 156 Capital lease obligations (107) (2) (43)

Repurchase of common stock (438) (70)

Dividends on common stock (325) (296) (299)

Net cash from (used for) financing activities 1,679 (310) (469)

Net Increase (Decrease) in Cash and Cash Equivalents 204 31 (97)

Cash and Cash Equivalents at Beginning of Period 64 33 130 Cash and Cash Equivalents at End of Period $ 268 $ 64 $ 33 Supplementary Cash Flow Information Interest paid (excluding interest capitalized) $ 409 $ 334 $ 340 Income taxes paid 45 104 152 Noncash Investing and Financing Activities Issuance of common stock for acquisition of MCN Energy 1,060 (See Notes to Consolidated Financial Statements.)

40 www.dteenergy.com Financial Statements

DTE Energy Company Consolidated Statement of CHANGES INSHAREHOLDERS' EQUITY Common Stock Retained Accumulated Other (Dollarsin Millions, Shares in Thousands) Shares Amount Earnings Comprehensive Loss Total Balance, December 31, 1998 145,071 $ 1,951 $ 1,747 $ - $ 3,698 Net income - - 483 - 483 Dividends declared on common stock - - (299) - (299)

Repurchase and retirement of common stock (30) (1) - - (1)

Unearned stock compensation - (7) - - (7)

Other - - 28 - 28 Balance, December 31, 1999 145,041 1,943 1,959 - 3,902 Net income - - 468 - 468 Dividends declared on common stock - - (294) - (294)

Repurchase and retirement of common stock (2,390) (32) (39) - (71)

Unearned stock compensation - 1 - - 1 Other - - 3 - 3 Balance, December, 31, 2000 142,651 1,912 2,097 - 4,009 Net income - - 332 - 332 Issuance of new shares 29,017 1,060 - - 1,060 Dividends declared on common stock - - (324) - (324)

Repurchase and retirement of common stock (10,534) (155) (270) - (425)

Unearned stock compensation - (6) - - (6)

Other - 11 - 11 Net change in unrealized losses on derivatives, net of tax (69) (69)

Net change in unrealized gain on investments, net of tax - - - 1 1 Balance, December31,2001 161,134 $ 2,811 $ 1,846 $ (68) $ 4,589 The Company did not have other comprehensive income (loss) in 2000 and 1999. The following table displays compre hensive income (loss) for 2001:

(in Millions) Total Net income $ 332 Other comprehensive income (loss), net of tax:

Net unrealized losses on derivatives:

Cumulative effect of a change in accounting principle, net of taxes of $24 (42)

Losses arising during the period, net of taxes of $29 (53)

Amounts reclassified to earnings, net of taxes of $14 26 (69)

Net unrealized gain on investments:

Change in unrealized gain, net of taxes 1 Total other comprehensive loss (68)

Comprehensive income $ 264 (See Notes to Consolidated Financial Statements.)

DTE Energy 2001 Annual Report 41

DTE Energy Company NOTES to Consolidated Financial Statements NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES accepted inthe United States of America. In connection Corporate Structure with their preparation, management makes estimates and DTE Energy Company (WTE Energy or the Company), a assumptions that affect the reported amounts of assets, Michigan corporation incorporated in 1995, is an exempt liabilities, revenues and expenses, and the disclosure of holding company under the Public Utility Holding Company contingent assets and liabilities. Actual results could differ from those estimates.

Act of 1935. The Company is the parent holding company of The Detroit Edison Company (Detroit Edison), the International The Company reclassified certain prior year balances to Transmission Company (ITC), DTE Enterprises Inc. (Enterprises), conform to the 2001 presentation.

and other subsidiaries engaged in energy trading, energy services and other energy-related businesses. Revenues Detroit Edison is a Michigan public utility engaged inthe Revenues from deliveries of electricity and the transportation generation, purchase, distribution and sale of electric energy and storage of natural gas are recognized as services are to 2.1 million customers in a 7,600-square-mile Southeastern provided. Detroit Edison and MichCon accrue revenues for Michigan service area and is regulated by the Michigan electric, gas and steam heating services provided but unbilled at month-end. Pursuant to a June 2000 MPSC order, Public Service Commission (MPSC).

Detroit Edison's rates are frozen for all classes of customers ITC is regulated by the Federal Energy Regulatory Commission through 2003. Through December 2001, MichCon's rates (FERC) for the transmission of electric energy. Effective included a component for cost of gas sold that was fixed at January 2001, the transmission assets of Detroit Edison were $2.95 per thousand cubic feet (Mcf). Effective January 2002, transferred to ITC, then a wholly owned subsidiary of Detroit MichCon implemented a gas cost recovery (GCR) mechanism Edison. In May 2001, Detroit Edison distributed 100% of the that will allow itto recover the prudent and reasonable cost shares of ITC to the Company. of gas sold through annual proceedings before the MPSC.

The Company's Wholesale Marketing &Trading segment On May 31, 2001, the Company completed the acquisition applies mark-to-market accounting with unrealized gains of MCN Energy Group Inc. (MCN Energy), now Enterprises, and losses recorded to earnings for commodity forwards, as further discussed in Note 2. Enterprises (an exempt financial derivatives and corresponding physical positions.

holding company under the Public Utility Holding Company Act of 1935) is a Michigan corporation primarily involved in Comprehensive Income natural gas production, gathering, processing, transmission, The Company complies with the provisions of Statement of storage, distribution and energy marketing. Enterprises' Financial Accounting Standards (SFAS) No. 130, "Reporting largest subsidiary, Michigan Consolidated Gas Company Comprehensive Income," which establishes standards for (MichCon), is a natural gas utility serving 1.2 million cus the reporting and display of comprehensive income. SFAS tomers in a 14,700-square-mile area in Michigan. MichCon No. 130 defines comprehensive income as the change in is regulated by the MPSC forthe distribution and intrastate common shareholders' equity during a period from transactions transportation of natural gas. and events from non-owner sources, including net income.

Principles of Consolidation Cash Equivalents and Restricted Cash The Company consolidates all majority owned subsidiaries. For purposes of the Consolidated Statement of Cash Flows, The Company accounts for non-majority owned investments, the Company considers investments purchased with a maturity including investments in limited liability companies, partner of three months or less to be cash equivalents. Cash ships and joint ventures, under the equity method when the required to be maintained for debt service requirements Company is able to influence the financial operating policies is classified as restricted cash.

of the investee. For all other investments, the Company applies the cost method. The Company eliminates all Inventories intercompany balances and transactions. Materials and supplies at Detroit Edison, MichCon and other subsidiaries are valued at average cost. Detroit Edison also Basis of Presentation values its fuel inventory at average cost.

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally Gas inventory at MichCon is determined using the last-in, first-out (LIFO) method. At December 31, 2001, the replacement 42 www.dteenergy.com Notes

cost of gas remaining in storage exceeded the $6.2 million Edison began accruing approximately $21 million on a LIFO cost by $90.9 million. During 2001, MichCon liquidated pro-rata basis over an 18-month period beginning in 2.1 billion cubic feet (Bcf) of prior years' LIFO layers at an November 2001 for the next scheduled refueling outage average cost of $0.39 per Mcf. MichCon's average gas pur in the spring of 2003.

chase rate in 2001 was $2.83 per Mcf higher than the aver Natural Gas and Oil Exploration and Production age LIFO liquidation rate. Applying LIFO cost invaluing the liquidation, as opposed to using the average purchase rate, The successful efforts method of accounting is followed for decreased 2001 cost of gas by $5.8 million and increased investments in oil and gas properties. Under the successful earnings by $3.8 million, net of taxes. efforts method, the Company capitalizes the costs of property acquisitions, successful exploratory wells, development costs, Inthe Wholesale Marketing & Trading segment, gas and support equipment and facilities. It expenses unsuccessful inventory is priced using the fair value method. exploratory wells when they are determined to be non productive. It also expenses production costs, overheads, Property, Retirement and Maintenance, and Depreciation and exploration costs other than exploratory drilling.

and Depletion Depreciation and depletion of proved oil and gas properties A summary of property by classification at December 31 are determined using the units-of-production method over is as follows: the life of the proved reserves.

(in Millions) 2001 2000 Property, Plant and Equipment Long-Lived Assets Electric Utility Long-lived assets held and used bythe Company are reviewed Electric Distribution $ 5,407 $ 5,163 for impairment whenever events or changes in circumstances Electric Generation 6,165 6,423 indicate that the carrying amount of an asset may not be Electric Transmission 802 772 recoverable. Ifthe carrying amount of the asset exceeds Total Electric Utility 12,374 12,358 2,963 the expected future cash flows expected to be generated Gas Utility Non-regulated and other 1,730 804 by the asset, an impairment loss is recognized, and the 17,067 13,162 asset is written down to its estimated fair value. Assets Less Accumulated Depreciation and Depletion to be disposed of are reported at the lower of the Electric Utility carrying amount or fair value less costs to sell.

Electric Distribution (2,062) (1,924)

Electric Generation (2,948) (3,346) Software Costs Electric Transmission (407) (389)

(5,417)

The Company capitalizes the cost of software Total Electric Utility (5,659)

Gas Utility (1,626) developed for internal use. These costs are amortized Non-regulated and other (481) (116) on a straight-line basis over a maximum period of five (7,524) (5,775) years, beginning with the project's completion.

Net Property, Plant and Equipment $ 9,543 $ 7,387 Deferred Debt Costs Property is stated at cost and includes construction-related The costs related to the issuance of long-term debt are labor and materials. Expenditures for maintenance and amortized over the life of each issue. In accordance with repairs are charged to expense as incurred, except for MPSC regulations applicable to Detroit Edison and MichCon, Fermi 2. The cost of properties retired plus removal costs, the unamortized discount premium and expense related to less salvage, at Detroit Edison and MichCon is charged to debt redeemed with a refinancing are amortized over the life of accumulated depreciation. the replacement issue. Discount premium and expense on early redemptions of debt are charged to earnings ifthey The Company bases depreciation provisions for utility relate to the generation business of Detroit Edison or other property at Detroit Edison and MichCon on straight-line non-regulated operations of the Company.

and units of production rates approved by the MPSC. The composite depreciation rate for Detroit Edison was 3.4% in Issuance of Stock by Equity Investees 2001 and 2000, and 3.3% in 1999. The composite depreciation The Company's policy is to recognize gains and losses for rate for MichCon was 3.9% in2001. the change in its proportionate share of an investee's equity resulting from additional equity raised by the investee. Plug Non-regulated property is depreciated over its estimated Power Inc. was founded in 1997 as a joint venture of the useful lives using straight-line, declining-balance and units Company and Mechanical Technology Incorporated to design of production methods.

and develop on-site electric power generation systems Detroit Edison accrues in advance the incremental costs, utilizing fuel cells. In October 1999, Plug Power completed including maintenance activities, that it anticipates incurring an initial public offering (IPO) of common stock at $15 per during the next scheduled Fermi 2 refueling outage. Detroit share. After the IPO, the Company owned approximately 32%

DTE Energy 2001 Annual Report 43

of Plug Power's outstanding common stock. Since Plug Power was amortized by the Company through December 2001 using is considered a development stage company, generally the straight-line method principally over 40 years. The accepted accounting principles require the Company to Company ceased the amortization of goodwill on January 1, record gains and losses from Plug Power stock issuances as 2002, and will perform an assessment to determine whether an adjustment to equity. As a result of Plug Power's IPO, the goodwill is impaired. The Company will have a transition Company recorded an increase of $44 million in its investment period from January 1,2002 to June 30, 2002 to assess the and an after-tax increase of $28 million to equity in 1999. In fair value of each reporting unit and determine if goodwill July 2001, Plug Power completed another public offering of has been impaired. The Company has not yet determined the common stock at $12 per share. After this public offering, impact of the adoption of SFAS No. 142 on the consolidated the Company owned approximately 28% of Plug Power's financial statements. The Company recorded approximately outstanding common stock and recorded an increase of $29 million of goodwill amortization in2001.

$17 million in its investment and an after-tax increase of

$11 million to equity. Asset Retirement Obligations - In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations."

Recently Issued Accounting Pronouncements This statement requires thatthe fair value of an asset retirement Derivatives - Effective January 1, 2001, the Company adopted obligation be recognized in the period inwhich it is incurred.

SFAS No. 133, "Accounting for Derivative Instruments and The associated asset retirement costs would be capitalized Hedging Activities," as amended. SFAS No. 133 establishes as part of the carrying amount of the long-lived asset. Itwould accounting and reporting standards for derivative instruments, apply to legal obligations associated with the retirement of including certain derivative instruments embedded in other long-lived assets that result from the acquisition, construction, contracts, and for hedging activities. SFAS No. 133 requires development and (or) the normal operation of a long-lived that companies recognize all derivatives as either assets or asset. This statement is effective for financial statements liabilities measured atfair value on the statement of financial issued for fiscal years beginning after June 15, 2002. The position. SFAS No. 133 provides an exception for certain Company has not yet determined the impact of this statement contracts that qualify as "normal purchases and sales." To on the consolidated financial statements.

qualify for this exception, certain criteria must be met, including that it must be probable that the contract will result Long-Lived Assets - InAugust 2001, the FASB issued SFAS in physical delivery. No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets." This statement supersedes SFAS No. 121, See Note 13 - Financial and Other Derivative Instruments "Accounting for the Impairment of Long-Lived Assets and herein for additional information. for Long-Lived Assets to Be Disposed Of." This statement establishes a single accounting model for long-lived assets Business Combinations, Goodwill and Intangible Assets to be disposed of by sale, whether previously held and used, In June 2001, the Financial Accounting Standards Board or newly acquired. This statement is effective for financial (FASB) issued SFAS No. 141, "Business Combinations," statements issued for fiscal years beginning after December and No. 142, "Goodwill and Other Intangible Assets." 15, 2001. The Company adopted this statement on January 1, 2002, with no impact on the consolidated financial statements.

The most significant changes made by SFAS No. 141 are:

1) requiring that the purchase method of accounting be Other used for all business combinations initiated after June 30, For significant accounting policies regarding regulatory 2001; and 2) establishing specific criteria for the recognition matters, see Note 4; income taxes, see Note 7; financial of intangible assets separately from goodwill.

and other derivative instruments, see Note 13; retirement SFAS No. 142 primarily addresses the accounting for acquired benefits and trusteed assets, see Note 15; and stock-based goodwill and intangible assets. The most significant changes compensation, see Note 16.

made by SFAS No. 142 are: 1) amortization of goodwill will cease, and goodwill and indefinite-lived intangible assets NOTE 2- MCN ENERGY ACQUISITION will be tested for impairment at least annually; and 2) the amortization period of intangible assets with finite lives will On May 31, 2001, the Company completed the acquisition continue to be amortized over their useful lives, but will no of MCN Energy by acquiring all of its outstanding shares of longer be limited to 40 years. common stock for a combination of cash and shares of the Company's common stock. See Note 8 - Common Stock and The Company adopted SFAS No. 141, beginning July 1, 2001, Earnings per Share herein for additional information. The and adopted SFAS No. 142, effective January 1, 2002. Company purchased the outstanding common stock These standards only permit prospective application of the of MCN Energy for $2.3 billion and assumed existing MCN new accounting; accordingly, their adoption will not affect Energy debt and preferred securities of $1.5 billion.

previously reported Company financial information. Goodwill 44 www.dteenergy.com Notes

The Company accounted for the acquisition using the purchase NOTE 3- MERGER AND RESTRUCTURING CHARGES method. The allocation of the purchase price included inthe consolidated statement of financial position is preliminary On May 31, 2001, the Company completed the acquisition of and may be revised up to one year from the date of acquisition MCN Energy. The Company incurred merger-related charges due to adjustments inthe estimated fair value of the assets and restructuring charges associated with the acquisition. The acquired and liabilities assumed, and refinements of man merger-related charges of $27 million ($18 million after tax) in agement's plans to divest of certain assets acquired. The 2001 and $25 million ($16 million after tax) in2000, consisted Company does not expect that additional revisions to the primarily of system integration, relocation, legal, accounting allocation of the purchase price in 2002 will be material. and consulting costs. Restructuring charges of $241 million The excess purchase price over the fair value of net assets ($157 million after tax) in 2001, were primarily associated with acquired totaled approximately $2 billion and was classified a workforce reduction plan. The plan included early retirement as goodwill. The Company began amortizing goodwill on incentives along with voluntary separation arrangements for June 1, 2001, on a straight-line basis using a 40-year life. 1,186 employees, primarily in overlapping corporate support In accordance with the adoption of SFAS No. 142, "Good functions. The merger and restructuring costs had the effect of will and Other Intangible Assets," on January 1,2002, the decreasing earnings by $268 million ($175 million after tax) and amortization of goodwill ceased, and it will be tested for $25 million ($16 million after tax) in 2001 and 2000, respectively.

impairment on an annual basis. Approximately $53 million of the merger and restructuring charges have been paid as of December 31, 2001, including The following unaudited pro forma summary presents approximately $20 million of benefits, and it is anticipated that information for the Company as ifthe acquisition became the remaining benefits of $215 million have been or will be paid effective at the beginning of the respective periods. The pro from retirement plans.

forma amounts include the impact of certain adjustments, such as acquiring the operations of MCN Energy and issuing NOTE 4 - REGULATORY MATTERS

$1.35 billion of debt and 29 million shares of common stock to finance the acquisition. The pro forma amounts do not reflect Regulation any benefits from synergies that the Company expects to achieve Detroit Edison and MichCon are subject to the from combining operations, do not reflect the actual results regulatory jurisdiction of the MPSC, which issues that would have occurred had the companies been combined orders pertaining to rates, recovery of certain for the periods presented, and are not necessarily indicative costs, including the costs of generating facilities of future results of operations of the combined companies. and regulatory assets, conditions of service, accounting and operating-related matters.

Pro Forma Year Ended December 31 Detroit Edison's electric distribution operations, (in Millions, except per shareamounts) 2001 2000 MichCon's gas distribution and transportation opera Operating revenues $ 9,393 $ 8,388 tions, and the transmission operations of ITC meet the Income before accounting change $ 534 $ 426 criteria of SFAS No. 71, "Accounting for the Effects of Certain Net income $ 537 $ 426 Basic earnings per share: Types of Regulation." This accounting standard recognizes Before accounting change $ 3.23 $ 2.48 the cost-based ratemaking process, which results in differ Total $ 3.25 $ 2.48 ences inthe application of generally accepted accounting Diluted earnings per share: principles between regulated and non-regulated businesses.

Before accounting change $ 3.21 $ 2.48 Total $ 3.23 $ 2.48 SFAS No. 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been The following table summarizes the estimated fair values of the treated as revenue and expense in non-regulated businesses.

assets acquired and liabilities assumed at the date of acquisition: Regulatory assets represent costs that will be recovered from (in Millions) At May 31, 2001 customers through the ratemaking process. Regulatory liabili Current assets, net of cash acquired $ 859 ties represent benefits that will be refunded to customers Investments 154 through reduced rates. Continued applicability of SFAS No. 71 Property, plant and equipment, net 1,648 Other assets 1,218 requires that rates be designed to recover specific costs of Assets held for sale 257 providing regulated services and be charged to and collected Goodwill 1,997 from customers. Management believes that currently avail Total assets acquired 6,133 able facts supportthe continued application of SFAS No. 71 Current liabilities (1,496) to these businesses. Future regulatory changes or changes Other liabilities (1,153) inthe competitive environment could result inthe Company Preferred securities (274) discontinuing the application of SFAS No. 71 for some or all Long-term debt (938)

(3,861) of its businesses and require the write-off of the portion of Total liabilities assumed any regulatory asset or liability that was no longer probable Net assets acquired $ 2,272 of recovery through rates or refund.

DTE Energy 2001 Annual Report 45

Regulatory Assets and Liabilities The legislation also contains provisions preventing rate The Company recorded the following regulatory assets increases for residential customers through 2005, for small and liabilities at December 31: business customers through 2004, and remaining business customers through 2003. Certain costs may be deferred after (in Millions) 2001 2000 2003 and during the period that rates are frozen. This rate cap Assets Unamortized nuclear costs may be lifted when certain market test provisions are met,

$ - $ 2,328 Securitized regulatory assets 1,692 specifically, an electric utility has no more than 30% of Recoverable income taxes related generation capacity in its relevant market, with considera to securitized regulatory assets 928 tion for capacity needed to meet a utility's responsibility to Other recoverable income taxes 120 196 serve its customers. Statewide, multi-utility transmission Unamortized loss on reacquired debt 37 82 system improvements also are required. Detroit Edison Electric Choice implementation costs 53 57 expects that these market and transmission improvement Deferred environmental costs 29 Accrued GCR revenues 17 conditions will be met, and the rate cap will not continue Other 20 25 after the dates specified in the legislation.

Total Assets $ 2,896 $ 2,688 In several orders issued in June 2000, the MPSC determined Liabilities that adjusting rates for changes in fuel and purchased Refundable income taxes $ 144 $ 2 power expenses through continuance of the power supply Other 43 1 cost recovery (PSCR) clause would be inconsistent with the Total Liabilities $ 187 $ 3 rate freeze. Detroit Edison was not permitted to collectthe 1998 PSCR under-recovery of $9 million, plus accrued interest Electric Industry Restructuring of $3 million. Also, Detroit Edison was not required to refund MPSC orders issued in 1997 and 1998 altered the regulatory approximately $55 million of liabilities for over-recoveries of process in Michigan and provided a plan for transition to PSCR expenses for 1999 and 2000, and disallowances under competition for the generation business of Detroit Edison. the Fermi 2 performance standard mechanism. In January Therefore, effective December 31, 1998, Detroit Edison's 2002, the Michigan Court of Appeals rejected appeals filed generation business no longer met the criteria of SFAS No. 71. by parties opposing the MPSC's actions inthis proceeding.

Also, atthattimethe 1,150 megawatt (MW) Fermi 2 nuclear generating plant was determined to be impaired. Since a In October 2000, the MPSC initiated a case to determine the December 1998 MPSC order provided for full recovery of methodology of calculating net stranded costs as required Fermi 2 through the regulated transmission and distribution by PA 141. As a result of an MPSC order in December 2001, businesses, a regulatory asset was established representing Detroit Edison would recover the net stranded costs associ the net book value of Fermi 2 and related assets. ated with its electric generation operations. Specifically, there would be an annual filing with the MPSC comparing Michigan Legislation - In June 2000, Public Act 141 (PA 141) actual revenues from the generation services to the revenue became effective. PA 141 provided Detroit Edison with the right requirements, including an allowance for the cost of capital, to recover stranded costs, codified and established January to recover the costs of generation operations. The MPSC, in 1, 2002 as the date for full implementation of the MPSC's its orders, determined that Detroit Edison had no stranded existing Electric Choice Program, and required the MPSC to costs using 2000 data, established a zero 2002 transition reduce residential electric rates by 5%. At that time, Public charge and deferred the issues of refining the net stranded Act 142 (PA 142) also became effective. PA 142 provided for costs methodology and the recalculating of net stranded the recovery through securitization of "qualified costs" which costs to 2002. The MPSC also determined that Detroit Edison consist of an electric utility's regulatory assets, plus various should provide a full and offsetting credit for the securitization costs associated with, or resulting from, the establishment and tax charges applied to Electric Choice bills in 2002.

of a competitive electric market and the issuance of In addition, the MPSC ordered an additional credit on securitization bonds. Electric Choice bills equivalent to the 5% rate reduction benefiting full service customers funded by savings Acting pursuant to PA 141, in an order issued in June 2000, derived from securitization. The provisions of this order the MPSC reduced Detroit Edison's residential electric rates will likely encourage additional customer participation in by 5% and imposed a rate freeze for all classes of customers the Electric Choice Program and result inthe loss of margins through 2003. In April 2001, commercial and industrial from providing generation services. Detroit Edison has rates were lowered by 5% as a result of savings derived asked for rehearing and clarification on certain aspects from the issuance of securitization bonds in March 2001, as of the order and has requested that the MPSC initiate an subsequently discussed.

expedited proceeding to implement those clarifications and interpretations.

46 www.dteenergy.com Notes

In June 2001, pursuant to PA 141, Detroit Edison filed with Funds collected by Detroit Edison, acting inthe capacity of a the MPSC an application outlining a proposal to unbundle its servicer for the Securitization LLC, are remitted to the trustee existing rates. Detroit Edison's initial proposal did not unbundle for the Securitization Bonds. Neither the securitization property all tariffs but instead included a bill message stating the nor funds collected from Detroit Edison's customers for amount of distribution charges a customer would incur under the payment of costs related to the Securitization LLC and Electric Choice. A December 2001 MPSC order found that Securitization Bonds are available to Detroit Edison's creditors.

the June 2001 filing did not meet the requirements of PA 141 Transmission Business - Effective January 2001, the and ordered Detroit Edison to make a new filing. In February 2002, Detroit Edison made a filing that unbundled existing transmission assets owned by Detroit Edison were transferred rates using updated cost data. Detroit Edison is unable to to a wholly owned subsidiary, ITC. In May 2001, Detroit Edison distributed 100% of the shares of ITC to the Company. Detroit determine the timing or outcome of this proceeding.

Edison continues to bill and collect transmission revenues In another December 2001 order, the MPSC finalized the as currently authorized in its bundled rates approved by the prices, terms and conditions contained in the Retail Access MPSC. ITC provides transmission services to customers of Service Tariff (RAST) that will likely encourage additional Detroit Edison and other non-affiliated customers. In August customer participation in the Electric Choice Program. The 2001, ITC filed with the FERC to join the Midwest Independent implementation of the order will result in increased expenses System Operator (MISO) and withdrew from the Alliance associated with implementing Electric Choice, including Regional Transmission Organization. In September 2001, meter installation, meter reading and computer system ITC filed to suspend the effective date of its transmission enhancements. Detroit Edison has asked for rehearing rates approved by the FERC in 2000, due to the filing of a and clarification on certain aspects of the order. rate structure bythe MISO.

Securitization - In an order issued in November 2000 and Gas Industry Restructuring clarified in January 2001, the MPSC approved the issuance Regulatory Reform Plan -Through December 2001, of securitization bonds to recover qualified costs that include MichCon was operating under an MPSC-approved the unamortized investment in Fermi 2, costs of certain other Regulatory Reform Plan which included a comprehen regulatory assets, Electric Choice implementation costs, sive experimental three-year Gas Choice Program, a costs of issuing securitization bonds, and the costs of retiring Gas Sales Program and an income sharing mechanism.

securities with the proceeds of securitization. The Gas Choice Program allowed a limited number of customers to purchase gas from suppliers other Detroit Edison formed The Detroit Edison Securitization Funding than MichCon. The Gas Sales Program suspended LLC (Securitization LILC), a wholly owned subsidiary, for the the GCR mechanism for customers who continue purpose of securitizing its qualified costs. In March 2001, the to purchase gas from MichCon, and fixed the gas Securitization LLC issued $1.75 billion of Securitization Bonds, commodity component of MichCon's sales rates at and Detroit Edison sold $1.75 billion of qualified costs to the $2.95 per Mcf. The income sharing mechanism allowed Securitization LLC. The Securitization Bonds mature over a period of up to 15 years and have an average interest rate customers to share in profits when actual returns on equity I--%Q from utility operations exceed predetermined thresholds.

of 6.1%. Detroit Edison used the proceeds to retire debt and Based on the MPSC approved formula, the Company equity in approximately equal amounts. The Company like believes that no income sharing is required in 2001.

wise retired approximately 50% debt and 50% equity with the proceeds received as the sole shareholder of Detroit Edison. Regulatory Changes - MichCon returned to the GCR Detroit Edison implemented a non-bypassable surcharge on mechanism in January 2002 when the Gas Sales Program its customer bills, effective March 26, 2001, for the purpose expired. Under the GCR mechanism, the gas commodity of collecting amounts sufficient to provide for the payment of component of MichCon's gas sales rates will be based on interest and principal and the payment of income taxes on market prices and setthrough the GCR process. In December the additional revenue from the surcharge. As a result of 2001, the MPSC issued an order that permitted MichCon to securitization, Detroit Edison established a regulatory asset implement GCR factors of up to $3.62 per Mcf for January for securitized costs including costs that had previously 2002 billings and up to $4.38 per Mcf for the remainder of been recorded in other regulatory asset accounts. 2002. The order also allowed MichCon to recognize a regulatory asset of approximately $14 million representing The Securitization LLC is independent of Detroit Edison, as is the difference between the $4.38 factor and the $3.62 factor its ownership of the securitization property. Due to principles for volumes that were unbilled at December 31, 2001.

of consolidation, qualified costs sold by Detroit Edison to the The regulatory asset will be subject to the 2002 GCR Securitization LLC and the $1.75 billion of securitization bonds reconciliation process.

appear on the Company's consolidated statement of financial position. The Company makes no claim to these assets.

Ownership of such assets has vested inthe Securitization LLC and been assigned to the trustee for the Securitization Bonds.

OTE Energy 2001 Annual Report 47

In December 2001, the MPSC also approved MichCon's Insurance application for a voluntary, expanded permanent Gas Choice Detroit Edison insures Fermi 2 with property damage insurance Program which would replace the experimental program provided by Nuclear Electric Insurance Limited (NEIL). The that expires in March 2002. Effective April 2002, up to approx NEIL insurance policies provide $500 million of primary imately 40% of MichCon's customers could elect to purchase coverage (with a $1 million deductible) and $2.25 billion of gas from suppliers other than MichCon. Effective April 2003, excess coverage for stabilization, decontamination and up to approximately 60% of customers would be eligible debris removal costs, repair and/or replacement of property and by April 2004, all of MichCon's 1.2 million customers can and decommissioning. The combined limits provide total participate in the program. The MPSC also approved the use property damage insurance of $2.75 billion.

of deferred accounting for the recovery of implementation costs of the Gas Choice Program. Detroit Edison maintains an insurance policy with NEIL providing for extra expenses, including certain replacement Other power costs necessitated by Fermi 2's unavailability due to In accordance with a November 1997 MPSC order, Detroit an insured event. These policies have a 12-week waiting Edison reduced rates by $53 million annually to reflect the period and provide for three years of coverage.

scheduled reduction inthe revenue requirement for Fermi 2.

The $53 million reduction was effective in January 1999. Terrorism coverage under the NEIL policies has been modified In addition, the November 1997 MPSC order authorized for multiple terrorism losses occurring within one year after the deferral of $30 million of storm damage costs and the first loss from terrorism. NEIL would make available to amortization and recovery of the costs over a 24-month all insured entities up to $3.2 billion and any amounts it period commencing January 1998. After various legal appeals, recovers from reinsurance, government indemnity or other the Michigan Court of Appeals remanded back to the MPSC sources for such losses.

for hearing the November 1997 order. In December 2000, the MPSC issued an order reopening the case for hearing. Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to approximately $27 million The parties inthe case have agreed to a stipulation of per event ifthe loss associated with any one event should fact and waiver of hearing. In February 2002, a MPSC administrative law judge issued a proposal for decision exceed the accumulated funds available to NEIL.

that supports Detroit Edison's actions in this matter. As required by federal law, Detroit Edison maintains $200 million A final order is expected in 2002. of public liability insurance for a nuclear incident For liabilities arising out of terrorist acts, the policy is now subject to one The Company is unable to predict the outcome of the regulatory matters discussed herein. Resolution of these industry aggregate limit of $200 million. Further, under the matters is dependent upon future MPSC orders, which Price-Anderson Amendments Act of 1988 (Act), deferred premium charges up to $84 million could be levied against may impact the financial position and results of operations each licensed nuclear facility, but not more than $10 million of the Company.

per year per facility. Thus, deferred premium charges could be levied against all owners of licensed nuclear facilities in NOTE 5 - FERMI 2 the event of a nuclear incident at any of these facilities. The Act will expire on August 1, 2002. It is unknown whether this General statute will be renewed or modified.

Fermi 2, a nuclear generating unit began commercial operation in January 1988. The Nuclear Regulatory Decommissioning Commission (NRC) maintains jurisdiction over the licensing The NRC has jurisdiction over the decommissioning of nuclear and operation of Fermi 2. Fermi 2 has a design electrical power plants and requires decommissioning funding based rating (net) of 1,150 MW. This unit represents approximately upon a formula. The MPSC and FERC regulate the recovery 10% of Detroit Edison's summer net rated capability. The of costs of decommissioning nuclear power plants and net book balance of the Fermi 2 plant was written off at both require the use of external trust funds to finance the December 31, 1998, and an equivalent regulatory asset decommissioning of Fermi 2. Rates approved by the MPSC was established. In 2001, the Fermi 2 regulatory asset provide for the decommissioning costs of Fermi 2. Detroit was securitized. See Note 4- Regulatory Matters. Edison is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are Ownership of an operating nuclear generating unit subjects not included in FERC rates. The Company believes that the Detroit Edison to significant additional risks. Fermi 2 is regulated MPSC and FERC collections will be adequate to fund the by a number of different governmental agencies concerned estimated cost of decommissioning using the NRC formula.

with public health, safety and environmental protection.

Detroit Edison has established external trust funds to hold decommissioning and low-level radioactive waste disposal funds collected from customers. During 2001, 2000 and 48 www.dteenergy.com Notes

1999, Detroit Edison collected $38 million in each year from Belle River customers for decommissioning and low-level radioactive The Michigan Public Power Agency (MPPA) has an ownership waste disposal. Such amounts were recorded as components interest in Belle River Unit No. 1 and certain other related of depreciation, depletion and amortization expense, and facilities. MPPA is entitled to 18.61% of the capacity and in other liabilities. Net unrealized losses of $23 million and energy of the entire plant (1,026 MW) and is responsible

$18 million in 2001 and 2000, respectively, were recorded for the same percentage of the plant's operation and as adjustments to the nuclear decommissioning trust funds maintenance expenses and capital improvements.

and other liabilities. At December 31, 2001, investments in the external trust funds consisted of approximately 50.7% Ludington Pumped Storage in publicly traded equity securities, 46.1% in fixed debt Operation, maintenance and other expenses of the Ludington instruments and 3.2% in cash equivalents. Investments in Pumped Storage Plant (1,872 MW) are shared by Detroit debt and equity securities held within the external trust Edison and Consumers Energy Company in proportion to funds are classified as "available for sale." their respective ownership interests in the plant.

At December 31,2001 and 2000, Detroit Edison had reserves of $373 million and $351 million for the future NOTE 7 - INCOME TAXES decommissioning of Fermi 2, and $29 million and $32 million DTE Energy files a consolidated federal income tax return.

for the decommissioning of Fermi 1, a nuclear unit that has been shut down since 1972, respectively. Detroit Edison also Total income tax expense as a percent of income before had a reserve of $15 million for low-level radioactive waste tax varied from the statutory federal income tax rate for disposal costs at December 31, 2001 and 2000. These reserves the following reasons:

are included in other liabilities, with an equivalent amount 2001 2000 1999 deposited in external trust funds. It is estimated that the cost Statutory income tax rate 35.0% 35.0% 35.0%

of decommissioning Fermi 2, when its license expires in 2025, Alternate fuels credit (75.3) (27.1) (21.3)

Removal costs 0.2 (5.0) (2.3) will be $913 million in2001 dollars and $3.5 billion in 2025 dollars, (3.6) (2.2) (1.9)

Investment tax credit using a 6% inflation rate. In 2001, the Company began the Depreciation (5.7) 2.3 1.5 decommissioning of Fermi 1, with the goal of removing the Goodwill amortization 4.7 -

radioactive material and terminating the Fermi 1 license. Research expenditures tax credit (3.0) -

ESOP (1.9) -

The decommissioning is expected to be completed by 2007. Other-net (0.7) (1.1) 0.1 Effective income tax rate (50.3)% 1.9% 11.1%

Nuclear Fuel Disposal Costs In accordance with the Federal Nuclear Waste Policy Act of Components of income tax expense (benefit) 1982, Detroit Edison has a contract with the U.S. Department were as follows:

of Energy (DOE) for the future storage and disposal of spent (inMillions) 2001 2000 1999 nuclear fuel from Fermi 2. Detroit Edison is obligated to pay Current federal and other the DOE a fee of one mill per net kilowatthour of Fermi 2 income tax expense $ 176 $ 268 $ 260 electricity generated and sold. The fee is a component of Deferred federal income tax nuclear fuel expense. Delays have occurred in the DOE's benefit (113) (118) (73)

Alternate fuels credit (165) (130) (116) program for the acceptance and disposal of spent nuclear Investment tax credit (8) (11) 011) fuel at a permanent repository. Until the DOE is able to fulfill Total $ (110) $ 9 $ 60 its obligation under the contract, Detroit Edison is responsible for the spent nuclear fuel storage. Detroit Edison estimates Internal Revenue Code Section 29 provides a tax credit that existing storage capacity will be sufficient until 2007. (alternate fuels credit) for qualified fuels produced and sold by a taxpayer to an unrelated party during the taxable NOTE 6 - JOINTLY OWNED UTILITY PLANT year. Alternate fuels credits earned but not utilized of

$274 million are carried forward indefinitely as alternative Detroit Edison's portion of jointly owned utility plant at minimum tax credits.

December 31, 2001 is as follows:

At December 31, 2001, the Company had a net operating Ludington loss carryforward of $424 million expiring in 2019 and 2020.

Belle Pumped River Storage The Company does not believe that a valuation allowance In-service date 1984-1985 1973 is required, as it expects to utilize these losses prior to Ownership interest

• 49% their expiration.

Investment (millions) $ 1,031 $ 194 Accumulated depreciation (millions) $ 461 $ 102

• Detroit Edison's ownership interest is 62.78% in Unit No. 1,81.39% of the portion of the facilities applicable to Belle River used jointly by the Belle River and St. Clair Power Plants, 49.59% in certain transmission lines and, at December 31, 2001, 75% infacilities used in common with Unit No. 2. DTE Energy 2001 Annual Report 49

Deferred tax assets and liabilities are recognized for Long-Term Incentive Plan adopted in 1995. The number the estimated future tax effect of temporary differences of non-vested stock awards is included inthe number of between the tax basis of assets or liabilities and the common shares outstanding; however, for purposes of reported amounts inthe financial statements. Deferred computing basic earnings per share, non-vested stock tax assets and liabilities are classified as current or awards are excluded.

noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not Shareholders' Rights Plan related to assets or liabilities are classified according to The Company has a Shareholders' Rights Plan that is designed the expected reversal date of-the temporary differences. to maximize shareholders' value in the event the Company is acquired. The rights are attached to and trade with shares Deferred income tax assets (liabilities) were comprised of the Company's common stock until they are exercisable of the following at December 31: upon certain triggering events. The rights will expire in 2007.

(in Millions) 2001 2000 Earnings per Share Property $ (1,341) $ (1,212)

Securitized regulatory assets (909) The Company reports both basic and diluted earnings per Unamortized nuclear costs - (822) share. Basic earnings per share is computed by dividing Alternative minimum tax credit carryforward 274 125 income available to common stockholders by the weighted Property taxes (83) (68) average number of common shares outstanding during the Investment tax credit 90 90 period. Diluted earnings per share assumes the issuance of Contributions in aid of construction 102 90 potentially dilutive common shares outstanding during the Merger basis differences 213 Net operating loss 148 period and the repurchase of common shares that would Other 75 (66) have occurred with proceeds from the assumed issuance.

$ (1,431) $ (1,863) These include the assumed exercise of stock options, vesting of non-vested stock awards, and issuance of performance Deferred income tax liabilities $ (2,479) $ (2,414)

Deferred income tax assets 1,048 share awards. A reconciliation of both calculations is 551

$ (1,431) $ (1,863) presented inthe table below.

Options to purchase approximately 2.34 million shares of The federal income tax returns of the Company are common stock at an average price of $43.86 per share were settled through 1992. outstanding during 2001. These securities were not included inthe computation of diluted EPS because the options' exer NOTE 8 - COMMON STOCK AND EARNINGS cise price was greater than the average market price of the PER SHARE common shares, thus making these securities anti-dilutive.

(inThousands, Common Stock except per share amounts) 2001 2000 1999 On May 31, 2001, the Company issued approximately Basic Earnings per Share 29 million shares of common stock, valued at $1.06 billion, Income before accounting change $ 328,745 $ 468,550 $ 482,653 as part of the consideration to purchase all of the out Average number of common standing shares of MCN Energy common stock. See shares outstanding 153,120 143,116 145,047 Note 2 - MCN Energy Acquisition. The newly issued Earnings per share of common stock based on shares were valued at the average market price of the average number of Company's common stock for a period of five days, including shares outstanding $ 2.15 $ 3.27 $ 3.33 February 28, 2001, which was the date the Company and Diluted Earnings per Share MCN Energy announced the revised merger agreement. Income before accounting change $ 328,745 $ 468,550 $ 482,653 During 2001, the Company repurchased approximately 10.5 million Average number of common shares of common stock at an aggregate cost of approximately shares outstanding 153,120 143,116 145,047 Incremental shares from

$438 million. In 2000, the Company repurchased approximately stock-based awards 639 149 89 2.3 million shares of common stock at an aggregate cost of Average number of dilutive approximately $70 million. shares outstanding 153,759 143,265 145,136 Earnings per share of The Company records unearned compensation as a reduction common stock assuming in common stock. The unearned compensation represents issuance of incremental shares $ 2.14 $ 3.27 $ 3.33 the value of non-vested stock awards granted under the DTE Energy Company 2001 Stock Incentive Plan and the 50 www.dteenergy.com Notes

NOTE 9 - PREFERRED SECURITIES Financing costs for these issuances were deferred and are reflected as a reduction inthe carrying value of the DTE Energy and Enterprises-Obligated Mandatorily preferred securities. These costs are being amortized using Redeemable Preferred Securities of Subsidiaries the straight-line method over the estimated lives of the DTE Energy has established a trust, and Enterprises has related securities.

established various trusts and a partnership, each formed for In January 2002, DTE Energy Trust I, a wholly owned trust the sole purpose of issuing preferred securities and lending of the Company, issued $180 million of 7.8% Trust Preferred the gross proceeds thereof to their respective parent. The Securities with a liquidation value of $25 per share. The sole assets of the trusts and partnership are debentures of maturity date of the underlying security is February 2032.

the parentwith terms similar to those of the related preferred The earliest date the securities can be redeemed is February securities. Summarized information for mandatorily 2007. The proceeds were used to redeem the 8-5/8% Trust redeemable preferred securities of subsidiaries holding Originated Preferred Securities and the 9-3/8% Redeemable solely debentures of the parent is as follows: Cumulative Preferred Securities in February 2002.

Liquidation Maturity of Earliest (in Millions,except Dec. 31, Value Underlying Redemption Preferred and Preference Securities - Authorized pershare amounts) 2W01 Per Share Security Date and Unissued MCN Financing I 8-5/8% Trust Originated At December 31, 2001, the Company had 5 million shares of Preferred Securities $ 77 $ 25 2036 2001 preferred stock without par value authorized, with no shares (3,200,000 preferred securities)

Dividends payable quarterly issued. Of such amount, 1.6 million shares were reserved for issuance in accordance with the Shareholders' Rights Plan.

MCN Financing II 8-5/8% Trust Preferred Securities 98 25 2038 2003 At December 31,2001, Detroit Edison had 6.75 million shares (4,000,000 preferred securities) of preferred stock with a par value of $100 per share and Dividends payable quarterly 30 million shares of preference stock with a par value MCN Michigan Ltd. Partnership of $1 per share authorized, with no shares issued.

9-3/8% Redeemable Cumulative Preferred 25 202 1999 At December 31, 2001, Enterp rises had 25 million shares Securities 97 of preferred stock without par value authorized, with (4,000,000 preferred securifies)

Dividends payable monthly no shares issued.

MCN Financing IlI 7.25% Preferred Securities 2 50 2002 2002 At December 31, 2001, MichCon had 7 million shares (30,600 preferred securities) of preferred stock with a par value of $1 per share and Oividends navable auarterlv 4 million shares of preference stock with a par value of

$2 274

$1 per share authorized, with no shares issued.

The preferred securities carry similar provisions relating to their respective parent as described below.

The preferred securities allow the parentthe right to extend interest payment periods on the debentures and, as a consequence, dividend payments on the preferred securities can be deferred by the trusts and partnership during any such interest payment period. In the event that the parent exercises this right, the parent may not declare dividends on its common stock.

Inthe event of default, holders of the preferred securities will be entitled to exercise and enforce the trusts' and partner ship's creditor rights against the parent, which may include acceleration of the principal amount due on the debentures.

The Company and Enterprises have issued guaranties with respect to payments on the preferred securities. These guaranties, when taken together with the parent's obligations under the debentures, the related indenture, and the trusts and partnership documents, provide full and unconditional guaranties of the trusts' and partnership's obligations under the preferred securities.

DTE Energy 2001 Annual Report 51

NOTE 10 - LONG-TERM DEBT during the deferral period. Ifthis right is exercised, Detroit Edison may not declare or pay dividends on, or redeem, The Company's long-term debt outstanding and purchase or acquire, any of its capital stock during the weighted average interest rates of debt ouitstanding deferral period.

at December 31 were:

At December 31, 2001, $856 million of notes were subject to (in Millions) 2001 2000 periodic remarketings. Remarketing agents remarket these Mortgage Bonds 7.5% due 2001 to 2023 $ 1,073 $ 1,564 securities at the lowest interest rate necessary to produce a par bid. Inthe event that a remarketing fails, Standby Note Remarketed Notes Purchase Agreements and/or Letters of Credit are in place Secured 6.1% due 2034 to 2038 for a portion of the notes that provide that banks will purchase Unsecured 253 410 the securities and, after the conclusion of all necessary 6.7% due 2002 to 2038 603 400 proceedings, remarket the bonds. In the eventthe banks' obligations under the Standby Note Purchase Agreements Tax Exempt Revenue Bonds and/or Letters of Credit are not honored, then the Company Secured Installment Sales Contracts would be required to purchase any securities subject to a 6.6% due 2004 to 2024 125 125 failed remarketing.

Loan Agreements 5.8% due 2008 to 2030 882 882 The Company financed the cash consideration of the acquisition Unsecured of MCN Energy through the issuance of $1.35 billion of debt Installment Sales Contracts in May 2001. The Company issued three series of senior notes 6.4% due 2004 24 24 with differing maturities ranging from three to 10 years in the Loan Agreements following denominations: (i)$250 million of 6.00% senior notes 4.8% due 2024 to 2030 113 113 due 2004; (ii) $500 million of 6.45% senior notes due 2006; and Senior Notes (iii) $600 million of 7.05% senior notes due 2011. Interest is Secured payable on a semi-annual basis beginning December 1, 2001.

6.2% due 2005 to 2039 1,007 Unsecured Detroit Edison formed the Securitization LLC, a wholly owned 6.3% due 2002 to 2011 1,557 subsidiary, for the purpose of securitizing its stranded costs.

Quarterly Income Debt Securities (QUIDS) In March 2001, the Securitization LLC issued $1.75 billion of 7.5% due 2026 to 2028 385 385 Securitization Bonds, Series 2001-1, and Detroit Edison sold Non-Recourse Debt $1.75 billion of qualified costs to the Securitization LLC.

7.7% due 2001 to 2017 196 247 During the year ended December 31, 2001, Detroit Edison used proceeds from securitization along with other Other Long-Term Debt 103 - refinancings to redeem $1.3 billion in debt, of which 6,321 4,150 $1.1 billion represented unscheduled redemptions.

Less amount due within one year (429) (256)

$ 5,892 $ 3,894 During 2001, Detroit Edison issued $200 million of 5.05%

Securitization Bonds senior secured notes due 2005, and $500 million of 6.125%

6.1% due 2002 to 2016 $ 1,746 $ - senior secured notes due 2010. Interest is payable on a Less amount due within one year (73) - semi-annual basis beginning April 1, 2002. Detroit Edison

$ 1,673 $ - also issued $139.9 million of 5.45% tax-exempt bonds due 2029. Interest is payable on a semi-annual basis In the years 2002-2006, the Company's long -term debt beginning March 1, 2002.

maturities are $502 million, $379 million, $466 million, $448 million and $683 million, respectively. During 2001, Detroit Edison entered into a financing arrange ment for certain equipment with a value of approximately Substantially all of the net utility properties of Detroit Edison $90 million. The arrangement has an implicit interest rate of and MichCon, totaling approximately $8.3 billion, are pledged 7.6% with a term of approximately nine years.

as security for the payment of outstanding mortgage bonds and other secured debt. During 2001, MichCon issued $200 million of 6.125% senior secured notes due 2008. Interest is payable on a semi-annual Each series of QUIDS provides that interesttwill be paid basis beginning March 1, 2002. During 2001, MichCon paid quarterly. However, Detroit Edison has the right to extend the the entire outstanding balance of a $40 million mortgage interest payment period on the QUIDS for up to 20 consecutive bond that was due in2021.

interest payment periods. Interest would corntinue to accrue 52 www.dteenergy.com Notes

NOTE 11 - SHORT-TERM CREDIT Future minimum lease payments under non-cancelable ARRANGEMENTS AND BORROWINGS leases at December 31, 2001 were:

Capital Operating (in Millions) Leases Leases During 2001, the Company, Detroit Edison and MichCon 2002 $ 21 $ 19 entered into a bank facility arrangement used to support 15 18 2003 commercial paper in the amounts of $800 million, $300 million 2004 12 16 and $300 million, respectively. Commercial paper is usually 2005 12 13 issued in lieu of an equivalent amount of borrowings under 2006 13 9 these lines of credit. Amounts outstanding under this facility 2007 and thereafter 74 27 at December 31, 2001, were $423 million atthe Company and Total minimum lease payments 147 $ 102

$254 million at MichCon. At December 31, 2000, $45 million of Less imputed interest (44) commercial paper was outstanding at Detroit Edison under Present value of net minimum a prior facility. The weighted average interest rates for lease payments 103 short-term borrowings at December 31, 2001 and 2000 Less current portion (14) were 2.8% and 6.6%, respectively. Noncurrent portion $ 89 At December 31, 2001, the Company had letters of credit Total minimum lease payments for operating leases have from a bank that allowed the Companyto use approximately not been reduced by future minimum sublease rentals

$88 million of cash previously classified as restricted totaling $12.7 million under non-cancelable subleases on the Company's statement of financial position. There expiring at various dates to 2008.

were no outstanding draws on these letters of credit at December 31, 2001. Rental expenses for operating leases were $19 million,

$13 million and $5 million for 2001, 2000 and 1999, respectively.

Detroit Edison also has a $200 million short-term financing agreement secured by its customer accounts receivable Lessor - MichCon leases a portion of its pipeline system and unbilled revenues portfolio under which there were to the Vector Pipeline Partnership through a capital lease no outstanding amounts at December 31, 2001. There was arrangement that expires in 2020, with renewal options

$200 million outstanding at December 31, 2000, with a extending for five years. The components of the net investment weighted average interest rate of 6.8%. inthe capital lease at December 31, 2001 follows:

During 2001, DTE Capital was merged into the Company. At (in Millions)

December 31, 2000, DTE Capital had $258 million of commercial 2002 $ 9 paper outstanding, with a weighted average interest rate of 7.7%. 2003 9 2004 9 2005 9 NOTE 12 - CAPITAL AND OPERATING LEASES 2006 9 Thereafter 125 Lessee - The Company, Detroit Edison, Enterprises and Total minimum future lease receipts 170 MichCon lease various assets under capital and operating Residual value of leased pipeline 40 leases including lake vessels, locomotives and coal cars, Less- unearned income (125)

Net investment incapital lease 85 office buildings, a parking structure, a warehouse, computers, Less - current portion (1) vehicles and other equipment. The lease arrangements $ 84 expire at various dates through 2016, with renewal options extending beyond that date. Portions of the office buildings and parking structure are subleased to various tenants. NOTE 13 - FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS In July 2001, Detroit Edison terminated its nuclear fuel financing arrangement and purchased the leased nuclear In June 1998, the FASB issued SFAS No. 133, "Accounting for fuel for $79 million. Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that all derivative instruments be recognized as either assets or liabilities, measured at fair value. The accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it is designated as a hedge and qualifies for hedge accounting. To the extent derivative instruments qualify as hedges and are designated as hedges of the variability of cash flows associated with DTE Energy 2001 Annual Report 53

forecasted transactions, the effective portion of the gain RISK MANAGEMENT ACTIVITIES or loss on such derivative instruments is reported in other Credit Risk comprehensive income. The ineffective portion, if any, is reported in net income. Such amounts reported in other The Company is exposed to credit risk in the event of comprehensive income are reclassified into net income nonperformance by customers or counterparties of its when the forecasted transaction affects earnings. If a cash contractual obligations. The Company maintains credit flow hedge is discontinued because it is probable that the policies with regard to its customers and counterparties forecasted transaction will not occur, the net gain or loss that management believes significantly minimize overall is immediately reclassified into earnings. To the extent credit risk. These policies include an evaluation of potential derivative instruments qualify as hedges and are designated customers' and counterparties' financial condition and as hedges of changes infair value of an existing asset, credit rating, collateral requirements or other credit liability or firm commitment, the gain or loss on the hedging enhancements such as letters of credit or guarantees, instrument is recognized in earnings along with the changes and the use of standardized agreements which allow for in fair value of the hedged asset, liability or firm commitment the netting or offsetting of positive and negative exposures attributable to the hedged risk. associated with a single counterparty.

SFAS No. 133 requires that as of the date of initial adoption, Interest Rate Risk the difference between the fair value of derivative instruments During 2000, the Company entered into a series of forward and the previous carrying amount of those derivatives be starting interest rate swaps and treasury locks in order to reported in net income or other comprehensive income, as limit its sensitivity to market interest rate risk associated with appropriate, as the cumulative effect of a change in accounting its issuance of long-term debt used to finance the acquisition principle in accordance with Accounting Principles Board of MCN Energy. Such instruments were formally designated (APB) Opinion 20, "Accounting Changes." as cash flow hedges. In the first quarter of 2001, a loss of approximately $5 million was reclassified from accumulated As of January 1, 2001,the Company adopted SFAS No. 133, other comprehensive loss into earnings, since management as required. The financial statement impact of recording determined it was probable that certain transactions the various SFAS No. 133 transactions at January 1, 2001 associated with the issuance of long-term debt would not was as follows: occur within the time frame originally anticipated. This loss Financial Statement Line Item Increase was reported as a component of interest expense within (in Millions) (Decrease) the consolidated statement of operations. In May 2001, the Assets from risk management and trading activities $ 26 Company issued long-term debt, and terminated these hedges Liabilities from risk management and trading activities $ 85 at a cost of $83 million, with the corresponding loss on these Deferred income taxes payable $ (20) instruments included in other comprehensive loss. During the Cumulative effect of a change in accounting principle:

next 30 years, amounts recorded in other comprehensive loss Other comprehensive loss $ 42 Net income $ will be reclassified to interest expense as the related interest 3

affects earnings. At December 31, 2001, the estimated amount The Company's primary market risk exposures are associated of existing losses that is expected to be reclassified into earnings with interest rates and commodity prices. The Company has within the next 12 months is approximately $10 million.

risk management policies to monitor and assist in mitigating Commodity Price Risk these market risks and uses derivative instruments to manage some of the exposures. Except for the activities of the Electric Utility - Detroit Edison uses forward energy, Wholesale Marketing &Trading segment, the Company capacity, and futures contracts to manage the risk of does not hold or issue derivative instruments for trading fluctuations inthe market price of electricity and natural gas.

purposes. All derivatives are recorded at fair value and Certain of these contracts have been formally designated as shown as "assets or liabilities from risk management cash flow hedges of the forecasted purchase of power and and trading activities" inthe consolidated statement of natural gas. For the year ended December 31, 2001, Detroit financial position. Edison recorded a loss of $23 million, net of tax, in other comprehensive loss for these hedges. Amounts recorded The FASB continues to develop interpretive guidance in other comprehensive loss will be reclassified to fuel, for SFAS No. 133. Accordingly, any future interpretations of purchased power and gas expense asthe forecasted SFAS No. 133 may impact the Company's ultimate application purchases of electricity and natural gas affect earnings. At of the standard. December 31, 2001, the estimated net amount of existing loss expected to be reclassified into earnings within the 54 www.dteenergy.com Notes

next 12 months is approximately $21 million. The maximum performance measured. Additionally, certain transportation length of time over which Detroit Edison is hedging its contracts are considered derivatives and marked to market exposure to the variability of future cash flows is two years. under SFAS No. 133. Unrealized gains and losses resulting Ineffectiveness recognized in these hedging relationships from marking to market commodity-related derivatives are was immaterial for the year ended December 31, 2001. recorded as an adjustment to revenues.

Certain of Detroit Edison's forward electric contracts are Although it attempts to maintain a balanced or flat book from considered "normal purchases and sales" and therefore an economic standpoint, Enterprises experiences earnings are excluded from the scope of SFAS No. 133. volatility as a result of its owned gas reserves, as well as from open positions related to its long-term transportation In June 2001, the FASB provided guidance on the and storage assets.Gas produced from owned reserves does implementation of SFAS No. 133 regarding certain contracts not meet the definition of a derivative under SFAS No. 133.

inthe power generation industry. In June 2001, issue No. C15, "Scope Exceptions: Normal Purchases and Normal Sales TRADING ACTIVITIES Exception for Dption-Type Contracts and Forward Contracts Wholesale Marketing &Trading markets and trades in Electricity," was issued. The FASB concluded that electricity and natural gas physical products and financial because electricity cannot be readily stored in significant instruments, and provides risk management services utilizing quantities, and the entity engaged in selling electricity is energy commodity derivative instruments, which include obligated to maintain sufficient capacity to meetthe electricity futures, exchange-traded and over-the-counter options, and needs of its customer base, an option-like contract for the forward purchase and sales contracts. Contracts used in purchase of electricity that meets certain criteria is eligible trading activities are accounted for under Emerging Issues for the normal purchases and sales exception. Detroit Edison Task Force Issue No. 98-10, "Accounting for Energy Trading adopted this new guidance on July 1, 2001, as required, Activities and Risk Management Activities." Accordingly, classified certain contracts as normal, and began amortizing such contracts are marked to market with unrealized gains the previously recorded liability on option-like contracts and losses recorded in revenues. All derivatives are over their remaining lives. In December 2001, the FASB recorded at fair value and shown as "assets or liabilities issued revisions to issue No. C15 that are effective inApril from risk management and trading activities" in the 2002. The revised guidance differentiates characteristics of consolidated statement of financial position. Contracts traditional capacity contracts used by electric utilities to for physical delivery are recorded gross in revenues meet electric load and financial options on electricity. or expenses, as appropriate. Gains or losses Traditional capacity contracts are eligible for settlement on financial contracts are recorded net in the accounting underthe normal purchases and sales exception. consolidated statement of operations.

Financial options on electricity will not be eligible for settlement accounting. Financial options on electricity will be recorded FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS at fair value on the statement of financial position using The fair value of financial instruments is determined by mark-to-market accounting. reference to various market data and other valuation tech niques as appropriate. The carrying amount of financial Gas Utility - MichCon has firm-priced contracts for a instruments, except for long-term debt and preferred substantial portion of its expected gas supply requirements securities, approximate fair value. The estimated fair through 2002. These contracts are designated and qualify value of total long-term debt at December 31, 2001 and for the "normal purchases" exception under SFAS No.133. 2000 was $8.2 billion and $4.2 billion, respectively, compared Accordingly, MichCon does not account for such contracts to the carrying amount of $8.1 billion and $4.1 billion, as derivatives. respectively. The estimated fair value of preferred securities Non-regulated Operations - Natural gas forwards, futures, at December 31, 2001 was $276 million compared to the options and swap agreements are used to manage exposure carrying amount of $274 million.

to the risk of market price and volume fluctuations on gas sale and purchase contracts, gas production, and gas inven tories. Enterprises has determined that this risk minimization strategy will be accounted for by marking to market its commodity forwards, financial derivatives, and corresponding physical positions so there are substantial offsetting amounts. This fair value accounting better aligns financial reporting with the way such business is managed and its DTE Energy 2001 Annual Report 55

NOTE 14- COMMITMENTS AND CONTINGENCIES Enterprises is legally obligated to investigate and remediate the MGP site. Enterprises is remediating eight of the former Personal Property Taxes MGP sites and conducting more extensive investigations at Detroit Edison, MichCon and other Michigan utilities have three other former MGP sites. In 1998, Enterprises received asserted that Michigan's valuation tables result inthe state closure of one of the former MGP sites. Additionally, substantial overvaluation of utility personal property. the MDEQ has determined with respect to two other former Valuation tables established by the Michigan State Tax MGP sites that Enterprises is not a responsible party for the Commission (STC) are used to estimate the reduction in purpose of assessing remediation expenditures. InSeptember value of personal property based on the property's age. In 2001, Enterprises was advised of one additional MGP site for November 1999, the STC approved new valuation tables that which it has some responsibility. After review of the extent of more accurately recognize the value of a utility's personal the necessary environmental clean-up required, remediation property. The new tables became effective in 2000 and are costs for this site are not expected to exceed $500,000.

being used for current year assessments in most jurisdictions.

However, several local taxing jurisdictions have taken legal In 1984, Enterprises established a $12 million reserve for action attempting to prevent the STC from implementing environmental investigation and remediation. During 1993, the new valuation tables and have continued to prepare MichCon received MPSC approval of a cost deferral and assessments based on the superseded tables. The legal rate recovery mechanism for investigation and remediation actions regarding the appropriateness of the new tables costs incurred at former MGP sites in excess of this reserve.

are currently before the Michigan Tax Tribunal (MTT) which issued an order in June 2000 stating that the tables are Enterprises employed outside consultants to evaluate presumed to be correct, thus assigning the burden of remediation alternatives for these sites, to assist in estimating proving otherwise to the taxing jurisdictions. The hearing its potential liabilities and to review its archived insurance before the MTT concluded inJune 2001, with the STC policies. The findings of these investigations indicate that the subsequently filing a motion for summary judgment estimated total expenditures for investigation and remediation All briefs related to that motion have been filed, and the activities for these sites could range from $30 million to parties now await the MTI decision. $170 million based on undiscounted 1995 costs. As a result of these studies, Enterprises accrued an additional liability and Detroit Edison and MichCon accrue property tax expense a corresponding regulatory asset of $35 million during 1995.

based on the new tables. Detroit Edison and MichCon will seek to apply the new tables retroactively and to During 2001, Enterprises spent $4 million investigating and ultimately settle the pending tax appeals related to 1997 remediating these former MGP sites. At December 31, 2001, through 1999. This is a solution supported by the STC in the reserve balance was $25 million of which $5 million was the past. The legal action, along with possible additional classified as current. Any significant change in assumptions, appeals by local taxing jurisdictions, is expected to delay such as remediation techniques, nature and extent of any recoveries realized by Detroit Edison and MichCon contamination and regulatory requirements, could impact related to the new valuation tables. the estimate of remedial action costs for the sites and, therefore, have an effect on the Company's financial position Gas Environmental Matters and cash flows. However, management believes that the Former manufactured gas plant sites - Prior to the construction cost deferral and rate recovery mechanism approved by of major natural gas pipelines, gas for heating and other uses the MPSC will prevent environmental costs from having a was manufactured from processes involving coal, coke or material adverse impact on the Company's results of operations.

oil. Enterprises owns, or previously owned, 17 such former Commitments manufactured gas plant (MGP) sites.

Detroit Edison has an Energy Purchase Agreement for the During the mid-1980's, Enterprises conducted preliminary purchase of steam and electricity from the Detroit Resource environmental investigations at former MOP sites, and some Recovery Facility. Under the Agreement, Detroit Edison will contamination related to the by-products of gas manufacturing purchase steam through 2008 and electricitythrough June was discovered at each site. The existence of these sites 2024. In 1996, a special charge to income was recorded that and the results of the environmental investigations have included a reserve for steam purchase commitments in been reported to the Michigan Department of Environmental excess of replacement costs from 1997 through 2008. The Quality (MDEQ). None of these former MGP sites is on the reserve for steam purchase commitments is being amortized National Priorities List prepared by the U.S. Environmental to fuel, purchased power and gas expense with noncash Protection Agency (EPA). accretion expense being recorded through 2008. During 2001, the reserve for future steam purchase commitments Enterprises is involved in an administrative proceeding before was reduced by $22 million due to changes in estimated the EPA regarding one of the former MGP sites. Enterprises future replacement costs. Purchases of steam and electricity has executed an order with the EPA, pursuantto which 56 www.dteenergy.com Notes

were approximately $41 million, $35 million and $35 million The Company has also entered into long-term fuel supply for 2001, 2000 and 1999, respectively. Annual steam and commitments of approximately $1 billion at December 31, 2001.

electric purchase commitments are approximately $40 million, The Company expects that its 2002 capital expenditures will

$41 million, $42 million, $44 million and $45 million for 2002, approximate $950 million. Certain commitments have been 2003, 2004, 2005 and 2006, respectively. made in connection with such capital expenditures.

The EPA has issued ozone transport regulations and final Other Contingencies new air quality standards relating to ozone and particulate Electricity and gas is purchased from and sold to numerous air pollution. In September 1998, the EPA issued a State companies operating in the steel, automotive, energy and Implementation Plan (SIP) call, giving states a year to develop retail industries. A number of customers have filed for new regulations to limit nitrogen oxide emissions because of bankruptcy in 2001, including certain Enron Corporation their contribution to ozone formation. Detroit Edison has spent affiliates. Certain DTE Energy subsidiaries had open transac approximately $221 million through December 2001 and tions under a variety of agreements with bankrupt Enron estimates that it will incur approximately $400 million to affiliates, and such subsidiaries had an aggregate net liability

$500 million of future capital expenditures over the next of $24 million to Enron. There are various netting agreements three years to comply. In March 2000, the U.S. Court of with Enron affiliates. Internal and external counsel are working Appeals ruled in favor of the EPA's SIP call regulations. to determine the Company's rights within these agreements.

The new air quality standards have been upheld in legal The Company has not reserved for any exposure, in addition challenges inthe U.S. Court of Appeals, but the U.S. to the net liabilities already recorded, as management Supreme Court has agreed to hear the appeal. Until the cannot estimate a probable loss exposure and currently legal issues are resolved, management is unable to predict does not believe the resolution of this matter will have the full impact of the new air quality standards. Under the a material impact to the Company.

June 2000 Michigan restructuring legislation, beginning The Company is involved in certain legal (including January 1,2004, annual return of and on this capital expendi commercial matters), administrative and environmental ture, in excess of current depreciation levels, would be proceedings before various courts, arbitration panels deferred in ratemaking, until after the expiration of the rate and governmental agencies concerning claims cap period, presently expected to end December 31, 2005.

arising in the ordinary course of business. These In 1997, Enterprises' 50%-owned partnership, Washington proceedings include certain contract disputes, 10 Storage Partnership (W-10), entered into a leveraged environmental reviews and investigations, and pending lease transaction to finance the conversion of a depleted judicial matters. Management cannot predict the natural gas reservoir into a 42 Bcf storage facility. The storage final disposition of such proceedings. Management facility began operations in mid-1999 and cost $160 million to regularly reviews legal matters and records provisions develop. Enterprises has entered into a contract with W-10 for claims that are considered probable of loss. The to market 100% of the capacity of the storage field through resolution of pending proceedings is not expected to 2029. Under the terms of the marketing contract, Enterprises have a material effect on the Company's financial is obligated to generate sufficient revenues to cover W-10's statements inthe period they are resolved.

lease payments and certain operating costs, which average See Notes 4 and 5 for a discussion of contingencies approximately $15 million annually.

related to Regulatory Matters and Fermi 2.

To ensure a reliable supply of natural gas at competitive prices, Enterprises has entered into long-term purchase and NOTE 15 - RETIREMENT BENEFITS AND transportation contracts with various suppliers and producers. TRUSTEED ASSETS In general, purchases are under fixed price and volume contracts or formulas based on market prices. Enterprises Pension Plan Benefits has firm purchase commitments through 2015 for approximately The Company has defined benefit retirement plans for all 707 Bcf of gas. Enterprises expects that sales, based on eligible union and nonunion employees. Prior to December 31, warmer-than-normal weather, will exceed its minimum 2001, the Company had three separate defined benefit purchase commitments. Enterprises has long-term retirement plans. Effective December 31, 2001, two of the transportation and storage contracts with various companies defined benefit retirement plans merged into one plan.

expiring on various dates through the year 2016. Enterprises All of the plans are noncontributory, cover substantially is also committed to pay demand charges of approximately all employees and provide retirement benefits based on

$89 million during 2002 related to firm purchase and the employees' years of benefit service, average final transportation agreements. Of this total, approximately compensation and age at retirement. The Company's policy

$37 million relates to MichCon. is to fund pension cost calculated under the projected unit credit actuarial cost method.

DTE Energy 2001 Annual Report 57

Net pension cost for the years ended December 31 includes There are several supplemental nonqualified, noncontributory, the following components: retirement benefit plans for certain management employees.

(in Millions) 2001 2000 1999 Service Cost The Company also sponsors defined contribution retirement

$ 40 $ 35 $ 35 Interest Cost 140 savings plans. Participation in one of these plans is available 107 92 Expected Return on Plan Assets (193) (139) (124) to substantially all union and nonunion employees. The Amortization of Company matches employee contributions up to certain Prior service cost 10 10 5 predefined limits based upon salary and years of credited Net transition asset (5) (4) (4) service. The cost of these plans was $26 million in 2001, Special Termination $22 million in2000 and $21 million in 1999.

Benefits (Note 3) 167 -

Net Pension Cost $ 159 $ 9 $ 4 Other Postretirement Benefits The following table sets forth a reconciliation of the obligations, The Company provides certain postretirement health care assets and funded status of the plans as well as the amounts and life insurance benefits for retired employees who may recognized as prepaid pension cost in the consolidated become eligible for these benefits ifthey reach retirement statement of financial position at December 31: age while working for the Company.

(in Millions) 2001 2000 Net postretirement cost for the years ended December 31 Accumulated Benefit Obligation includes the following components:

atthe End of the Period $ 2,023 $ 1,408 Projected Benefit Obligation at the (in Millions) 2001 2000 1999 Beginning of the Period Service Cost $ 27 $ 22 $ 23

$ 1,540 $ 1,457 Service Cost Interest Cost 67 48 41 40 35 Interest Cost Expected Return on Plan Assets (57) (46) (39) 140 107 Actuarial Loss Amortization of 103 21 Special Termination Benefits (Note 3) 167 Net loss I -

Benefits Paid Net transition obligation 20 20 21 (206) (82)

MCN Energy Acquisition 481 Special Termination Benefits Plan Amendments (Note 3) 46 -

(46) 2 Projected Benefit Obligation at the Net Postretirement Cost S 104 $ 44 $ 46 End of the Period S 2,219 $ 1,540 Plan Assets at Fair Value atthe Beginning of the Period $ 1,416 $ 1,585 Actual Return on Plan Assets (36) (87)

Company Contributions 35 Benefits Paid (206) (82)

MCN Energy Acquisition 974 Plan Assets at Fair Value at the End of the Period $ 2,183 $ 1,416 Funded Status of the Plans $ (36) $ (124)

Unrecognized Net loss 442 112 Prior service cost 31 85 Net transition asset (2) (7)

Prepaid Pension Cost $ 435 $ 66 Assumptions used in determining the projected benefit obligation at December 31 were as follows:

2001 2000 1999 Discount rate 7.25%

0 7.5% 7.5%

Annual increase infuture compensation levels 4.0 4.0 4.0 Expected long-term rate of return on Plan assets 9.5 9.5 9.5 58 www.dteenergy.com Notes

The following table sets forth a reconciliation of the obligations, Grantor Trust assets and funded status of the plans as well as the amounts MichCon maintains a Grantor Trust which invests in life recorded as accrued postretirement cost in the consolidated insurance contracts and income securities. Employees and statement of financial position at December 31: retirees have no right, title or interest in the assets of the (in Millions) 2001 2000 Grantor Trust, and MichCon can revoke the trust subject to Accumulated Postretirement Benefit providing the MPSC with prior notification.

Obligation at the Beginning of the Period $ 751 $ 607 Service Cost 27 22 Interest Cost 67 48 NOTE 16 - STOCK-BASED COMPENSATION Actuarial Loss 62 105 Special Termination Benefits (Note 3) 46 The DTE Energy Company 2001 Stock Incentive Plan was MCN Energy Acquisition 236 approved by shareholders in 2001. The plan permits the grant Plan Amendments (12) of incentive stock options, non-qualifying stock options, Benefits Paid (50) (31) stock awards, performance shares and performance units.

Accumulated Postretirement Benefit The maximum aggregate number of shares of common Obligation at the End of the Period $ 1,127 $ 751 stock that may be issued under this plan is 18 million Plan Assets at Fair Value at the shares. Participants in the plan include employees of the Beginning of the Period $ 517 $ 501 Company and its Board members. As of December 31, 2001, Actual Return on Plan Assets (25) 2 no performance units have been granted under the plan.

Company Contributions 11 23 Benefits Paid (54) (9) Prior to 2001, stock options, stock awards and performance MCN Energy Acquisition 175 shares were issued under the Long-Term Incentive Plan Plan Assets at Fair Value atthe adopted in 1995.

End of the Period $ 624 $ 517 Funded Status of the Plans $ (503) $ (234) Options Unrecognized Options are exercisable at a rate pursuantto the terms of the Net loss 187 44 individual stock option award agreements. The options will Prior service cost (12) expire 10 years after the date of the grant. The option exercise Net transition obligation 226 246 Accrued Postretirement price equals the fair market value of the stock on the date that Asset (Liability) $ (102) $ 56 the option was granted. Stock option activity was as follows:

Weighted Assumptions used in determining the projected benefit Average Number Exercise obligation at December 31 were as follows: of Options Price 2001 2000 1999 Outstanding at January 1, 1999 Discount rate 7.25% 7.5% 7.5% (58,750 exercisable) 607,375 $33.70 Granted 428,000 $41.30 Expected long-term rate of Exercised (11,675) $30.99 return on Plan assets 9.5 9.0 9.0 Canceled (24,625) $31.96 Outstanding at December 31, 1999 Benefit costs were calculated assuming health care costtrend (194,371 exercisable) 999,075 $37.03 rates beginning at 8.5% for 2002 and decreasing to 5% in 2008 Granted 2,023,400 $32.12 and thereafter for persons under age 65 and decreasing from Exercised (10,750) $28.50 9%to 5% for persons age 65 and over. A one-percentage-point Canceled (29,500) $41.14 increase in health care cost trend rates would have increased Outstanding at December 31, 2000 the aggregate of the service cost and interest cost components (442,431 exercisable) 2,982,225 $33.69 Granted 2,775,341 $42.74 of benefit costs by $17 million and would have increased the $32.31 Exercised (402,442) accumulated benefit obligation by $142 million at December Canceled (73,500) $36.26 31, 2001. A one-percentage-point decrease inthe health care Outstanding at December 31, 2001 costtrend rates would have decreased the aggregate of the (1,678,870 exercisable at a weighted service cost and interest cost components of benefit costs average exercise price of $35.45) 5,281,624 $38.51 by $14 million and would have decreased the accumulated benefit obligation by $118 million at December 31, 2001.

DTE Energy 2001 Annual Report 59

The range of exercise prices for options outstanding at reported as a reduction to common stock. The cost is December 31, 2001, was $27.62 to $46.63. The number, weighted amortized to compensation expense over the vesting period.

average exercise price and weighted average remaining Stock award activity for the years ended December 31 was:

contractual life of options outstanding were as follows:

2001 2000 1999 Weighted Restricted common shares Weighted Average awarded 247,640 29,565 99,500 Range of Average Remaining Exercise Number Exercise Contractual Weighted average market Prices of Options Price Life price of shares awarded S 44.35 $ 32.00 $ 40.99

$27.62 - $38.04 1,987,067 $31.57 7.87 years Compensation cost

$38.60 - $42.44 1,277,887 $40.51 8.08 years charged against income

$42.60 - $43.85 918,650 $42.66 9.22 years (inthousands) $ 2,484 $ 1,130 $ 945

$45.28 - $46.63 1,098,020 $45.29 9.29 years 5,281,624 $38.51 8.45 years Performance Share Awards The Company applies APB Opinion 25, "Accounting for Stock Under the plan, performance shares means an award stated Issued to Employees." Accordingly, no compensation expense with reference to a specified number of shares of common has been recorded for options granted. As required by SFAS stock that entitles the holder to receive a cash payment or No. 123, "Accounting for Stock-Based Compensation," the shares of common stock or a combination thereof. The final Company has determined the pro forma information as if it number of shares of common stock awarded is determined had accounted for its employee stock options under the fair by the achievement of certain performance objectives, as value method. The fair value for these options was estimated defined inthe plan. The awards vest as of the end of a atthe date of grant using a modified Black/Scholes option specified period. Beginning with the grant date, the Company pricing model- American style and the following weighted accounts for performance share awards by accruing an average assumptions: amount based on the following: (i)the number of shares 2001 2000 1999 expected to be awarded based on the probable achievement Risk-free interest rate 5.40% 6.57% 5.64% of certain performance objectives, (ii)the market value of the Dividend yield 4.73% 6.48% 4.95% shares, and (iii) the vesting period. For the year ended Expected volatility 19.78% 18.51% 17.28% December 31, 2001, the Company accrued $1.2 million in Expected life 10 years 10 years 10 years compensation expense related to performance share awards.

Fair value per option $8.81 $5.19 $7.18 During the applicable restriction period, the recipient of a The pro forma effect of these options would be to reduce performance share award has no shareholder rights until pretax income by $14.4 million, $2.7 million, and $1.3 million common stock is actually distributed. However, recipients for the years ended December 31, 2001, 2000 and 1999, will be paid an amount equal to the dividend equivalent on respectively, and to reduce diluted earnings per share by such shares. Performance share awards are nontransferable

$0.06, $0.02, and $0.01 for the years ended December 31, and are subject to risk of forfeiture. As of December 31, 2001, 2001, 2000 and 1999, respectively. there were 277,355 performance share awards outstanding.

Stock Awards Under the plan, stock awards are granted and restricted for NOTE 17- SEGMENT AND RELATED INFORMATION a period not exceeding four years. Certain shares are subject The Company's reportable business segments are: Electric to forfeiture if specified performance objectives are not met.

Utility- Detroit Edison and ITC; Gas Utility- MichCon; A participant will have all rights of a shareholder with respect Wholesale Marketing &Trading, which consists of the to a stock award, including the right to receive dividends and trading and marketing operations of DTE Energy Trading vote the shares; provided, however, that during such period and the natural gas trading and marketing operations of (i) a participant may not sell, transfer, pledge, exchange or Enterprises; Energy Services, which consists of various otherwise dispose of shares granted pursuantto a stock businesses that develop and manage energy-related projects award; (ii)the Company shall retain custody of the certificates and services; Non-regulated other, which represents the evidencing shares granted pursuantto a stock award; and operations of energy businesses primarily involved in emerging (iii) the participant will deliver to the Company a stock power technologies and various other non-regulated gas opera with respectto each stock award.

tions acquired with the MCN Energy merger; and Corporate The stock awards are recorded at cost, which approximates & Other, which includes expenses of the Company's the market value on the date of grant The Company accounts corporate operation. The income tax provisions or benefits for stock awards as unearned compensation, which is of DTE Energy's subsidiaries are determined on an individual company basis and recognize the tax benefit of alternate fuels credits and net operating losses. The subsidiaries record income tax payable to or receivable from 60 www.dteenergy.com Notes

DTE Energy resulting from the inclusion of its taxable NOTE 18 - SUPPLEMENTARY QUARTERLY income or loss in DTE Energy's consolidated tax return. FINANCIAL INFORMATION (UNAUDITED)

Inter-segment revenues are not material. Financial data for business segments are as follows: Quarterly earnings per share may not total for the years, since quarterly computations are based on weighted (in Millions) 2001 2000 1999 average common shares outstanding during each quarter.

Operating Revenues Electric Utility $ 4,051 $ 4,129 $ 4,047 (in Millions, except First Second Third Fourth per share amounts) Quarter Quarter Quarter Quarter Year Gas Utility 603 -

Wholesale Marketing &Trading 2,580 985 251 2001 Energy Services Operating Revenues $ 1,842 $ 1,790 $ 2,081 $ 2,136 $ 7,849 577 472 418 Operating Income (Loss) 244 (88) 212 328 696 Non-regulated other 137 92 39 Net Income (Loss)

Reconciliation and eliminations (99) (81) (27) before accounting change 135 (87) 63 218 329 Consolidated $ 7,849 $ 5,597 $ 4,728 Net Income (Loss) 138 (87) 63 218 332 Depreciation, Depletion, Basic Earnings (Loss) per Share before and Amortization accounting change .96 (.60) .38 1.35 2.15 Electric Utility $ 644 $ 719 $ 703 Diluted Earnings (Loss)

Gas Utility 60 - per Share before Wholesale Marketing &Trading 1 - accounting change .95 (.60) .38 1.34 2.14 Energy Services 42 34 31 Non-regulated other 17 5 1 2000 Corporate & Other 31 - Operating Revenues $ 1,182 $ 1,428 $ 1,547 $ 1,440 $ 5,597 Consolidated $ 795 $ 758 $ 735 Operating Income 215 203 172 240 830 Net Income 117 108 104 139 468 Interest Expense Basic and Diluted Electric Utility $ 306 $ 277 $ 284 Earninos eer Share .81 .76 .73 .97 3.27 Gas Utility 33 -

Wholesale Marketing &Trading 13 -

Energy Services 23 30 38 Non-regulated other 10 4 1 Corporate & Other 147 46 31 Reconciliation and eliminations (64) (21) (14)

Consolidated $ 468 $ 336 $ 340 Income Tax Provision (Benefit)

Electric Utility $ 92 $ 172 $ 211 Gas Utility (20) -

Wholesale Marketing &Trading 24 5 5 Energy Services (186) (141) (132)

Non-regulated other (5) (18) (12)

Corporate & Other (15) (9) (12)

Consolidated $ (110) $ 9 $ 60 Net Income Electric Utility $ 369 $ 427 $ 434 Gas Utility 23 -

Wholesale Marketing &Trading 44 10 8 Energy Services 124 109 84 Non-regulated other (6) (35) (23)

Corporate & Other (18) (27) (20)

Merger and restructuring charges (175) (16)

MCN goodwill amortization (29) -

Consolidated $ 332 $ 468 $ 483 Total Assets Electric Utility $11,508 $ 10,986 $ 11,051 Gas Utility 2,520 -

Wholesale Marketing &Trading 1,048 468 109 Energy Services 1,352 942 945 Non-regulated other 1,212 268 175 Corporate &Other 2,025 798 509 Reconciliation and eliminations (437) (806) (473)

Consolidated $19,228 $ 12,656 $ 12,316 Capital Expenditures Electric Utility $ 712 $ 587 $ 638 Gas Utility 69 -

Wholesale Marketing &Trading - -

Energy Services 258 100 95 Non-regulated other 57 62 6 Consolidated $ 1,096 $ 749 $ 739 DTE Energy 2001 Annual Report 61

DTE Energy Company StatisticalREVIEW (Dollarsin Millions, Except Common Share Data) 2001 2000 1999 1998 Operating Revenues Electric Utility Residential $ 1,298 $ 1,265 $ 1,300 $ 1,253 Commercial 1,533 1,670 1,629 1,553 Industrial 773 848 809 753 Wholesale and Other 447 346 309 343 Total Electric Utility 4,051 4,129 4,047 3,902 Gas Utility 603 - -

Non-regulated 3,195 1,468 681 319 Total $ 7,849 $ 5,597 $ 4,728 $ 4,221 Net Income* $ 536 $ 484 $ 483 $ 443 Electric Sales (Millions of kWh)

Residential 14,503 13,903 14,064 13,752 Commercial 18,777 19,762 19,546 18,897 Industrial 14,430 16,090 15,647 14,700 Other 2,538 2,653 2,595 2,357 Total system 50,248 52,408 51,852 49,706 Wholesale 868 2,592 3,672 5,207 Total 51,116 55,000 55,524 54,913 Electric Customers at Year End (Thousands)

Residential 1,938 1,922 1,904 1,884 Commercial 184 185 182 181 Industrial 1 1 1 1 Other 2 2 2 2 Total 2,125 2,110 2,089 2,068 Financial Position at Year End Net property $ 9,543 $ 7,387 $ 7,148 $ 6,943 Total assets 19,228 12,656 12,316 12,088 Long-term debt, including capital leases 7,654 4,039 4,091 4,323 Total shareholders' equity 4,589 4,009 3,909 3,698 Common Share Data Earnings per common share - diluted* $ 3.48 $ 3.39 $ 3.33 $ 3.05 Dividends declared $ 2.06 $ 2.06 $ 2.06 $ 2.06 Average shares outstanding - diluted (millions) 154 143 145 145 Return on average common equity* 12.27% 12.28% 12.75% 12.25%

Book value per share $ 28.48 $ 28.14 $ 26.75 $ 25.49 Market price: High 47.13 41.25 44.69 49.25 Low 33.13 28.44 31.06 33.50 Year end 41.94 38.94 31.63 43.06 Miscellaneous Financial Data Cash flow from operations $ 811 $ 1,015 $ 1,084 $ 834 Capital expenditures 1,096 749 739 589 Miscellaneous Operating Data System peak demand (MW) 11,860 10,919 11,018 10,704 Employees at year end 11,030 9,144 8,886 8,781

• Amounts have been adjusted to exclude merger and restructuring charges and goodwill amortization totaling

$204 million in 2001 and $16 million in 2000.

62 www.dteenergy.com Review

1992 1991 1997 1996 1995 1994 199319291

$ 1,179 $ 1,198 $ 1,211 $ 1,136 $ 1,126 $ 1,098 $ 1,155 1,496 1,473 1,428 1,438 1,411 1,501 1,506 728 736 720 749 724 726 731 991 9n7 199 174 281 273 302 3,657 3,642 3,634 3,519 3,555 3,558 3,592 107 3 2 ....

$ 3,764 $ 3,645 $ 3,636 $ 3,519 $ 3,555 $ 3,558 $ 3,592

$ 417 $ 309 $ 406 $ 390 $ 491 $ 558 $ 535 12,898 12,949 13,006 12,170 12,033 11,309 12,222 17,997 17,706 17,471 17,042 15,996 15,384 15,571 14,345 14,062 13,825 13,356 12,618 11,827 11,564 1,855 1,690 1,671 1,586 2,318 2,177 1,692 47,095 46,407 45,973 44,154 42,965 40,697 41,049 3,547 2,046 2,969 1,978 3,611 3,204 5,534 50,642 48,453 48,942 46,132 46,576 43,901 46,583 1,870 1,847 1,825 1,805 1,790 1,778 1,771 178 175 174 172 171 169 168 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2,051 2,025 2,002 1,980 1,964 1,950 1,942

$ 8,934 $ 8,833 $ 8,823 $ 8,925 $ 8,900 $ 9,024 $ 9,002 11,223 11,015 11,131 10,993 11,135 10,309 10,464 3,914 3,894 3,884 3,951 3,972 4,129 4,388 3,706 3,588 3,763 3,706 3,677 3,448 3,201

$ 2.88 $ 2.13 $ 2.80 $ 2.67 $ 3.34 $ 3.79 $ 3.64

$ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 1.98 $ 1.88 145 145 145 146 147 147 147 12.03% 8.87% 11.85% 11.64% 15.23% 18.56% 19.55%

$ 24.51 $ 23.69 $ 23.62 $ 22.89 $ 22.34 $ 21.13 $ 19.32 34.75 37.25 34.88 30.25 37.13 35.25 35.38 26.13 27.63 25.75 24.25 29.88 30.25 27.75 34.69 32.38 34.50 26.13 30.00 32.75 34.75

$ 905 $ 1,079 $ 913 $ 923 $ 1,110 $ 1,063 $ 952 484 531 454 366 396 416 272 10,305 10,337 10,049 9,684 9,362 8,704 8,980 8,732 8,526 8,340 8,494 8,919 9,183 9,357 DTE Energy 2001 Annual Report 63

DTE Energy Company Other Information About DTE ENERGY Market for the Company's Common Equity and Related Annual Meeting of Shareholders Shareholder Matters The 2002 Annual Meeting of DTE Energy Shareholders will DTE Energy's common stock is listed on the New York Stock be held at 10 a.m., Detroit time, Wednesday, April 24, 2002, Exchange and the Chicago Stock Exchange (symbol DTE). at the DTE Energy Building, 660 Plaza Drive, Detroit.

The following table indicates the reported high and low sales prices of DTE Energy common stock on the composite tape Corporate Address of the New York Stock Exchange and dividends paid per DTE Energy share for each quarterly period during the past two years: 2000 2nd Ave., Detroit, MI 48226-1279 Dividends Telephone: 313.235.4000 Paid Web site: www.dteenergy.com Calendar Quarter High Low Per Share 2001 First $ 40.200 $ 33.125 $ 0.515 Independent Auditors Second 47.130 39.790 0.515 Deloitte &Touche LLP Third 47.040 41.300 0.515 600 Renaissance Center, Suite 900, Detroit, MI 48243-1704 Fourth 45.000 39.900 0.515 2000 First Form 10-K

$ 41.250 $ 28.438 $ 0.515 Second 35.938 28.875 0.515 Copies of Form 10-K, Securities and Exchange Third 40.250 30.438 0.515 Commission Annual Report, are available.

Fourth 39.313 34.938 0.515 Requests should be directed to:

Susan M. Beale As of Dec. 31, 2001, 161,133,959 shares of the Company's Vice President and Corporate Secretary common stock were outstanding. These shares were held DTE Energy by a total of 114,556 shareholders. 2000 2nd Ave., Detroit, MI 48226-1279 The amount of future dividends will depend on the Transfer Agent company's earnings, financial condition and other factors, The Detroit Edison Company including the effects of utility restructuring and the 2000 2nd Ave., Detroit, MI 48226-1279 transition to competition.

Shareholder Services: 800.551.5009 Distribution of Ownership of DTE Energy Common Stock Registrar of Stock as of Dec. 31, 2001:

Type of Owner The Detroit Edison Company Owners Shares Individuals 2000 2nd Ave., Detroit, MI 48226-1279 58,190 15,800,699 Joint Accounts DTE Energy common stock 44,083 17,967,098 Trust Accounts 11,187 8,160,429 Other Shareholder Information Nominees 25 102,923,585 Institutions/Foundations As a service to shareholders of record, DTE Energy offers 153 68,209 Brokers/Security Dealers direct deposit of dividend payments. Payments can be 8 22,436 Others electronically transferred directly to the bank or savings 910 16,191,503 Total and loan account of choice on the payment date. Please 114,556 161,133,959 write to the address below, or call 800.551.5009 to receive State and Country Owners Shares an authorization form to request direct deposit of Michigan 58,200 23,245,865 dividend payments.

Florida 6,995 3,078,189 DTE Energy California 5,775 1,984,612 c/o Detroit Edison, Shareholder Services, 434 W.C.B.

New York 4,706 120,124,783 2000 2nd Ave., Detroit, MI 48226-1279 Illinois 4,415 1,556,711 Ohio 3,595 1,205,700 44 Other States 30,409 9,803,364 Foreign Countries 461 134,735 DTE Total 114,556 161,133,959 NYSE 64 www.dteenergy.com

DTE Energy Company WORDS Our Industry Uses Coke and Coke Battery Ovens Commission (FERC). MISO serves as an agent for its Raw coal is heated to high temperatures in ovens to drive 19 transmission-owning members and spans nearly off impurities, leaving a carbon residue called coke. Coke is 73,000 miles of electric transmission lines over a 15-state combined with iron ore to create a high metallic iron that is area and parts of Canada.

used to produce steel. A series of coke ovens configured Peaking Plant in a module is referred to as a battery.

A power plant brought online at times of peak demand.

Distributed Generation (DG)

Power Generation Electric energy produced at or close to the point of use, in contrast to central station generation which generally Generation of energy for sale on the open market produces electricity at large power plants and transmits and/or to energy traders.

and distributes power over long distances. DG includes Power Supply and Gas Cost Recovery Mechanism fuel cells, small gas turbine engines called micro-turbines, and other devices capable of producing 2 kilowatts to A power supply fuel clause adjustment mechanism 1 megawatt of power. allowed Detroit Edison to recover through rates its fuel, fuel-related and purchased power electric expenses.

Customer Choice The clause was suspended under Michigan's new The choice programs are statewide initiatives giving restructuring legislation signed into law June 5, 2000, customers in Michigan the option to choose alternative which lowered and froze customer rates. In January 2002, MichCon reinstated a previously suspended fuel suppliers for electricity and gas.

clause gas cost recovery mechanism. This permits it to Energy Management Businesses pass the cost of natural gas to its customers and DTE Energy's non-regulated businesses spanning fossil generate profit only from a delivery charge.

fuels, natural gas, power generation, landfill gas recovery, Random Outage Rate energy trading and on-site energy services. The company's non-regulated energy technologies subsidiary The unscheduled time a generating unit is is not considered an energy management business. unavailable to produce electricity, expressed in a percentage.

Fossil Fleet Securitization All of a company's plants using coal, oil, gas or other fossil fuel as their source of energy. A mechanism used by Detroit Edison to refinance specific assets and costs at lower interest rates through the sale Gate Station of rate reduction bonds.

A facility at which natural gas pressures are lowered, Stranded Costs odorant is added and gas is transferred from a transmission line to a distribution system for supply in a defined Costs incurred by utilities in order to serve customers in service area. a regulated environment, but which may not be recoverable if customers switch to alternative Independent Power Producer (IPP) suppliers of electricity and gas.

A company or individual that is not directly regulated as a Synfuels public utility. These entities produce power for their own use and/or sell it to regulated utilities. Synthetic fuels are made by capturing fine particles of coal and processing it into a product that is burned either Midwest Independent System Operator (MISO) to produce energy at power plants, or to fuel steel plant MISO is the first regional transmission operator in the coke batteries.

country approved by the Federal Energy Regulatory

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