NRC-98-0053, 1997 Annual Financial Rept for Detroit Edison Company

1997 Annual Financial Rept for Detroit Edison Company

ML20216C092
Person / Time
Site:	Fermi
Issue date:	12/31/1997
From:	Earley A, Garberding L, Peterson N DETROIT EDISON CO.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
CON-NRC-98-0053, CON-NRC-98-53 NUDOCS 9804140291
Download: ML20216C092 (47)

Text

{{#Wiki_filter:Ferm12 g, q,,.. 6400 North Dide Hwy., Newport, M148166 Detroit Edison l l 10 CFR 50.71(b) l April 6,1998 NRC-98-0053 U. S. Nuclear Regulatory Commission Attention: Document Control Desk Washington, D. C. 20555

Reference:

Fermi 2 NRC Docket No. 50-341 NRC License No. NPF-43

Subject:

Annual Financial Report I Pursuant to 10 CRF 50.71(b), please find attached the 1997 Annual Financial Report for the Detroit Edison Company. If you should have any questions regarding this report, please contact me at (734)586-4258. Sincerely, i / Norman K. Peterson Director, Nuclear Licensing Enclosure cc: All w/ enclosure A/\\ 00'I ' A. B. Beach ) B. L. Burgess 3 G. A. Harris ,a.,AaJ 1 i A. J. Kugler M. V. Yudasz. Jr. Region til Wayne County Emergency Management Division j 9804140291 971231 PDR ADOCK 0500 1 A frTE Energy Company

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,8 To Our Y Shareholders a m 3 d 3 5: i. Albert Einstein = 1 everything that can be counted counts, and not everything that counts can be counted l' The sords of one of the most E.L M famous energy trailblazers of the 20th century aptly describe financial results of your Company in 1997 and its future prospects for success as we enter a new energy era. Earnings for common stock increased 35 percent in 1997 to $417 million, or $2.88 per share from $309 millica, or $2.13 per share, in 1996. Still we're not satisfied. Why? Net income in 1996 included a one-time charge of . h)h g $97 million after tax to write off certain aspects of our ( steam heating operation. After adjusting 1996 earnings for e E A 2 g . j }hqf the change,1997 earnings only reflect a 2.7 percent .4 ; 3, i improvement over the prior year. NN d. Simply stated, earnings for the utility were roughly flat, but offset by 8 cents per share from our non-regulated Above: DTE Energy and Dstroit Edison Chairman and energy-related businesses. lierein lies our growth. In the Chief Executive Officer John E. Lobbia future, we expect to see even larger contributions to "As we position ourselves for earnings coming from our non-reguiated businesses and joint ventures. growth, We faco Challenges and At the end of 1997, DTE Coal Services purchased Cornhusker Railcar's facilities in Nebraska and lowa from opportunities. In the future Mid.American Capital Co. This latest acquisition further positions our non-regulated subsidiary to be th; country's we expeet to see an even larger premier coal marketer, transporter and trader. The following pages detail some of DTE Energy's other percentage of our earnings subsidiaries that we hope will earn up to $100 million in net income within the next five years. coming from our non-regulated About half of you are also Detroit Edison customers and businesses and j.. t ventures.,, we're honored that so many DTE Energy shareholders have om chosen to invest in their trusted local electric utility. At this P v ' l 'i"'e in ur Company s history as competition i - John E. Lobbia

increases in the electric utility industry, we're working uOur employees battled the diligently to diversify our energy-related holdings and add aftermath of tornadoes and a value to your investments. m That doesn't mean we're not still dedicated to providing Ce Storms in Michigan and Canada." reliable electrical service to our customers. Recently, 3 we signed a long-term power sales agreement with - Anthony F. Earley, Jr. { Consumers Energy and Ontario liydro that will enhance Detroit Edison's and the other two neighboring utilities' = ability to serve summer electricity demands. Customers will benefit from greater reliability and fuel savings as our generating power plants are better used during off-peak time periods. We must maintain the reliable electrical system that customers and shareholders like yourselves have built with us over nearly a century. To that end, we continue to work closely with state and federal officials who are restructuring our industry. The Michigan Public Service Commission (MPSC) took action in January continuing a two-year process designed to introduce competition into the state's electric utility market. j The MP5C adopted a phase-in schedule that would start to [ allow customers of Detroit Edison and Consumers Energy TN d i to select their electricity suppliers as early as 1998, if Above: DTE Energy and Right Executive Vice President federal regulatory approvals are obtained. By 2002, all Detroit Edison President and and Chief Financial Officer Lany Wesording [,Ny,$n9],cer y' i y customers would have the option of choosing an alternative power supplier. The MPSC order provided an initial a DTE Energy's common stock dividend yield of estimate of Detroit Edison's stranded costs and related 5.94 percent compared favorably to the 45-utility average charges. Based on a market clearing price of 2.9 cents per of 4.73 percent. kilowatthour, Detroit Edison could potentially recover a DTE Energy's stock provided total return of $2.$ billion of stranded costs through the use of a transition 13.1 percent in 1997. surcharge. Many of the details of the MPSC plan, however, a What's more, DTE Energy is investing heavily still need to be worked out. Action by the Michigan in non-regul ted businesses that show the promise of legislature on restructuring also is anticipated. higher retums. Our goal is to protect and grow your investment and to S what distinguishes a good business from a great help provide the economic security so vital to you -- and all emnpany People detennine a company's success. Of the people living and working in Southeastern Michigan. < ourse, we depend heavily on the people who invest in We'll do whatever is necessary to ensure that industry and run the business. But we also value each and every restructuring is fair to all parties, including all our share-employee who pmvides the dedication and spirit that holders and business and residential customers. entisen the organization. We believe that the fundamental reasons why you would We've recently added about 140 managers and want to invest in our Company remain solid. empigees to DTE Energy non-regulated subsidiaries to { . Our common stock closed the year at $34.68, up broaden our expertise in energy-related businesses. 7 percent from its 1996 closing price,

.= Financial T bS}5 $1b5 kY$S l Q Q 1 I s a E Percent Change

e 1997 1996 1995

'97 vs '96 '96 vs '95 Operating Revenues (Millions) $ 3,764 $ 3,645 $ 3,636 3.3% 0.2% Net income (Millions) 417 309 $ 406 35.0% (23.9%) Earnings Per Common Share $ 2.88 $ 2.13 $ 2.80 30.2% (23.9%) Dividends Declared Per Share $ 2.06 $ 2.06 $ 2.06 Return on Common Equity 12.0 % 89% 11.9 % 34.8% (25.2%) Average Common Shares Outstanding (Millions) 145 145 145 Book Value Per Share $ 24.51 $ 23.69 $ 23.62 3.5% 0.3% Assets (Millions) $11,223 $ 11,015 $11,131 1,9% (1.0%) System Sales of Electricity (hWh-Millions) 47,095 46,407 45,973 1.5% 0.9% o RIturn on Common Equity Earnings Per Share vs. Operating Revenues System Sales of Electricity Dividend: Per Share to.ners ie udh.ast atm min si gooneens 1 i QR NN R.N.. }' y,gs p nsa u.sv, s t _M i 4 }- i I I r f. 1 i < '.u '[ { [:.

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E = DTE ~ The New Formulafor Energy copouiiiii.. Toy V Michigan's Largest qm {, g Electric Utility s Mg - o ~ m l Building on nearly a gpi , g. c rgl.,

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1 ineteen-hundred-and-ninety-seven was a year to test one's mettle. Our employees p.oved their character and integrity during trying times. They showed that our Company had the stamina to sustain not only the woist ice storm in Detroit Edison's 95-year history, but also a seues of summer tornadoes and other twists of fate. First, employees demonstrated their best performance / ever in the aftermath of the March ice stonn. Then just before the Independence Day holiday weekend. more than 5,(WW) cmployees and contractors again showed their true colors. Within 1(X) hours of the devastating twisters, we successfully restored 95 percent of our 370,(XH) customers w ho had lost power as a result of the stonn. This heroic action demonstrates the gusto with which employees work ? Above: Detroit Edison Right: Melinda Jort es, provides reliable electric assistant manager of service. Our army of line Emergency Preparedness, workers quickly restores leads storm response and electricity to customers restoretion. A new af-ter summer storms and storm-response plan tornadoes. In addition, helped the Company we helped Hydro-Quebec achieve its fastest rate of rebuild its electrical dis-restoration ever in March tribution system after a 1997 following the worst brutal ice storm hit the ice storm in Company Montreal area it' January history. . L' 10D8. About 300 of our f linemen and support For right: From left, yh personnel helped the DTE Shareholders United j) Canadian utility to Chairman Jerry Sobczak 1-/,k t restore power to some talks about restructuring 3 million people, with Detroit Edison's tg ? Marva Goldsmith, @g j l? 3 ;. @ regional manager, and ^s f i Jim Beaubien, lineman. ?l: ~, g' Y -1

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serve them outside our service territory. We're leaders in Company with nearly a century as an environmental leader? TW Y the energy industry and delighted to follow our customers We have more than a decade of experience with biomass a M wherever they want to go around the globe. So we're as projects that use landfill gas, another renewable energy { a optimistic about our growth prospects in Ohio, Orlando, source. One of our subsidiaries collects the waste gas or 5 3 Fla., and Ontario, Canada, as we are of the successful sales methane from landfills and turns an environmental liability s we've landed in Illinois, Pennsylvania and Maryland. into an energy resource for communities coast to coast. k We listen to our customers and know their needs. Many DTE liiomass Energy's new Florida landfill gas-to-industries are as energy-intensive as the electric industry is energy facility will displace about 10 percent of the fossil capital-intensive. And we're known for providing total fuel previously used by Champion International Corp.'s pulp energy solutions for businesses such as steel, chemical, and and paper mill in Cantonment, Fla. It provides a safe and paper and pulp companies. reliable energy source; biomass technology actually reduces DTE Energy companies build on these strong customer landfill odors and safety hazards. relationships and have earned a reputation for reliability and One of our newest landfill gavto-energy projects helps service. Detroit Edison provides commercial businesses a North Carolina pharmaceutical company. We recently with personal attention and ideas for cost-effective signed a 15-year contract to sell steam generated from the refrigeration as well as highly efficient heating and methane gas at the North Wake Landfill to a plant near cooling systems. Raleigh that manufactures the pain-reliever ingredient We partner with geothermal manufacturers and distribu-acetaminophen. Mallinckrodt Inc. saves money because tors to educate Detroit Edison's business and residential the biomass energy costs less than the natural gas it customers about the benefits of these highly efficient and presiously used to make steam to fuel its boiler. j environmentally friendly systems. Our geothermal cus-We've led the country in providing our customers with tomers save up to 60 percent on their heating and cooling such innovative energy solutions. This strength will enable costs by tapping into the earth's energy. What could be a us to expand our line of products and services even as we more natural choice than buying cheap, clean energy from a grow regionally and nationally. ny em, r 7-L ' T ' y f," MM. ' ;(j g ,- n c f. .e 4 y s - )

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1 1 1 Y We're becoming l ]! powerhouse a reglotia $>li iven the restructuring of the electric P'- utility industry, one logical area for growth involves selling more of our basic product outside our Southeastern Michigan service territory. We currently sell more power in the eastern Midwest than all but one other investor-owned utility. Like the model of quality and service in the car rental industry, we finnly beheve that being Number 2 denotes great power and . greater responsibility. In fact, our employees reflect the kind of "We try harder" spirit that results in customers retuming time and again. Detroit Edison currently sells about 10 percent of the electricity purchased in the nine states of the East Central Area Reliability (ECAR) region. We plan to gain market share by selling power in Pennsylvania and othe nearby 1 states, making us a regional powerhouse. I Above: The nest plant to. ' stight: Veteren traders. With electric generation costs at record lows for our use pulvertred coal es a - such as Snick Meyers, - fuel in Detroit Edison's proeident of DTE Energy Company, we continue to take steps to reduce'co:,ts and - l - system, the Trenton Trading, will use the ' Channel Power Plant gen. : Coenpany's on, ' - improve reliability and efliciency. In 1997, we benefited 1 .c ersted a record onwont of. huying and selling whole-from nearly $20 million in cost-saving ideas through out. rem le Manager, for i .. Keith Weitere and Plant - now power merketers. Menever lutelanie McCoy - .,, Innovations,, employee-suggestion program. In addition, guido eertployees in their,

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continuing seu et to signs with DTE-CoEnergy we've gained efficiencies in meter' reading and billing ; become en suponding, merking one of our :\\ - profit-detwen fossil energy-. first electric sales in' eenversion business. For - Pennsylvania. Our joint '

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new fuel management coal. 30 : .. - - : : la the inittel - i oonveyor that offers both ' ~ etegos of deregulation., economic and envirem~.:. 'f tel lunefits. t

./, r b through a shared services agreement with Michigan We're among the top coal-bred generators in North Consolidated Gas (MichCon). We've also signed a live-year America with about three-quarters of our operating capacity e a contract with MichCon to process its customer mail pay-coming from eight coal-fired power plants. We're leverag- { ments and we will jointly hire an engineering firm to mark ing our experience to establish ourselves as a national mar-5 3, areas where both utilities have underground facilities. Our Leter and trader of both coal and energy. E new supply chain process initiatives promise greater cost DTE Energy fomted a joint venture kith MCN Energy to [= savings by focusing on continuous improvement, efficiencies sell natural gas and electricity :ntt uphout the Great Lakes j and purchasing economics throughout our Company. and Mid Atlantic states. Our DTE-CoEnergy senture was Operational excellence continues to be a reiority at our one of the first 30 companies to compete for business in the sole nuclear power plant. Fermi 2 recently set a new gross initial stages of deregulation in Pennsylvania. We signed generation record of 1,202 megawatts (MW) and we expect contracts to serve more than 700 customer hications. to upgrade its maximum dependable capability rating As part of the competitive power-marketing industry, we from 1,098 MW to 1.200 MW. .can use what Detroit Edison has learned over the years buy-We're particularly proud of the people working at our ing and selling electricity to and from other utilities on a nuclear plant for having the best radiological-protection w holesale basis. We can help our business customers record for any boiling-water reactor in the country. We've schedule, dispatch and meter the electricity that they buy. recruited managers from some of the country's best-per-We formed DTE Energy Trading in 1997 to trade power forming nuclear plants. Our Fermi 2 team continues to and allow us to benefit from these new market opportunities. improve plant safety. In addition,it focuses on reducing This new non-regulated w holesale power supplier supports operating and maintenance expenses as well as the costs our new retail energy marketing efforts. of our uranium fuel. Our energy sales outside Southeastern Michigan are Our diverse mix of fuels also includes solar enerhy, expected to increase significantly during the next five years hydroelectric power from our jointly owned Ludington as more and more retail customers are given the opportunity Pumped Storage Plant, as well as fossil generation. to select their energy supplier.

l Y We're helping our i CUStORTierS GROW 9 { and prosper a> Ii 5 s the electric utility industry is deregulated, we understand that other companies also are k>oking for ways to betar control their costs to make it more profitable for them to make power. That's why our subsidiary, DTE Coal Services offers custorners contracts to 1 uy or sell coal. In this respect, , j.[ increawd competition in the electric utility industry actually lh;:R;&)y I m m means more opportunity for DTE Energy. l b \\[hy.,,.7: <. vp[ 7 Utilities and other businesses need new services that we j ,mg s %f { E ghg ' 4-Our Midwest Energy Resources Company (MERC) g industry leader m coal sourcing and transportation. ?rp* subsidiary handled more than 10-million tons of low sulfur Western coal for Detroit Edison in 1991 In addition, we bought another 5-million tons of this coal from Montana and Wyoming and sold it to companies in North America 4s Above: DTE Energy helps From left are: Thomas the U.S. steel industry to Brunner, project manager, increase its competitive-Barry Markowitz, ness in the glob.A market. DTE Energy Services in 1997, National Steel president, and Gary sold us its coke-oven bat. Quantock, asset manager. tery and signed a 12. year contract to buy coke frorn Far right: Ideal Steel & DTE Energy Services, Builders' Supplies, Inc. which will own, operate President and Chief and maintain the facility. Executive fficer D Frank Venegas, Jr. talks Right: DTE Energy Services with Norman S. l.ittles, built a 1,080-ton allo Detroit Edison minority which houses pulvertred business administrator, coal before it is distributed The Company has con-into three blast furnaces tracts with more than 100 at National Steel minority-owned business-Corporation's Zug Island es. Mr. Littles has been steel making feeliity. Instrumental in supporting growth opportunities to local businesses.

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l l l 3, greenhouse-gas emissions. Building on Detroit Edison's ourjoint venture with Mechanical Technology Inc., expects 17 diverse mix of fuel sources, we added our second solar-to introduce a system that uses Proton lixchange Membrane o A energy facility in October. The U.S. Department of Energy (PEM) fuel cell technology to generate electricity for p will provide partial funding for this Michigan facility as well homes, small buildings and remote locations. The sy stem is d 3 as two future solar projects. Our pilot program enables eight expected to change the electric utility industry by reducing E conunercial businewes to help Detroit Edison promote solar overall dependence on centrally hicated power plants. [ energy by forming partnerships with Southeastern Michigan Six independently functioning promtypes will be put into school districts. Through SolarSchools "' each participating operation during the summer of 1998. school will receive up to 2,(XX) kilowatthours annually of While buildings account for about one-third of carbon energy from the sun. In addition, the program includes a dioxide emiwions in the United States, the remaining two-two-week curriculum the Company developed on solar and thirds comes from the transportation sector. Plug Power, other alternalise energy fomis. along with the U.S. Department of Energy, Los Alamos Our SolarSchools"' pilot has been so successful that National 1.aboratory, the flig Three automakers and their plans are under way to make it a national program. We're suppliers, is helping develop fuel cells foi automotise appli-bringing it to as many as 10 Maryland schools as part of cations. In October 1997, Plug Power announced a major President Clinton's Million Solar Roofs initiative. We've breakthrough in the adva.ument of /cro-emiwion schicles. also had interest from 25 other states. Plug Power's fuel cell module was part of an experiment that Fuel cells represent another exciting discovery in our successfully converted gasoline into electricity. Up to this country's plan to preserse a cican environment. Fuel cells time, fuel cells have been powered by hydrogen or methane, generate electricity using an electrochemical rather than a which are less convenient for use in automobiles. combustion process, virtually eliminating pollution and Ohviously, we're excited about such opportunities to significantly reducing the production of carbon dioxide, grow new businewes for DTE Energy and our customers at a greent.ouse gas, fly the year 2(XX), Plug Power, L.L.C., the same time that we advance a better society. e r? O i j -, S Wm EAj 2 u ] g... i'. eQ , p-a k h f w [' 'g An

t s M, DTE Entrcy CcmpInyanaCMKnG # S ~ pMSCUSS!!On & Ap naysySES Y t B ofFinancial Condition and ,i Results of Operations k t. E. This discussion and analysis should be the top tier of coal Gred generators in North y { read in conjunction with the Consolidated America. An Operational Excellence Plan Financial Statements and accompanying at Fermi 2 is designed to ensure safety Notes thereto, contained herein. and reliability, while reducing operating The Detroit Edison Company (Detroit and maintenance costs. The Systematic I Edison)is the principal subsidiary of DTE Assessment of Licensee Performance Energy Company (Company) and, as such, (SALP) Report, covering the period March unless otherwise identified, this discussion 1996 through November 1997, recognized explains material changes in results of that successfulimplementation of this plan operations of both the Company and resulted in significant improvements in Detroit Edison and identifies recent trends operations. Detroit Edison's transmission and events affecting both the Company and and distribution network will be strength. Detroit Edison. ened by continued emphasis on customer service and reliability. CORPORATE STRUCTURE Detroit Edison's electric power sales On January 1,1996, Detroit Edison's and system demand have grown at common stock was exchanged on a share-compounded annual rates of about 3% for-share basis for the common stock of the per year for the past five years. While the Company; and the Company became the introduction of competition is expected to parent holding company of Detroit Edison. reduce system growth, electric power sales Earnings Per Share

• • "='

The holding company structure was adopted for the service territory are projected to to position the Company for changes in increase at a compound annual rate of [ the electric utility industry by providing about 2% over the next five years. 3 financial nexibility for the development Non-regulated affiliates and joint [. j of new non-regulated energy-related ventures have been established as the businesses, it is also a mechanism for Company pursues businesses apart from the separating the regulated utility business regulated operations of Detroit Edison. The { of Detroit Edison from non-regulated Company is pursuing a variety of energy businesses thereby ensuring compliance related business opportunities, in 1997: l with regulatory requirements.

• The Company, through its non regulated subsidiary, EES Coke Battery Company, GROWTH Inc., acquired a coke oven battery J

The Company and its principal subsid. (a facility to process coal used in the iary, Detroit Edison, are developing business production of steel) and related assets strategies to remain competitive and in River Rouge Michigan. stimulate growth. Detroit Edison will

• The Company has formed a new power continue to focus on the success of its core marketing subsidiary, DTE Energy generation business and hical distribution Trading, Inc., in response to industry l (,"j,[#

company. Aggressive cost control efforts deregulation and related market opportuni. tsend 199s eammes perinareinclude are expected to place Detroit Edison arnong ties. The new subsidiary will market and the steam heatmg specialcharge.

~1e trade electricity and natural gas physical Michigan Public SenIce Commission products and financial instruments and (MPSC) S provide risk management services. Detroit Edison is regulated at the state + The Company formed DTE-CoEnergy level by the MPSC, which agency has been l L.LC., a joint senture with CoEnergy considering various proposals to implement { Trading Co., a MCN Energy Group, Inc. a competitive electric utility marketplace. f subsidiary, to sell natural gas and The December 1996 MPSC Staff Report it electricity to customers. on Electric Utility Restructuring set forth E f e The Company formed Plug Power principles Detroit Edison believes to be L.L.C., a joint venture with Mechanical vital to a fair and orderly transition to Technology,Inc. The primary focus of competition. Plug Power will be to develop small fuel in a February 1997 Order, the MPSC cells for use in homes. requested that Detroit Edison make an

• The Company, through its non-regulated informational filing disclosing how the Staff subsidiary, DTE Rail Services Inc.,

Report would be implemented. In March acquired railcar maintenance, repair, 1997. Detroit Edison liled its response with storage and interchange facilities. the MPSC. Detroit Edison continues to support its position that direct access must ELECTRIC INDUSTRY be coupled with the opportunity to recover DEREGULATION stranded costs. Detroit Edison also pro-Federal and state legislators and posed a plan for the recovery of stranded regulators are working to introduce costs, including securitization of appioxi. com,,etition and customer choice into the mately $2.8 billion and transition charges generation segment of the electric public to be assessed to customers leaving the utility industry, believing that competition system. Detroit Edison proposed to mitigate will lead to reduced electric rates and approximately $800 million of stranded stimulate economic growth. Detroit Edison costs through reductions in operation and has been voluntarily participating in these maintenance expenses, in addition, because efforts. Traditional utility services are deregulation of electric markets will result

c. pita:

being unbundled, with many of such in linancial uncertainty and risk to the ["j,'jj'Q services becoming non regulated; and a shareholders of the Company, Detroit demand is being created for new energy. Edison will bear the risk of lost electricity ), related services, sales due to customer choice. ) As discussed below, there are ongoing in a June 1997 Order implementing j Michigan legislative, judicial and adminis, restructuring, the Commission modified p j h( ; seeL trative proceedings considering the several of the recommendations contained 1 deregulation of the generation segment of in the Staff Report and Detroit Edison's ]f the Michigan eketric public utility industry. March filing, and left several key items to be among sher things. Neither the Company resolved through additional hearings. i nor Detroit Edison are able to predict the it supported a pht sed-in approach to open j outcome or timing of these proceedings, access, but indicated it was premature to J } support securitization because legislation is required and there are unre3olved tax k issues. It indicated that, due to uncertainty j regarding the future price of electricity, a ? j l true-up mechanism should be established to adjust revenues intended to recover potential B Non-Regulated W Regulated

i. '20 / stranded costs. The MPSC also required indicating that such a determination should h additional hearings to consider how the true-await enabling state legislation. The { up mechanism would work, and to consider Commission also determined that Detroit j the appropriate level to free /e the Power Edison's PSCR should be suspended one y Supply Cost Recovery Clause (PSCR). month after open access load reaches y Detroit Edison was required to file tariffs. 225 megawatts and that open access ( subject to additional hearings. The June customers should have rates providing for Order also indicated that December 31, the collection of nuclear decommiwioning g 5 2(H)7 would be the last day for collecting and site securi,y charges. revenues to recover stranded costs. The provisions of the October 1997 Thereafter, in October 1997, the MPSC Orders providing for an annual proceeding issued a series of Orders, w ith one of the for stranded cost recovery true-up based three MPSC Commissioners diwenting, upon the actual price paid by direct access w hich provided for a competitive direct customers and the limitation of reciprocity access program for Detroit Edison. These prior to completion of the phase-in period Orders did not provide a definitive basis only to utilities and utility affihates for Detroit Edison to recover its potentially remained unchanged by the Restructuring stranded costs, substantially all of w hich Order. costs were fully litigated in previous The January 14,1998 MPSC Order rate proceedings before the MPSC. On called for the filing of tariffs to implement January 14,1998, in response to motions for the restructuring plan by June 28,1998, rehearing, the MPSC, with one Commis-On January 21,1998, the Con mission sioner diwenting, issued a Restructuring iwued an Order indefinitely delaying the Order. In this Order, the MPSC expressed filing of tariffs and requiring,instead, the its long-standing view (disputed by Detroit filing of any motions for clarification by Edison) that it has authority under Michigan January 28,1998 addressing iwues raised by state law to establish a mandatory direct the January 14th Order. As directed by the access program. The Order established a MPSC, Detroit Edison has made filings l phase-in schedule for open access, providing requesting, among other things, clarification for Detroit Edison to implement the program of the manner in which the stranded cost in incremental bhicks of 225 megawatts in true up mechanism would work. Detroit March and June 1998 and January 1999 Edison indicated in its filing that the 2(MX) and 2(K)l, with all remaining custom-mechanism as currently contemplated may ers hasing the option of choosing open be insufficient to allow recovery of all accew service on January 1,2002. Portions stranded costs. of the program are subject to the final The implementation of a competitive approvals of the Federal Energy Regulatory electric industry in Michigan will also l Commiwion (FERC). Using an estimated require new state legislation. On October 7. market price for power of 2.9 cents per 1997, Michigan House Bill 5245 was kilowatthour, the Commission found that introduced. While this proposed.egislation Detroit Edison's stranded costs were provides for the restructuring of the electric $2.48 billion and that a transition charge of utility industry, it substantially differs from 1.25 cents per kilowatthour was appropriate, the competitive program contemplated by betroit Edison is uncertain wherher the the MPSC. Legislation more consistent transition charge will be sufficient to recover with 1997 and 1998 MPSC Orders is its stranded costs. A securitization charge expected to be introduced in the Michigan was not established, with the Commission irgislature in the first quarter of 1998.

Yn Y On January 20,1998, the Michigan Detroit Edison has a power pooling Court of Appeals ruled that the MPSC agreement with Consumers Energy l had suf ficient statutory authority under Company (Consumers Energy). In March Michigan law to authorize an experimental 1997, the joint transmission tariff, filed by retail wheeling program. On February 10, Detroit Edison and Consumers Energy with 3 1998, Detroit Edison requested the the FERC in December 1996, became y Michigan Supreme Court to grant leave effective. In compliance with FERC Order ( to appeal the January 20,1998 Michigan 888, the tariff modified the pooling agree-g Court of Appeals decision. ment to pennit third. party access to a transmission facilities utilized for pooled Federal Energy Regulatory Commission operations under non-discriminatory terms Detroit Edison is regulated at the and conditions. As Detroit Edison and federal level by the FERC with respect to Consumers Energy were unable to ugree accounting, sales for resale in interstate on other modifications to the pooling commerce, certain transmission services, agreement, Detroit Edison has requested that issuances of securities, licensing of hydro. the FERC approve its tennination. Consum-electric and pumping stations and other ers Energy has requested that the pooling

matters, agreement be continued. The FERC has not in 1996, the FERC issued Order 888 ruled on either of these requests.

which requires public utilities to file open in February 1997, Detroit Edison access transmission tariffs for wholesale received permission to sell wholesale power transmission services in accordance with at cost-based and market. based rates per non-discriminatory terms and conditions and tariffs approved by the FERC. In September Order 889 w hich requires public utilities 1997, Detroit Edison received permission and others to obtain transmission infonna. from the FERC to sell power to affiliates tion for wholesale transactions through a under various terms and conditions. As a system on the Internet. Order 889 also condition of the agreement, the FERC requires public utilities to separate transmis. imposed posting requirements on an sion operations from wholesale marketing electronic bulletin board to prevent Detroit functions. During 1997, the FERC issued Edison from providing preferential market clarifications of these Orders. information to an afliliate, or engaging in July 1996, Detroit Edison filed its in preferential wholesale power sales Pro Fonna Open Access Transmission discounting. Tariff in compliance with FERC Order 888. Detroit Edison is unable to estimate During 1997, Detroit Edison was able to the revenue impact,if any, of these newly negotiate a partial settlement regarding the required tariffs and procedures. price and terms and conditions of certain services provided as part of the tariff, ENVIRONMENTAL MATTERS Several remaining issues could not be Protecting the environment from resolved through negotiation and are being damage, as well as correcting past environ-litigated. A decision on the litigated issues mental damage, continues to be a focus of. is expected in 1998. Rates currently L % state and federal regulators. Legislation i utilized for transmission are consistent s C and/or rulemaking could further impact the settlement achieved and are subject to the electric utility industry including f refund upon the FERC's decision regarding. Detroit Edison. The Environmental the issues being litigated. Protection Agency (EPA) and the Michigan Department of Environmental Quality have i a

Y aggressive programs regarding the clean-up in inventory levels. Net cash irom operating h of contaminated property. Detroit Edison activities increased in i996 compared to anticipates that it will be periodically 1995 due primarily to changes in accounts m g j included in these types of environmental receivable, mainly as a result of the 1995 g proceedings. repurchase of customer accounts receivable During 1997, the EPA issued proposed and unbilled revenues, 5 li g ozone transport regulations and final nev-Internal cash gener/an is expected to g air quality standards relating to ozone be sutlicient to meet cash requirements for 3 and particulate air pollution. A tentative Detroit Edison's capital expenditures as well international agreement was reached to as the Company's scheduled long term debt address global climate change. The pro-redemptioa requirements. posed new rules will lead to additional controls on fossil. fueled power plants to Cash Used for Investing Actisities reduce nitrogen oxides, sulfur dioxide, Net cash used for investing activities carbon dioxide and fine particulate emis-was higher for the Company in 1997 due to sions. Unless the rulemaking process results the acquisition of the coke oven battery, a in major revisions to the proposal, Detroit non-regulated expenditure. For Detroit Edison estimates that controls could cost Edison, net cash used for investing was more than $400 million to meet the ozone lower in 1997 due primarily to lower plant transport regulations. Until the timing and and equipment expenditures. In 1996, net required level of : missions reduction is cash used f or investing activities increased j determined Detrc't Edison is unable to due primarily to higher plant and equipment predict w hat impact the initiatives may have. expenditures. l Following the concht:, ion of all proceedings, Cash requirements for 1997 non-1 it is expected that Detroit Edison's costs will regulated investments and capital expendi-l increase, perhaps substantially. Additional tures were $228 million and are estimated environmental costs would be expected to be to be approximately $400 million in 1998. l recovered under traditional ratemaking Significant non-regulated investments are principles. However, Detroit Edison is expected to be externally financed. Cash Flow From unable to predict what effect,if any, Detroit Edison's cash requirements Operations deregulation of the electric utility industry for capital expenditures are expected to m.n m mew g q would have on recoverability of such be approximately $2.5 billion for the [ j environmental costs. period 1998 through 2002, in 1998, cash Io. 1 requirements for capital expenditures are h LIQUIDITY AND CAPITAL estimated at $575 million. Detroit Edison RESOURCES has no plans to build any additional electric r [ Cash Prosided by Operating Activities generatmg plants. Y a The Company generates substantial { cash flows from operating activities as Cash Used for Financing Activities { shown in the Consolidated Statement of Net cash used for Company financing i Cash Flows. Net cash from operating activities decreased in 1997 compared to l [ activities, which is the Company's primary 1996 due primarily to the issuance of non-source of liquidity, was $1,006 million recourse debt for the acquisition of a coke I in 1997, $1.079 million in 1996 and oven battery, an increase in short-term l $913 million in 1995. Net cash from borrowings, and a reduction in redemption l operating activities decreased in 1997 of preferred stock, partially offset by higher l compared to 1996 due primarily to changes redemptions of long-term debt. l 1 E

i

• 23
• Net cash used for financing activities YEAR 2000 y

increased in 1996 compared to 1995 due The Company has been involved in an g primarily to the redemption of preferred enterprise-w ide progrtun to modify its com-l

stock, puter applications and operating systems to j

The following securities were redeemed be Year 2000 compliant. The total cost of 1 by the Company in 1997: the program is being detennined as part of s Detroit Edison General and Refunding the planning process. Initial estimates of the E Mortgage lionds costs are approximately $50 million. hiif. 3 Mandatory Redemptmns ication costs will be expensed as incurred. 1 1990 Series A,11. C 5 7.99 - H.44 redeemed in March $ 19 w hile the costs of new software will be capi-1993 Series G . e an amo ed om the soh.w are's ta 5.44 redeemed in May 125 useful life. The Company believes that with y, Open Market Purchases - ~ ~ the above modifications, the Year 2tK)0 will 1993 Series E. J an al mpa on the operations 7.79 - 7.8% redeemed in January, March and April al of the Company. The Company also believes Total IHg that the cost of these modifications will not Non Recourse have a material effect on its financial 7.2% redeemed in October and position, h.quidity and results of operations. December ll Total Redemptions $196 RESULTS OF OPERATIONS in February 1998, Detroit Edison will Net income for 1997 was $417 million, redeem $150 million of 6.44 Series S or $2.88 per share, up $108 million over General and Refunding hlortgage Honds 1996 earnings. After adjusting 1996 due October 1,1998, earnings for the steam heating special charge.1997 earnings reflect a MARKET RISK SENSITIVITY 2.79 increase over the prior year. Detroit Edison has investments valued The decrease in net income for 1996 at market of $239 million in three nuclear was due to a $149 million ($97 million decommiuioning trust funds. These after tad, or 50.67 per share, special charge Consolidated investments consist of approximately 40g foHowing completion of Detroit Edison's i,' in fixed debt instruments and approximately resicw of its steam heating operations. The increase in net income for 1995 60% in publicly traded equity securities. A hypothetical 10% increase in interest rates was due to higher sales of electricity. The and a 10% decrease in equity prices quoted sales increase was partially offset by higher j by stock exchanges would result in an operating expenses, including a non-cash $8 million and $10 million reduction in the low of $42 milli n ($32 million after-tae, fair value of debt and equity securities, or 50.22 per com on share, on Detroit l respectisely, Seld by the trusts at December Edison's steam heating business due to the j j 31.1997. Adjustments to market value C mpany's adoption in the fourth nuarter of [ j would result in a corresponding adjustment 1995 of Statement of Financial Accunting } ] to accumulated depreciation or other Standards No.121. "At counting for the f: habilities, as applicable, based on current knpairment of Long-Lived Assets and for J regulatory treatment. Long Lived Assets to Be Disposed Of." f j A hypothetical 10% decrease in interest fl l rates would increase the fair value of long-term debt from $4.2 billion to $4.6 billion at December 31.1997. ygh L. 3_ f.y.wu..w

'24' Y Operating i esenues Operating Espenses g Total operating revenues increased fueland Purchased Power (decreased) due to the following factors: Net system output and average fuel m 1997 1996 and purchased power unit costs per (Alillions) Megawatthour (MWh) were as follows: Detroit Edison 5 Rate Changes $ M21 $(29) 1997 1996 I995 E Sptem sales solume and mix 27 28 (Thousands of AfWh) Sales between utilities 48 (6) Power plant generation Fermi 2 performance Fossil 42,162 41,829 41,636 3 disallow ances (3) 12 Nuclear 5,523 4,750 5.092 Other - net 5 i Purchased power 6.146 5,149 5,423 fotal Detroit Edison 15 6 Net sptem output 53.831 51,728 52.151 Non-regulated 104 3 Average unit cost Total $119 $ 9 (3/Atwh) $14.54 $15.03 $15.29 Detroit Edison kilowatthour sales in 1997, fuel expense decreased due to increased (decreased) from the prior year the termination of high cost long-term coal as follm: contracts, reduction in coal contract buyout 1997 1996 expense and a decrease in nuclear fuel costs. Residential (0.4)% (0.4)q liigher purchased power expense was due Commercial I.6 1.3 Industrial 2.0 1.7 primarily to increased purchases of power Other (primarily sales w hile Fermi 2 was shut down. for resale) 9.7 1.2 Total System 1.5 0.9 in 1996, fuel and purchased power Sales between utilities 73.4 (31.1) expense decreased due to lower average unit Total 4.5 ( 1.0) costs related to deci.. ming fuel prices In 1997 and 1996, residential sales resulting from greater use of lower-cost decreased due to less heating and cooling western low-sulfur coal and a decrease in demand w hich more than offset growth in nuclear fuel costs, and lower net system the customer base. Commercial and output, partially offset by a reduction in the industrial sales increased for both periods receipt of Fermi 2 business interruption renecting a continuation of good economic insurance proceeds. Detroit Edison Fuel Costs io.nm p., u.nion sM conditions. Sales to other customers increased in both periods due to a greater Operation and Maintenance demand for energy. Sales between utilities in 1997. Company operation and j' si n also increased in 1997 due to greater maintenance expenses increased $49 million l si u demand for energy and increased availabil-due primarily to increased non-regulated sui ~ : ity of energy for sale. Sales between subsidiary (mainly EES Coke Battery ( [ j utilities decreased in 1996 due to lower Company. Inc. and PCI Enterprises [ j demand for energy. Company) expenses of $95 million offset p in 1997, other non-regulated operating by lower net Detroit Edison operation revenues increased due primarily to and maintenance expenses. [ ]) revenues from EES Coke Battery Company, As a result of strinaent cost controls, l I [ ] Inc. and PCI Enterprises Company Detroit Edison operation and maintenance [ 3 (DTE Energy Services, Inc. subsidiaries), expenses decreased in 1997 due ~ j primarily to lower postretirement benefit l

• ]

($18.8 million) and fossil generation ($15.1 million) expenses, lower minor storm L E and trouble work ($13.6 million), the Fermi 2 OS%a%NI%L i

0* y outage accrual in 1996 ($13 million) and . Interest Expense and Other V O receipt of additional insurance proceeds Intercsf Expense

l related to the 1993 Fermi 2 turbine replace-Interest expense increased in 1997 due

[ ment ($9.8 million), partially oliset by pri.narily to the issuance of debt to finance j higher compensation expenses related to a asset acquisitions of non-regulated subsid-g shareholder value improvement plan iaries, partially offset by Detroit Edison's [ ($25.7 million). mandatory and optional redemption of debt. [ Operation and maintenance expense Interest expense decreased in 1996 due g increased in 1996 due primarily to higher primarily to Detroit Edison's mandatory and 1 overhead and underground lines support optional redemption of debt. ($26.1 million), nuclear plant expenses ($16.6 million), operating and development Other-net expense related to new computer systems Other-net increased in 1997 due ($12 million), non-utility operations evperse primarily to higher accretion expense ($8.2 million), administrative and general ($9.5 mil! ion), lower accretion income expenses ($8.2 million) and employee ($3 million) and the write down of an benefits ($7.9 million) expenses. These equity investment ($5 million). increases were partially offset by lower Other-net decreased in 1996 due compensation expenses related to a primarily to expenses recorded in the prior shareholder value improvement plan year for the sale of accounts receivable and ($14.2 million), expenses recorded in the unbilled revenues ($3.1 million). year earlier period for the write-off or obsolete and excess stock material FORWARD-LOOKING STATEMENTS ($12 million) and lower major storm Certain information presented herein is expenses ($8.8 million). based on the expectations of the Company \\ and Detroit Edison, and, as such,is forward-Depreciation and Amorti:ation h3oling. The Private Securities Litigation Depreciation and amortitation expense Reform Act of 1995 encourages reporting increased in 1997 due primarily to increases companies to provide analyses and estimates in property, plant and equipment. of future prospects and also permits report-Depreciation and amortization expense ing companies to point out that actual results increased in 1996 due primarily to increases may differ from those anticipated. in property plant and equipment, including Actual results for the Company and internally developed software costs, and Detroit Edison may differ from those expec-increased Fermi 2 decommissioning costs. ted due to a number of variables including, but not limited to, the impact of newly re-Other quired FERC tariffs, actual sales, the effects Other operating expense increased in of competition, the implementation of utility 1997 due to increased legal expenses restructuring in Michigan (which involves ($19.5 million). pending regulatory proceedings, pending and Other operating expense decreased in proposed statutory changes and the recovery 1996 due to lower promotional expense of stranded costs), environmental and nuclear ) ($5.3 million) and expenses recorded in the requirements and the success of non-regula- ) c prior year for the fonnation of a holding ted lines of business. While the Company and company ($3.1 million). Detroit Edison believe that estimates given accurately measure the expected outcome, actual results could vary materially due to the variables mentioned as well as others. l

DTE Energy Company CONS 00idTaiGCE v Statementof!inCOnie l (in Millions, Except per Share Amounts) m i I Year Ended December 31 1997 1996 1995 i Operating Resenues $ 3,764 $ 3,645 $ 3,636 Operating Espenses Fuel and purchased power 837 846 850 Operation and maintenance 979 930 875 Depreciation and amortization 660 625 588 Steam heating special charges 149 42 Taxes other than income 265 259 252 Other 22 4 14 Total Operating Expenses 2,763 2,813 2,621 Operating Income 1.001 832 1,015 Interest Espense and Other interest expense 297 288 294 Preferred stock dividends of subsidiary 12 86 28 Other-net 18 (2) 4 Total Interest Expense and Other 327 302 326 Interest flerore Income Tases 674 530 689 income Tases 257 221 283 Net Income $ 417 $ 309 $ 406 Aserage Common Shares Outstanding 145 145 145 Earnings Per Common Share-liasic and Diluted $ 2.88 $ 2.13 $ 2.80 (See notes to consolidated financial statements.)

DTE En:rgy Cemp:ny CORSO[5 dated Statement of g'"*aw a s a d[" q O W S D '27' (In Millions) g m 3 d Year Ended December 31 l 1997 1996 1995 Operating Actisilles Net income $ 417 $ 309 $ 406 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 660 625 588 Steam heating special charges 149 42 Other (29) (30) 70 Changes in current assets and liabilities: Accounts receivable (36) (32) (222) Inventories (36) 42 (19) Payables 16 2 17 Other 14 14 31 Net cash from operating activities 1,006 1,079 913 Investing Actisities Plant and equipment expenditures (456) (531) (454) Purchase of Coke Oven flattery (21I) Nuclear decommissioning trust funds (68) (52) (43) Other (6) (34) (25) Net cash used for investing activities (741) (617) (522) Financing Activities Issuance of long term debt 250 224 Funds received from Trustees: Installment sales contracts and loan agreements 202 Increase (Decrease)in short term borrowings 32 (27) (2) Redemption oflong term debt (196) (176) (221) Redemption of preferred stock (185) (1) Dividends on common stock (299) (299) (499) Other (6) (11) (13) Net cash used for financing activities (219) (474) (334) Net increase (Decrease)ln Cash and Cash Equivalents 46 (12) 57 Cash and Cash Equivalents at lleginning of the Period 53 65 8 Cash and Cash Equivalents u "nd of the Period 99 53 $ 65 Supplementary Cash Flow Information Interest paid (excluding interest capitalized) $ 290 $ 277 $ 274 Income taxes paid 243 207 231 New capital lease obligations 34 35 27 Exchange of preferred stock of subsidiary for long-term debt 50 (See notes to consolidated financial statements.) w

DTE Ensrgy Ccmp:ny Consolidated V Balance Sheet 3 (in Millions, Except per Share Amounts and Shares) m i k Year Ended December 31 1997 1996 5'i ASSETS Current Assets Cash and cash equivalents 99 53 Accounts receivable Customer (less allowance for doubtf el accounts of $20) 305 304 Accrued unbilled revenues 137 136 Other 78 44 Inventories (at average cost) Fuel 130 120 Materials and supplies 173 144 Other 13 9 935 810 Imestments Nuclear decommissioning trust funds 239 172 Other 57 48 296 220 Property Property, plant and equipment 14,495 13,797 Property under capital leases 256 228 Nuclear fuel under capital lease 607 608 Construction work in progress 16 143 15,374 14,776 Less accumulated depreciation and amortization 6,440 5,943 8,934 8.833 Other Assets Regulatory assets 856 975 Other 202 177 1,')58 1,152 Total Assets $11,223 $11.015 i l (See notes to consolidated financial statements.)

Vg' V Em E.' d i 2 Year Ended December 31 E 1997 1996 y 1 l.l Altit.lTIES AND SilAREllOI. dells' EQUITY fi Cnrrent 1. labilities Long-term debt $ 205 5 144 Capital leases 110 144 Acccunts payable 161 161 /.ccrued interest 57 60 Dividends payable 78 78 Accrued payroll 81 81 Accumulated deferred income taxes 64 44 Other 261 190 1,017 902 Other I. labilities Accumulated deferred income taxes 1,983 2,024 Accumuicted deferred investment tax credits 301 315 Capital leases 137 115 Other 302 292 2,723 2,746 1.ong Term Debt 3,777 3.779 Shareholders' Equity Detroit Edison cumulative preferred stock, $100 par value,6,747,484 shares authorized, 5,207,657 issued, 1,501,223 shares outstanding 144 144 Common stock, without par value,400,(XX),(XX) shares authorized, 145,097,829 and 145,119,875 issued and outstanding, respectively 1,951 1,951 Retained earnings 1,611 1,493 Total Shareholders' Equity 3,706 3.588 Commitments and Contmgencies (Notes I,2,3,9,1I and 12) Total I labilltics and Shareholde Equity $ 11,223 $ 11.015 (See notes to consolidated financial statements.)

DTE En:rgy Crmp ny COrBSOI!5 dated Statement e e e i e v ofChanEes.in a.gaareBT10iiders y

2

'i]U!Bty 3

(In Millions, Except per Share Amounts) 4 5 2 i 1997 1996 1995 E 5 Shares Amount Shares Amount Shares Amount 1 Detroit Edison Comertible Preferred Stock Italance at beginning of year 56 5 6 Conversion of convertible preferred stock to common stock (46) (5) Redemption of convertible preferred stock (10) (1) llalance at end of year Detroit Edison Cumulathe Preferred Stock llalance at beginning of year 1,501 $ 144 3,351 5 327 3,850 $ 375 Exchange of cumulative preferred stock for debt (499) (50) Redemption of cumulative preferred stock (1,850) (185) Preferred stock expense 2 2 Ilalance at end of year 1,501 $ 144 1,501 5 144 3.351 $ 327 Common Stock Balance at beginning of year 145,120 $1,951 145,120 $ 1,951 144,863 $1,947 Repurchase and retirement of common stock (22) Conversion of cumulative preferred stock to common stock 257 4 llalance at end of year 145,098 $1,951 145,120 $1,951 145,120 $1,951 Retained Earnings llalance at beginning of year $1,493 $ 1,485 5 1,379 Net income 417 309 406 Dividends declared on common stock ($2.06 per share in 1997,1996 and 1995) (299) (299) (299) Preferred stock expense (2) (1) llalance at end of year $1,611 $ 1,493 $1,485 Total Shareholders' Equity $ 3,706 $ 3,588 $ 3.763 i (See notes to consolidated financial statements.)

DTE En:r;y C:mp:ny ,yCQp f q p to u ex a pGOlGSONdyEGG ,7 w c s o Fm.ancial a%w w,h &m -gw a mI d NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES accounting principles between regulated and non-regulated Corporate Structure and Principles of Consolidation - businesses. SFAS No. 7I permits the recording of regula-t DTE Energy Company (Company), a Michigan cmporation tory assets and liabilities that would have been treated as l incorporated in 1995, is an exempt holding company under revenue and expense in non-regulated businesses. The the Public Utility lloiding Company Act. The Company deferred amounts are being amortized to revenue and } has no significant operations of its own, holding instead the expense as they are included in rates. Continued applica-stock of The Detroit Edison Company (Detroit Edison), an bility of SFAS No. 71 requires that rates be designed to electric utility, and other energy-related businesses. On recover specific costs of providing regulated services and January 1,1996, the holders of Detroit Edison's common prmlucts, including regulatory assets, and that it be reason-stock exchanged such stock on a share-for-share basis for able to assume that rates are set at levels that will recover a the common stock of the Company; and certain Detroit utility's costs and can be charged to and collected from Edison subsidiaries were transferred to the Company in the customers. Although sarious MPSC Orders and proposed form of a dividend. Michigan legislation would aher the regulatory process in Detroit Edison, incorporated in Michigan since 1967, Michigan and provide a plan for transition to competition is a regulated public utility engaged in the generation, for the generation segment of the business, Detroit Edison purchase, transmission, distribution and sale of electric believes it continues to qualify under the accounting model energy in a 7,600 square mile area in Southeastern Michi-prescribed by SFAS No. 71. In Fuidance issued in 1997, gan. This service area includes about 13% of Michigan's the Emerging issues Task Force (EITF) of the Financial total land area, and about half of its population (approxi-Accounting Standards Board (FASB) concluded that the mately 5 million people), electric energy consumption application of SFAS No. 71 to a separable portion of a and industrial capacity. At December 31,1997, Detroit business which is subject to a deregulation plan should Edison represented approximately 964 of the Company's cease w hen legislation is passed and/or a rate order is

assets, issued that contains sufficient detail on a transition plan.

The consolidated financial statements presented herein The EITF also concluded that regulatory assets and include the financial results of operations of the Company liabilities originating in the separable portion of the and its w holly-owned subsidiaries as if the Company's business which is no longer under SFAS No. 71 should not current holding company structure had existed in all be written off if they are recoverable from a separable periods shown. All significant intercompany balances and portion of business which still meets the criteria of SFAS transactions have been climinated. Investments in limited No. 71. liability companies, partnerships and joint ventures are Detroit Edison has recorded the following regulatory accounted for using the equity method when significant assets and liabilities at December 31: control provisions are met. 1997 1996 Use of Estimates in the Preparation of Financial Recovery Ofinions) Statements -The preparation of financial statements in Through* conformity with generally accepted accounting principles Assets requires management to make estimates and assumptions Unamortized loss on reacquired debt 2033 $101 $111 that affect the reported amounts of assets and liabilities and Recoverable income taxes 2027 562 588 disclosure of contingent assets and liabilities at the date of Fennj 2 phase 4n plan 1998 84 196 Femu 2 deferred amonization 2008 66 63 the financ. l statements and the reported amounts of ia 19'M uorm damage costs 1999 30 revenues and expe ises during the reporting period. Actual Other 2022 13 17 results could differ from those estimates. Total Assets $856 5075'~ Regulation and Regulatory Assets and Liabilities - Detroit Edison is subject to regulation by the Michigan

1. labilities Public Service Commission (MPSC) and the Federal

""j[,nind deferred investment Energy Regulatory Commission (FERC). Detroit Edison Fenni 2 capacity factor meets the criteria of Statement of Financial Accounting performance standard 1999 74 73 Standards (SFAS) No. 71," Accounting for the Effects of Other 2003 25 6 Certain Types of Regulation." This accounting standard Total Liabilities $400 5394 recognizes the cost based ratemaking proces which results in differences in the application oigeneralIy accepted

• War through which the assets and liabilities will be recovered.

As discussed later herein. the potential deregsdation of the hiichigan electric industry may affect the recovery periods. l

DTE En:rgy Crmp ny Nct:0 to Censlidat:d Fincncici Stat:m:nto w Y . Unamortized loss on reacquired debt -In accordance Revenurs - Detroit Edison records unbilled revenues for g with MPSC regulations applicable to Detroit Edison, the electric and steam heating services provided after cycle discount, premium and expense related to debt redeemed billings through month-end. mI with refunding are amorti/ed over the life of the replace-Property, Retirement and Maintenance, Depreciation and 5 ment issue. Amortization - Utility properties are recorded at original 3 . Recmerabic income tases-See Note 5. cost less regulatory disallowances and an impairment loss s Fermi 2 phase-in plan -SFAS No. 92," Regulated for the steam plant in 1995, in general, the cost of proper-l Enterprises-Accounting for Phase-in Plans," permits the ties retired in the normal course of business is charged to capitali/ation of costs deferred for future recovery under accumulated depreciation. Expenditures for maintenance a phase-in plan. Based on a MPSC authorized phase-in and repairs are charged to expense, and the cost of new plan, Detroit Edison recorded a receivable totaling property installed, w hich replaces property retired, is $506.5 million from 1988 through 1992. Beginning charged to property accounts. The annual provision for in 1993 and continuing through 1998, these amounts will utility property depreciation is calculated on the straight-be amortized to operating expense as they are included in line remaining life method by applying annual rates rates. Amortization of these amounts totaled $112 approved by the MPSC to the average of year-beginning million, $102 million and $93 million in 1997,1996 and and year-ending balances of depreciable property by 1995, respectively. primary plant accounts. Provision for depreciation of . Fermi 2 deferred amortization - A December 1988 Fermi 2, excluding decommissioning expense, was 3.269 MPSC rate order provided for Detroit Edison's February of average depreciable property for 1997,1996 and 1995. 1990 purchase of Wolverine Power Supply Cooperative, See Note 3. Provision for depreciation of all other utility ine/s (Cooperative) ownership interest in Fermi 2. Since plant, as a percent of average depreciable property, was the straight-line amortization of the asset exceeds the 3.29% for 1997,1996 and 1995. revenues provided for such amortiration during the Grst Software Costs - Detroit Edison capitalizes the cost of 10 years of the recovery period, Detroit Edison is software developed for internal use. These costs are capitali/ing deferred amortization, totaling $67.2 million amortized on a straight-line basis over a five-year period through 1999. For 1997,1996 and 1995, the amounts beginning with a project's completion. deferred were $3 million,54.5 million and $6 million, Accretion Income - SFAS No. 90, " Regulated respectively. The deferred amounts will be amortized to Enterprises-Accounting for Abandonments and operating expense as they are included in rates during the Disallowances of Plant Costs," permits losses recorded years 2(XX) through 2008. due to discounting indirect disallowances of plant costs to 1997 storm damage cmts -The costs of major stonns be restored to income. The net after-tax losses original!y in 1997, as authorized by the MPSC, were deferred and totaled $198 million based on the discounting required by will be amortized into expense in 1998 and 1999 as they SFAS No. 90. These amounts are being restored to income are recovered through rates. from 1988-1998 as Detroit Edison records a non-cash . Unamortized deferred imestment tax credits-return (accretion income). The net after-tax income was Investment tax credits utilized which relate to utility $3.4 million, $5.3 million and $7.2 million in 1997,1996 property were deferred and are amortized over the and 1995, respectively, estimated composite service life of the related property. Capitali:ation-Discount and Expense -The discount . Fermi 2 capacity factor performance standard -The and expense related to the issuance oflong-tenn debt are MPSC has established a capacity factor performance amortized over the life of each issue. In accordance with standard which provides for the disallowance of net MPSC regulations applicable to Detroit Edison, the incremental replacement power cost if Fermi 2 does not discount and expense related to debt redeemed without perfonn to certain operating criteria. A disallowance will refunding are written off to expense. Expense related to be imposed for the amount by w hich the Fermi 2 three-redeemed preferred stock of Detroit Edisoa is written off year rolling average capacity factor is less than the against retained earnings used in the business. greater of either the average of the top 50% of U.S. Fermi 2 Refueling Outages - Detroit Edison recogmzes boiling water reactors or 50%. An estimate of the the cost of Fermi 2 refueling outages over periods in which incremental cost of replacement power is required in related revenues are recognized. Under this procedure,it cornputing the reserve for amounts due customers under records a provision for incremental costs anticipated to be this performance standard. incurred during the next scheduled Fermi 2 refueling Cash Equiralents - For purposes of the Consolidated outage. See Note 2. Statement of Cash Flows, the Company considers invest-Power Supply Cost Recorery (PSCR) -The MPSC f' ments purchased with a maturity of three months or less to determines the amount that Detroit Edison can recover for be cash equivalents. changes in power supply costs for purchased power and generation based on usage.

? p. StocA Ilased Compensation -The Company accounts for A January 17,1997 electrical components failure Y stock-based compensation using the intrinsie value method. damaged Fenni 2's main generator and required the unit to S Compensation expense is not recorded for stock options be removed from service until May 2,1997. Subject to a [ granted with an exercise price equal to the fair market value $1 million deductible, repair costs related to the electrical at the date of grant. For grants of restricted stock, compen-failure are expected to be reimbursed by insurance. Fenni 3 sation equal to the market value of the shares at the date of 2 was removed from service during the period October 3-3 grant is deferred and amortized to expense over the vesting 19,1997 for the replacement of defectise fuel awemblies. y period. See Note 3 for a discuuion of applicable MPSC [ Earnings Per Sharr -In 1997, the Company adopted Orders. SFAS No.128. " Earnings Per Share." Under the new Insurance - Detroit Edison insures Fermi 2 with property statement, two earnings per share (EPS) amounts are damage insurance provided by Nuclear Mutual Limited calculated, basic and diluted. The adoption of this state-(NML) and Nuclear Electric insurance Limited (NEIL). ment did not affect the Company's calculation of EPS due The NML and NEIL insurance policies provide $500 to the insignificant number of potential common shares. million of composite primary coverage (with a $1 million Reclaulfications - Certain prior y ear balances have been deductible and, effective January 22,1997, a $10 million reclassified to conform to the 1997 presentation. deductible for the turbine-generator unio and $2.25 bilhon of excess coverage, respectively, for stabilization, decon-NOTE 2 - FERMI 2 tamination and debris removal costs, repair and/or replace-General-Fermi 2, a nuclear generating unit, began ment of property and decommiwioning. Accordingly, the commercial operation in January 1988. Fermi 2 has a combined limits provide total property damage insurance of design electrical rating (net) of 1,139 megawatts (MW). $2.75 billion. This unit rer. resents approximately 24r4 of total assets, Detroit Edison maintains an insurance policy with 10% of total operation and maintenance expenses and i 19 NEIL providing for extra expenses, including certain of summer net rated capability, replacement power costs necessitated by Fenni 2's unavail. Ownership of an operating nuclear generating unit ability due to an insured event. This policy, w hich has a subjects Detroit Edison to significant additional risks. 21-week waiting period, provides for three years of Fermi 2 is regulated by a number of different governmental

coverage, agencies concerned with public heahh, safety and environ-Under the NML and NEll policies Detroit Edison mental protection. Consequently, Fermi 2 is subjected to could be liable f or maximum retrospective assessments of greater scrutiny than a conventional fossil-fueled plant, up to approximately $26 million per loss if any one loss MPSC rate orders issued in April 1986, December should exceed the accumulated funds available to NML and 1988 and January 1994 contain provisions with respect to NEIL.

the recovery of"ermi 2 costs. See Note 3 for a discussion As required by federal law, Detroit Edison maintains of Fenni 2 rate matters and the MPSC's treatment of Fenni $200 million of public liability insurance for a nuclear 2's original project costs of $4.858 billion. incident. Further, under the Price-Anderson Amendments L/ censing and Operation -The Nuclear Regulatory Act of 1988, deferred premium charges of $75.5 million Commission (NRC) maintains jurisdiction over the licens-could be levied against each licensed nuclear facility, but ing and operation of Fermi 2. not more than $10 million pet year per facility. On Due to a December 1993 turbine generator failure, December 31,1997, there were 110 licensed nuclear Fermi 2 was out of service during 1994 through early 1995 facilities in the United States. Thus, deferred premium and thereafter operated at a reduced power output through charges in the aggregate amount of approximately $8.3 September 26,1996. Detroit Edison's insurance reimburse. billion could be levied against all owners of licensed ment was $93 million for property damage and $89.6 nuclear facilities in the event of a nuclear incident at any of million for replacement power costs related to the 1993 these facilities. turbine-generator failure. Decommissioning - The NRC has jurisdiction over the Detroit Edison removed Fermi 2 from service as of decommissioning of nuclear power plants and requires September 27,1996 through January 3,1997 to replace a decommissioning funding based upon a formula. The portion of the plant's nuclear fuel and install three new low-MPSC and FERC regulate the recosery of costs of decom-pressure turbines. The $49 million cost of replacing the missioning nuclear power plants and both require the use of turbines, not covered by insurance, was capitalized and is external trust funds to finance the decommissioning of expected to be recovered in rates under a provision of a Fermi 2 The MPSC's January 1994 Order includes an December 1988 MPSC Order.

DTE En:rgy Crmp:ny Nstro to Csnedidst d Fincnaici Stetcm nto w Y increase in rates for the decommissioning of Fermi 2. from Fermi 2. Detroit Edison is obligated to pay the DOE S Detroit Edison is continuing to fund for decommissioning a fee of one mill per net kilowatthour of Fermi 2 electricity l cven though explicit provisions are not included in FERC generated and sold. The fee is a component of nuclear fuel l l rates. Detroit Edison believes that the MPSC and FERC expense. Delays have occurred in the DOE's program for l collections will be adequate to fund the estimated cost of the acceptance and disposal of spent nuclear fuel at a j decommissioning using the NRC formula. See Note 3. permanent repository. Until the DOE is able to fulfill its l Detroit Edison has established external trust funds to obligation under the contract, Detroit Edison is responsible l ( hold decommissioning and low-level radioactive waste for the spent nuclear fuel storage and estimates that existing disposal funds collected from customers. During 1997, storage capacity will be sufficient until the year 2001, or f 1996 and 1995, Detroit Edison collected $35.4 million, until 2017 with expansion of such storage capacity. $37.7 million and $36.2 million, respectively, from custom-ers for decommissioning and low level radioactive waste NOTE 3 - REGULATORY MA1TERS disposal. Such amounts were recorded as components of Detroit Edison is subject to the primary regulatory depreciation and amortiration expense in the Consolidated jurisdiction of the MPSC, whieti, from time to time, issues Statement of Income and accumulated depreciation and its Orders pertaining to Detroit Edison's conditions of amortitation in the Consolidated Halance Sheet. In service, rates and recovery of certain costs including the accordance with SFAS No.115 " Accounting for Certain costs of generating facilities. MPSC Orders issued in Investments in Debt and Equity Securities " net unrealized December 1988 and January 1994 are currently in effect gains of $31.5 million and $8.7 million in 1997 and 1996, with respect to Detroit Edison's rates and certain other respectively, were recorded as increases to the nuclear revenue and operating related matters. decommissioning trust funds and accumulated depreciation Electric Industry Deregulation -There are ongoing and amortization in the Consolidated Dalance Sheets. Michigan administrative, judicial and legislative proceed-At December 31,1997, Detroit Edison had a reserve of ings considering electric industry deregulation. Detroit $202.6 million for the future decommissioning of Fermi 2 Edison has been participating in these proceedings on a and $9.7 million for low-level radioactive waste disposal voluntary basis. Issues conceming deregulation are the costs. These reserves are included in accumulated depre-subject of several MPSC orders that are under appeal; and ciation and amortization in the Consolidated Balance Sheet Michigan legislation is currently pending with respect to with a like amount deposited in external trust funds. It is the issue, with additional legislation expected to be intro-estimated that the cost of decommissioning Fenni 2 when duced in the Grst quarter of 1998, in an opinion released its license expires in the year 2025 will be $523 million in on January 20,1998, the Michigan Court of Appeals 1997 dollars and $3 billion in 2025 dollars using a 6% indicated that the MPSC has sufficient statutory authority growth rate. under Michigan law to authorize an experimental retail Detroit Edison also had a reserve of $26.7 million at wheeling program. Detroit Edison has filed an application December 31,1997 for the future decommissioning of for leave to appeal in the Michigan Supreme Court. Fermi 1, an experimental nuclear unit on the Fermi 2 site Neither the Company nor Detroit Edison are able to predict that has been shut down since 1972. This reserve is the outcome.and timing of these proceedings. included in other deferred credits in the Consolidated Commercial and industrial Rates - Detroit Edison Balance Sheet with a like amount deposited in an extemal addressed the competitive environment by entering into trust fund. Detroit Edison estimates that the cost of long-term service contracts with certain of its large decommissioning Fenni l in the year 2025 is $22 million in commercial and industrial customers. These contracts 1997 dollars and $114 million in 2025 dollars using a 6% accounted for revenues of approximately $378 million and grow th rate. $299 million for 1997 and 1996, respectively. During 1995, shipment of low-level radioactive waste ferml2 -The December 1988 MPSC Order established, to a permanent disposal site resumed. Detroit Edison's for the period January 1989 through December 2003,(1) a disposal costs of $5.5 million and $3.5 million during 1997 cap on Fermi 2 capital additions of $25 million per year, and 1996, respectively, were reimbursed by the external in 1988 dollars adjusted by the Consumers Price Index trust funds. (CPI), cumulative,(2) a cap on Fermi 2 non-fuel operation The FASB is reviewing the accounting for obligations and maintenance expenses adjusted by the CPI and (3) a associated with the retirement of long lived assets, includ-capacity factor performance standard based on a three-year ing decommissioning of nuclear power plants. rolling average commencing in 1991. For a capital invest-Nuclear Fuel Disposal Costs - In accordance with the ment of $200 million or more (in 1988 dollars adjusted by Federal Nuclear Waste Policy Act of 1982, Detroit Edison the CPI), Detroit Edison must obtain prior MPSC approval has a contract with the U.S. Department of Energy (DOE) to include the investment in rate base, for the future storage and disposal of spent nuclear fuel i i l

) w Under the cap on Fermi 2 capital expenditures, the Residential Ratepayer Consortium tiled a lawsuit in Ingham Y cumulative amount available totals $65 million (in 1997 County MichigM Circuit Court contending that Detroit S dollars) at December 31,1997. Under the cap on non. fuel Edison and th MPSC breached the Deccaber 1988 h1PSC l operation and maintenance expenses, the cumulative Order by offsetting the stipulated 1998 revenue reduction l amount available totals $99.3 million (in 1997 dollars) at with the amortization of the stonn costs. On February 18, 5 December 31,1997. 1998, the Ingham County Alichigan Circuit Court denied j The capacity factor disallowance for 1996 has not yet Detroit Edison's motion for summary judgment and y been determined by the MPSC. At December 31,1997 and indicated it would request the Michigan Court of Appeals to { 1996, Detroit Edison had accruals of $74 million and $72.9 determine its jurisdiction over the matter. The Company is f million, respectively, for the Fenni 2 capacity factor uncertain of the outcome of this matter. perfomiance standard disallowances that are expected to be imposed by the MPSC during the period 1996-1999. NOTE 4 - JOINTLY OWNED UTILITY PLANT Also, Detroit Edison has a liability of $8.8 million at Detroit Edison's portion of jointly-owned utility plant December 31,1997 for reduced efficiency of the Fenni 2 is as follows: turbine in 1996 when the unit operated at a reduced power Ludington output. Helle River Pumped storage In accordance with the April 1986 and December 1988 in-service date 1984 1985 1973 MPSC rate orders, ratemaking treatment of Detroit Ow nership interest 494 Edison's Fermi 2 original project costs of $4.858 billion is Investment (millions) $ LO30 $190 as follows: (1) $3.018 billion in rate base with recovery Accumulated depreciation (millions) $ 368 $ 82 and return,(2) $300 million amortiied over 10 years with

• Detroit Edison's ownership interest is 62.78% in Unit No.1.

no return, beginning in 1989. (3) $513 million amortized 81.39% o/the Portion of thefacilities applicable to Belle River over 19 years with associated interest of 8%, beginning in usedjointly by the Belle River and St. Clair Power Plants. in unain transmission unes and, at Drumba J/, 1990 and (4) $1.027 billion disallowed and written off in 1997,73% infac ilities usedin conunon with Unit No. 2. 1988. At December 31,1997, Detroit Edison's net plant investment in Fermi 2 was $2.7 billion ($4 billion less Belle Rirer-The Michigan Public Power Agency accumulated depreciation and amortization of $1.3 billion). (MPPA) has an ownership interest in Belle River Unit No.1 Under the December 1988 MPSC Order, if nuclear and certain other related facilities. MPPA is entitled to operations at Fermi 2 permanently cease, amortization in 18.61% of the capacity and energy of the entire plant and is rates of the $300 million and $513 million investments in responsible for the same percentage of the plant's operation Fermi 2 would continue and the remaining net rate base and maintenance expenses and capital improvements. investment amount would be removed from rate base and Ludington Pumped S/orage - Operation, maintenance amortized in rates, without return, over 10 years with such and other expenses of the Ludington Pumped Storage Plant amortization not to exceed $290 million per year. In this (Ludington) are shared by Detroit Edison and Consumers event, unamortized amounts of deferred depreciation and Energy in proportion to their respective ownership interests deferred retum, recorded in the Consolidated Balance Sheet in the plant. under the phase-in plan prior to the removal of Fermi 2 from rate base, will continue to be amortized, with a full NOTE 5 -INCOME TAXES 1 return on such unamortized balances, so that all amounts Total income tax expense as a percent ofincome before l deferred are recovered during the period ending no later tax varies from the statutory federal income tax rate for the than December 31,1998. The December 1988 and January following reasons: 1994 rate orders do not address the costs of decommission-Percent of income Before Tax ing if operations at Fernu,2 prematurely cease. 1997 1996 1995 Detroit Edison will reduce rates by $53 million in 1998 3pdi tory income tax rate 35.0 % 35.0 % 35.0 % to reflect the scheduled reductmn m the revenue require-Deferred Fermi 2 depreciation ment for Fermi 2,in accordance with the 1988 settlement and return 4.6 5.3 3.7 agreement. In addition,in accordance with a November Investment tax credit 12.1) (2.8) (2.1) .1997 MPSC Order, Detroit Edison will recover approxi. Depreciation 4.6 6.0 3.3 R mately $15 million in rates for the amortization of 1997 A$te a f els credit ) ) storm damage costs. The total costs of $30 milhon were other - net 0.4 (0.4) 1.3 deferred and will be amortized to expense over a 24 month Effective income tax rate 37.5 % 40.5 % 39.5 % period beginning January 1998. In December 1997, the Association of Businesses Advocating Tariff Equity and the l.

DTE Enargy Ccmprny Netco to Ccncelidctsd Fincncici Stottmanto w Y Components of income tax expense are as follows: At I)ecember 31,1997. Detroit Edison had Cumulative Preference Stock of $1 par value,30 million shares autho-l 1997 1996 1995 rized with no shares issued. m (Afillimu) Detroit Edison had the following Cumulative Preferred Current federal tax expense $267 5219 5221 Deferred federal tax expense - nel 5 17 79 Stock at December 31,1997 and 1996: g Investment tax credits t15) (15) (17) Shares Outstanding Amount Total 5257 $221 $283 (Umusato (Afillions) g 7.759 Series 1,(K)l $1(K) The Fermi 2 phase in plan required Detroit Edison to 7.749 series 500 50 record additional deferred income tax expense related to Preferred stock expense (6) deferred depreciation totaling $33.5 million, with this 1,501 5144 amount amortized to income over the six year period ending December 31,1998. Preferred Stock are redeemable solely at the option of Recoverable income taxes, a regulatory asset, repre-Detroit Edison at a per share redemption price of $100, plus sents future revenue recusery from customers for deferred accrued dividends, on or after April 15,.1998 and July 15, income taxes recorded upon the adoption of SFAS No.109 1998, respectively. in 1993. At that time, an inctease in accumulated deferred In September 1997, the Board of Directors of the income tax liabilities was recorded representing the tax Company declared a dividend distribution of one nght effect of temporary differences not previously recognized (Right) for each share of Company common uock cut-l and the recomputation of the tax liability at the current tax standing. Under certain circumstances, each Right entitles rate. The MPSC issued an order providing assurance that the shareholder to purchase one one-hundredth of a share of the effects of previously flowed-through tax benefits will Company Series A Junior Participatmg Preferred Stock at a continue to be allowed rate recovery. price of $90. The Right is transferable apart from the Deferred income tax assets (liabilities) are comprised Company common stock until 10 days following a pubh,c of the following at December 31: announcement that a person or group has acquired beneh-1997 1996 cial ownership of 10% or more of outstanding Company stillions; common shares, or the commencement or announcement of Property $(2,233) $(2.220) a reclassification, merger or consolidation w hich would Fermi 2 deferred deprecian,on and return (37) (85) result in a 10% plus shareholder increasing its ownership of Property taxes (62) (58) investment tax credit 162 170 the Company more than 19. If the acquiring person or Reacquired debt losses (35) (39) group acquires 10% or more of the Company Common Contnbutions in aid of construction 55 47 Stock, and the Company survives, each Right (other than Other 103 117 those held by the acquiror) will entitle its holder to buy $(2,047) 5(2.068) Company common stock having a value of $180 for $90. If Deferred income tax liabilities $(2,572) 5(2,594) the acquiring person or group acquires 10% or more of the Deferred income tax assets 525 526 Company Common Stock, and the Company does not $(2,047) $(2.068) survive, each Right (other than those held by the surviving or acquiring company) will entitle its holder to buy shares The federalincome tax returns of the Company are of common stock of the surviving or acquiring company settled through the year 1988. The Company believes that having a value of $180 for $90. The Rights will expire on adequate provisions for federal income taxes have been October 6,2007 unless redeemed by the Company at $0.01 made through December 31,1997-per Right at any time prior to an event which would permit the Rights to be exercised. The Company may amend the NOTE 6 - SHAREHOLDERS' EQUITY Rights agreement without the approval of the holders of the At December 31,1997, the Company had Cumulative Rights Certificates, except that the redemption price may - Preferred Stock, without par value,5 million shares not be less than $0.01 per Right. authorized with no shares issued. At December 31,1997. Apart from MPSC or FERC approval and the require-1.5 million shares of preferred stock are reserved for ment that common, preferred and preference stock be sold issuance in accordance with the Shareholders Rights for at least par value, there are no legal restrictions on the Agreement. issuance of additional authorized shares of stock by Detroit Edison. J

O W There are no legal restrictions on the issuance of Long-term debt outstanding at December 31 was: Y additional authorized shares of the Company's common and 1997 1996 l preferred stock. W#nond mj Detroit Edison NOTE 7 - LONG TERM DEBT stortgage lionds a l Detroit Edison's 1924 htortgage and Deed of Trust 6.49 to 8.49 due 1998 to 2023 $1,911 52.096 } Reniarketed Notes p (htortgage), the lien of w hich covers substantially all of (' Detroit Edison's properties, provides for the issuance of T - pR i ue I > additional General and Refunding hjortgage lionds Secured by wrtgage Itonds 5 (Mortgage Ilonds). At December 31,1997, approximately Installment Sales contracts } $3.6 billion principal amount of hjortgage Bonds could 7.14 due 2004 to 2024 tb) 282 282 L"d" have been issued on the basis of property additions, 8'"'g to 2025 (b) 607 007 combmed with an earnings test provision, assuming an Unsecured interest rate of 7.12% on any such additional hjortgage Installment sales contracts j Bonds. An additional $1.4 billion principal amount of 7.5% due 2004 to 2019 (b) 142 142 hjortgage Bonds could base been issued on the basis of Loan Agreements bond retirements. 5.0% due 2024 to 2030(a) i13 113 QUIDS Unless an event of default has occurred, and is continu-7.69 to 8.59 due 2025 to 2026 235 235 ing, each series of Quarterly income Debt Securities Less amount due within one year (169) (144) (QUIDS) provides that interest will be paid quarterly. Less unamortised debt discount (1) llowever, Detroit Edison also has the right to extend the Total Detroit Edison Long-Term Debt 3,531 3,740 interest payment period on the QUIDS for up to 20 con. Non Recourse Debt 7.8 due 1998 to 2009 (b)(c) 282 39 secutive interest payment periods. Interest would continue to accrue during the deferral period, if this right is exer-T pa: 3 cased, Detroit Edison may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock (a) Wriable rate at December 31,1997. during the deferral period. Detroit Edison may redeem any W %hted average interest rate at December 3/,1997. M N# ""f>any hem munon in can and cad ccinhalenn series of cap tal stock ursuant to the terms of anY sinking restrh red hs, debt requirements at December 3I,1997. i P fund provisions during the deferral period. Additionally, during any deferral period, Detroit Edison may not enter in the years 1998 2002, the Company's long-term into any inter-company transactions with any af filiate of debt maturities are $205, $260, $234, $158 and $237 Detroit Edison, including the Company, to enable the million, respectively. payment of dividends on any equity securities of the Company. NOTE 8-SHORT TERM CREDIT ARRANGEMENTS At December 31,1997, $100 million of the AND BORROWINGS Remarketed Notes and $103 million of Tax Exempt At December 31,1997, Detroit Edison had total short-Revenue Bonds are subject to periodic remarketings. At term credit arrangements of approximately $688 million, December 31,1996 there were $103 million in Tax Exempt under w hich there were no amounts outstanding. At Revenue Bonds subject to periodic remarketings. December 31,1996, $10 million of short-term borrowings Remarketing agents remarket the notes at the lowest were outstanding. The weighted average interest rates for interest rate necessary to produce a par bid. In the event short term borrowings during 1997,1996 and 1995 were that a Remarketed Note or Tax Exempt Revenue Bond 5.7%,5.6%, and 6.1%, respectively, remarketing fails, Standby Note Purchase Agreements and Detroit Edison had bank lines of credit of $200 million, Letters of Credit provide that banks will purchase the notes all of which had commitment fees in lieu of compensating . or bonds, respectivelyt and, after the conclusion of all balances. Commitment fees of $0.3 million were incurred necessary proceedings, remarket the notes or bonds. In the for each of the years 1997 and 1996. Detroit Edison uses event the banks' obligations under the Standby Note bank lines of credit to support the issuance of commercial Purchase Agreements and Letters of Credit are not honored, paper and bank loans. All borrowings are at prevailing then, Detroit Edison would be required to purchase any money market rates which are below the banks' prime notes or bonds subject to a failed remarketing. lending rates. Detroit Edison has a nuclear fuel financing arrange-ment (heat purchase contract) with Renaissance Energy Company (Renaissance), an unaffiliated company. Renais-sance may issue commercial paper or borrow from partici-

DTE Energy Company Notoo to Consolidated Financial Statomonts a Y pating banks on the basis of promissory notes. To the on the consumption of nuclear fuel for the generation C extent the maximum amount of funds available to Renais-of electricity. l sance (currently $400 million) is not needed by Renais-Under SFAS No. 71, amortization of Detroit Edison's sance to purchase nuclear fuel, such funds may be loaned to leased assets is modified so that the total of interest on the Detroit Edison for general corporate purposes pursuant to a obligation and amortization of the leased asset is equal to j separate Loan Agreement. At December 31,1997, the rental expense allowed for ratemaking purposes. For approximately $288 million was available to Detroit Edison ratemaking purposes, the MPSC has treated all leases as a. ( of De under such Loan Agreement. See Note 9 for a discussion operating leases. Net income is not affected by capitaliza-I sance.troit Edison's heat purchase contract with Renais-tion of leases. E Detroit Edison has a $200 million short-term financing NOTE 10 - FINANCIAL INSTRUMENTS agreement secured by its customer accounts receivable and Trading Actirities - DTE Energy Trading, Inc., a power unbilled revenues portfolio. Borrowings are at prevailing marketing subsidiary, was fonned in 1997 and is expected money market rates. Commitment fees of $0.3 million to begin trading in early 1998, were incurred for each of the years 1997 and 1996. There Non. Trading Acriritics - In October 1996, Detroit Edison were no outstanding borrowings under this agreement at entered into a three-year interest rate swap agreement based December 31,1997 and 1996. on a notional amount of $25 million, which is nominally At December 31,1997, DTE Capital Corporation linked to the Detroit Edison 1993 Series B Remarketed (DTE Capital), a Company subsidiary, had a $200 million Notes. Detroit Edison receives a rate equal to the London Revolving Credit Agreement, backed by a Support Agree-Interbank Offered Rate (LIBOR) and pays a rate equal to ment from the Company, under v hich $42 million was the quarterly weighted average Public Securities Associa-outstanding. Commitment fees incurred in 1997 for this tion Municipal Swap Index divided by 67.3%. The intent credit agreement were approximately $0.3 million. The of the swap is to shift floating rate exposure from taxable to amount available under the Revolving Credit Agreement tax-exempt markets, in 1997 the aserage rate received was was increased to $400 million in January 1998. Also in 5.70% and the average rate paid was 5.36%. The net of January 1998, the Company entered into a $60 million interest received and interest paid on the swap is accrued as Support Agreement with DTE Capital for the purpose of a component ofinterest expense in the current period. The DTE Capital's credit enhancing activities on behalf of swap is subject to market risk of changes in both interest DTE-CoEnergy L.L.C. and DTE Energy Trading, Inc. rates and tax rates. PCI Enterprises Company (PCI), a coal pulverizing NOTE 9 - LEASES subsidiary of DTE Energy Services, Inc., entered into a Future minimum lease payments under long-term seven-year interest rate swap agreement beginning June 30, noncancellable leases, consisting of nuclear fuel ($104 1997, with the intent of reducing the impact of changes in million computed on a projected units of production basis), interest rates on its variable rate non-recourse debt. The lake vessels ($30 million), locomotives and coal cars ($190 initial notional amount was $30 million which was based million), of6ce space ($14 million), and computers, on 60% of its term loan of $50 million. The notional vehicles and other equipment ($2 million) at December 31, amount outstanding at December 31,1997, was $29.2 1997 are as follows: million and will decline throughout the term of the loan pfilliony; based on amortization of principal amounts. PCI pays a Remaining 6xed interest rate of 6.96% on the notional amount and 1998 1999 2tXK) 2(X)1 2(X)2 Years Total receives a variable interest rate based on LIBOR. In 1997, 571 557 536 529 520 $127 5340 the average rate received was 5.69%. The net ofinten st received and interest paid on the swap is accrued as a Rental expenses for both capital and operating leases component of interest expense in the current period. The were $72 million (including $42 million for nuclear fuel), swap is subject to market risk of changes in interest rates. I $78 million (including $$3 million for nuclear fuel) and FinancialInstruments-The fair value of Gnancial $97 million (including $67 million for nuclear fuel) for instruments is determined by reference to various market 1997,1996 and 1995, respectively. data and other valuation techniques as appropriate. Detroit Edison has a heat purchase contract with The carrying amount of financial instruments, except for Renaissance which provides for the purchase by Renais-long-term debt, approximates fair value. The estimated sance for Detroit Edison of up to $400 million of nuclear fair value of totallong-term debt at December 31,1997 A fuel, subject to the continued availability of funds to and 1996 was $4.2 billion and $4 billion, respectively, Renaissance to purchase such fuel. Title to the nuclear compared to the carrying amount of $4 billion and fuelis held by Renaissance. Detroit Edison makes $3.9 billion, respectively. Investments in debt and equity quarterly payments under the heat purchase contract based securities are classiGed as "available for sale."

.0 g NOTE 11 -COMMITMENTS AND CONTINGENCIES actions agreed to settle the Gilford. Santbez and Franer Y Commitments - Detroit Edison has entered into purchase individual and class claims through binding arbitration. g commitments of approximately $621 million at December The agreement provides that Detroit Edison's monetary 31,1997, which includes, among other things, line con-liability is to be no less than $17.5 million and no greater struction and clearance costs. Detroit Edison also has than $65 million (subject to a potential $3 million upward entered into long-term fuel supply commitments of ap-adjustment that may be possible if the class size increases j proximately $500 million. by a specified number) after the conclusion of all related g Detroit Edison has an Energy Purchase Agreement proceedings. An amount related to this agreement was { ( Agreement) for the purchase of steam and electricity from accrued in 1997, the Detroit Resource Recovery Facility. Under the Agree. Other-In addition to the matters reported herein, the f ment, Detroit Edison will purchase steam through the year Company and its subsidiaries are involved in litigation and 2008 and electricity through June 30,2024. Purchases of environmental matters dealing with the numerous aspects steam and electricity were $34.3 million, $30.2 million and of their business operations. The Company believes that $28.2 million for 1997,1996 and 1995, respectively, such litigation and the matters discussed above will not Annual purchase commitments are approximately $36 have a material effect on its financial position, results of million, $37 million, $39 million, $40 million and $41 operations and cash flows. million for 1998,1999,2000,2001 and 2002, respectively. See Notes 2 and 3 for a discussion of contingencies See Note 13 relating to steam heating special charges. related to Fermi 2 and Regulatory hiatters. In October 1995, the MPSC issued an Order approving Detroit Edison's six year capacity and energy purchase NOTE 12 - EMPLOYEE BENEFITS agreement with Ontario liydro. Ontario liydro agreed to Retirement Plan - Detroit Edison has a trusteed and non-sell Detroit Edison 300 MW of capacity from mid-May contributory defined benefit retirement plan (Plan) covering through mid-September. This purchase will offset a all eligible employees who have completed six months of concurrent agreement to lease approximately a third of service. The Plan provides retirement benefits based on the Detroit Edison's Ludington 917 MW capacity to Toledo emrAyees* years of benefit service, average final compen. Edison for the same time period. The net economic effect sation and age at retirement. Detroit Edison's policy is to of the Ludington lease and the Ontario liydro purchase is fund pension cost calculated under the projected unit credit an estimated reduction in PSCR expense of $74 million actuarial cost method. The Company was operating under which will be refunded to Detroit Edison customers over the IRS full funding limitation and, therefore, did not make the life of the agreement. a contribution to the Plan in 1997. Contributions were in December 1997 Detroit Edison and Consumers made to the Plan totaling $16 million and $29.6 million for Energy entered into a three-year contract to implement an 1996 and 1995, respectively, energy exchange and also to sell additional off-peak energy Net pension cost included the following components: to Ontario flydro. The energy exchange requires Detroit 1997 1996 1995 Edison and Consumers Energy tojointly supply 1,500 stillions) GWh of off peak energy during the first four months of Service cost - benefits camed during each year to Ontario flydro. Ontario flydro is required to the period $ 27 5 25 $ 22 return the energy to Detroit Edison and Consumers Energy Interest cost on projected benefit during the summer months..The energy exchange agree-bligation 86 82 79 ment modifies the existing six-year capacity and energy f]"*I ,;g[I*" ' ( d d fe 1 agreement with Detroit Edison, by allowing an energy Net pension cost $ 10 $ 6 5 2 exchange instead of an energy purchase, in addition. Ontario flydro agreed to purchase an additional 1,500 to 2,000 GWh annually of off-peak energy from Detroit Assumptions used in detennining net pension cost are Edison and Consumers Energy, as follows: ( Contingencies-Legal Proceedings - Plaintiffs in a class 1997 1996 1995 ( action pending in the Circuit Court for Wayne County, Discount rate 7.5 % 7.5% 8.0% Michigan (Gilferd. et al v. Detroit Edison,) as well as Annual increase in future compensation plaintiffs in two other pending actions which make class levels 4.5 4.5 4.5 Ex cted long-term rate of return on claims (Sanchez. eLal v. Detroit Edison, Circuit Court for Wayne County, Michigan; and frarier v. Detroit Edison, United States District Court Eastern District of Michigan,) l. allege that Detroit Edison has engaged in age, racial and national origin discrimination in employment. On February . 6,1998. Detroit Edison and the other parties to the three

~ DTE Energy Company Notes to Consolidated Financial Statements y V The following reconciles the funded status of the Plan and non-cash distributions paid upon the shares would be S to the amount recorded in the Consolidated Balance Sheet: subject to transfer restrictions and risk of forfeiture to the same extent as the shares themselves. The shares were l December 3 I 1997 1996 recorded at the market value on the date of grant and gfjfffyny, amonized to expense based on the award that was expected k Plan assets at fair value, primarily equity to vest :md the period to which the related employee 5 and debt securities $1,347 $1.232 services were to be rendered. Restricted common stock Less actuarial present salue of benefit awarded and annual expense for the year ended December obligation: 31 was: f Accumulated benefit obligation, ,997 g yp' .'i meluding sested benehts of $1.N7 and $994, respectively 1,123 1.022 Restricted common shares awarded 6N,500 56.000 66.50 i Increase in future compensation levels 171 154 Weighted average market price of shares aw arded $28.3M $34.28 $28.90 Projected benefit obligation 1,294 1.176 Annual espense (in thousands) $222 $ 1,165 $571 Plan awets in excess of projected beneh_t obligation $3 56 Under the LTIP, stock options were issued in 1997 and will become exercisable at a rate of 25% each year over the n ial ppi a i (20) (24) Unrecognized net (gain) loss (4) 2 next four years. The options will expire 10 years after the Unrecognized prior sersice cost 52 58 date of the grant. The option exercise price equals the fair Asset recorded in the Consolidated market value of the stock on the date that the option was Balance Sheet $ M1 5 92 granted. In 1997,310,500 options were granted at a weighted average exercise price of $28.38. No amounts Assumptions used in determining the projected benelit were forfeited or expired during 1997, obligation are as follow s: The Company continues to apply APH Opinion 25, December 31 " Accounting for Stock issued to Employees." Accordingly, 1997 1996 no compensation expense has been recorded for options Discount rate 7.09 7.59 granted. As required by SFAS No.123," Accounting for Annual increase in future compensation levels 4.5 4.5 Stock-Based Compensation," the Company has determined the pro forma information as if the Company has accounted The unrecognited net asset at date of im.. l application for its employee stock options under the fair value method. ua is being amortized over approximately 15.4 years, which The fair value for these options was estimated at the date was the average remaining service period of employees at of grant using a modified 131ack/Scholes option pricing January 1,1987. model-American style, a risk-free interest rate of 6.83%, in addition to the plan, there are several supplemental a dividend yield of 7.269, an expected volatility of non4[ualified, non-contributory, retirement benefit plans for 18.31%, and an expected life of 10 years. The fair value certam management employees. of the options granted in 1997 was $4.15 per option. The Long-Term Incentire Plan - The Company adopted a pro fonna effect of these options was to reduce net income Long-Term incentive Plan (LTIP)in 1995. Under the LTIP, for the year ending December 31,1997 by $244,000. certam key employees may be granted restricted common There was no pro forma effect on EPS. stock, stock options, stock appreciation nghts, performance Sarings & Inrestment Plans - Detroit Edison has shares and performance units. Common stock granted voluntarily defined contribution plans qualified under under the LTIP may not exceed 7.2 million shares. Perfor. Section 401 (a) and (k) of the Internal Revenue Code for mance units (which have face amount of $1) granted under all el gible employees. Detroit Edison matches employee the LTIP may not exceed 25 milh,on m the aggregate. As of contributions up to 8% of base compensation. Matching December 31,1997, no stock appreciation nghts, perfor-contributions were $19.8 million, $17.2 million and $13.7 mance shares or performance units have been granted under million for 1997,1996 and 1995, respectively, the LTIP' Other Postretirement flenefits - Detroit Edison prnvides Under the LTIP, shares of restricted common stock certain postretirement health care and life insurance were awarded to officers of Detroit Edison and are re-benefits for retired employees. Substantially all of I)etroit stricted for a period not exceeding four years. All shares Non's employees will become eligible for such benefits are subject to forfeiture tf specified performance measures f tby reach retirement age while working for Detroit are not met. There are no exercise prices related to thes Edison. These benefits are provided principally through shares. During the applicable restriction penod, the insurance companies and other organizations. l recipient has all the voting, dividend and other nghts of a record holder except that the shares are nontransferable.

l Net other postretirement benefits cost included the NOTE 13 - STEAM HEATING SPECIAL CHARGES following components: As part of a review of the operations of Detroit S 1997 1996 1995 Edison's steam heating business, in 1995, the remaining E (Afillions; book value of steam heating plant assets of $42 million Senice cost - benefits earned durirg ($32 million after-tax) or $0.22 cents per share, was written the period $ 19 $ 20 $ 17 off, in 1996, a special charge to net income of $l49 Interest cost on accumulated million ($97 million after-tax) or $0.67 cents per share was b recorded. The special charge included a reserve for steam ( A al t n s ts t. ( ) ( 7) Net amortiration and deferral 40 26 32 purchase commitments during the period from 1997 Net other postretirement benefits cost $ 59 $ 67 5 72 through 2008 under the agreement with the Detroit Re-source Recovery Facility, expenditures for closure of a Assumptions used in determining net other portion of the steam heating system and improvements in pastretirement benefits cost are as follows: service to remaining customers. The reserve for steam 1997 1996 1995 purchase commitments was recorded at its present value. Discount rate 7.5 % 7.54 8.0% therefore Detroit Edison will record non cash accretion Annual increase in future compensation expense during the period 1997 through 2008. In addita.1, levels 4.5 4.5 4.5 beginning in 1997, amortization of the reserve for steam Espected long. term rate of return on purchase commitments is netted against losses on steam assets 8.5 b.5 8.5 purchases recorded in fuel and purchased power expense. The following reconciles the funded status to the amount recorded in the Consolidated Balance Sheet: NOTE 14 - SUPPLEMENTARY QUARTERLY December 3: FINANCIAL INFORMATION (UNAUDITED) 1997 1996 1997 Quarter Ended (AfillionsJ Mar. 31 June 30 Sept. 30 Dec.31 Actuarial present value of benefit obligation: (Afillions, except per share amounts) Retirees, spouses and surviving spouses $ 289 5 312 Operating Revenues $868 $892 $1.030 $974 Fully eligible active participants 91 74 Operating income 202 225 285 289 Other active participants 200 197 Net Income 71 85 132 129 Accumulated postretirement benefit obligation 580 583 Earnings Per Common Share 0.49 0.59 0.91 0.89 Less assets at f air value, primarily equity and debt securities 309 208 Henefit obligation in excess of assets 271 375 1996 Quarter Ended Unrecognited transition obligation (308) (328) Mar. 31 June 30 Sept. 30 Dec.31 Unrecogniied net gain (loss) 16 (41) ( Afillions. cxcepr per share amounts) ( Asset) Liability recorded as (Deferred Debits) Operating Revenues $910 $871 $977 $887 Other Non-Current Liabilities in the Operating income 263 211 154 2(M Consolidated Balance Sheet $ (21) $ 6 Net income 108 78 45 78 Earnings Per Common Share 0.75 0.54 0.31 0.54 Assumptions used in determining the projected benefit obligation are as follows: The third quarter of 1996 includes the steam heating spec al charge to net income of $149 million ($97 million December 31 after tax) or $0.67 per share. See Note 13. 1997 1996 The fourth quarter of 1996 includes a provision for Discount rate 7.0% 7.5% Fermi 2 capacity factor disallowances in the period 1996 Annual increase in future compensation leveh 4.5 4.5 1998 and for reduced efficiency of the Fermi 2 turbine in Benefit costs were calculated assuming health care cost 1995 and 1996 of $20 million ($13 million after-tax) or trend rates beginning at 9.1% for 1998 and decreasing to $0.09 per share. See Note 3. 5.0% in 2008 and thereafter for persons under age 65 and EPS amounts for each quarter are required to be decreasing from 6.1% to 5.0% for persons age 65 and over. c mputed independently and, therefore, may not equal the A one-percentage point increase in health care cost trend amount computed for the total year. rates would increase the aggregate of the service cost and interest cost components of benefit costs by $9 million for 1997 and increase the accumulated benefit obligation by $75 million at December 31,1997.

DTE Energy Company Report o Manag' ement's V Responsibility for FinancialStatements i The consolidated financial statements of DTE Energy the audit, as well as such other proced' ires they deem Company and subsidiaries have been prepared by manage-necessary for expressing an opinion as to whether the k ment in conformity with generally accepted accounting financial statements are presented fairly. ( principles, based upon currently available facts and The Board of Directors, through its Audit Committee consisting solely of outside directors, meets with Deloitte g circumstances and management's best estimates and judgments of known conditions. It is the responsibility of & Touche LLP, representatives of management and the 3 management to assure the integrity and objectivity of such Company's internal auditors to review the activities of each Onancial statements and to assure that these statements and to discuss accounting, auditing and Gnancial matters fairly report the Company's financial position and the and the carrying out of responsibilities and duties of each results of its operations. group. Deloitte & Touche LLp has full and free access to To meet this responsibility, management maintains a meet with the Audit Committee to discuss its audit results high standard of record keeping and an effective system of and opinions, without management representatives present, internal controls, including an extensive program of internal to allow for complete independence. audits, written administrative policies and procedures, and programs to assure the selection and training of qualified Md ' P#*/"heseh. Lar arberding T nancial statements have been audited by the EMiw Vice President and Chief Financial Officer Company s mdependent auditors, Deloitte & Touche LLP, whose report appears on this page. Its audit was conducted in accordance with generally accepted auditing standards. 4r [ M4 Such standards include the evaluation of internal account-ohn E. Lobbia ing controls to establish a basis for deseloping the scope of Chainnan of the Board and Chief Executive Officer 1 m a p di O p e ti'd C E R C MEKMOTS' Report 9& Suite 900 January 26,1998 LLP 600 I enaissance Center O Detroit, Michigan 48243-1704 assurance about whether the Gnancial statements are free of material misstatement. An audit includes examining, on a "' ** ".dence supporting the amounts and disclosures Y"he Gnancial uatements. An audit also includes assessing To the Board of Directors and Shareholders of in t DTE Energy Company the accountmg principles used and sigmficant estimates We have audited the consolidated balance sheets of made by management, as well as evaluating the overall DTE Energy Company and subsidiaries (the " Company") financial statement presentation. We believe that our audits as of December 31,1997 and 1996, and the related consoh-provide a reasonable basis for our opinion. dated statements of income, cash flows, and changes in in ur op n on, such consolidated Gnancial statements common shareholders' equity for each of the three years ".d to above present fairly,,m all material respects, the in the period ended December 31,1997. These financial f nancial position of DTE Energy Company and subsidiar-statements are the responsibility of the Company's manage-ies at December 31,1997 and 1996, and the results of their ment. Our responsibility is to express an opinion on the operations and their cash flows for each of the years in the imancial statements based on our audits. period ended December 31,1997 in conformity with We conducted our audits in accordance with generally generally accepted accounting principles. accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable V 1_M_ 44/#

• DTE Ensrgy Company Statistical Review

.v S: a d 1997 1996 1995 1994 1993 3 (Dollars in millions, exept Common Share Data) y Operating Revenues Residential $ 1,179 $ 1,198 $ 1,211 $ 1,136 $ l.126 k Commercial 1,501 1,506 1,496 1,473 1,428 Industrial 726 731 728 736 720 Other 231 207 199 174 281 Non-regulated 107 3 2 Total $ 3,764 $ 3.645 5 3.636 $ 3,519 $ 3.555 Electric Sales (Alillions of kWh} Residential 12,898 12,949 13.006 12,170 12,033 Conunercial 17,997 17,706 17,471 17,042 15.996 Industrial 14,345 14.062 13,825 13,356 12,618 Other 1,855 1,690 1,671 1,586 2,318 Total system 47,095 46,407 45,973 44,154 42,965 Interconnection 3,547 2,046 2,969 1,978 3,611 liital 50,642 48.453 48,942 46,132 46.576 Electric Customers at Year End (Thousands) Residential 1,870 1,847 1,825 1,805 1,790 Conunercial 178 175 174 172 170 Industrial 1 I I I I Other 2 2 2 2 2 'liital 2,051 2.025 2.002 1,980 1,963 Net Income 417 309 5 406 5 390 491 Financial Position at Year End Net property $ 8,934 $ 8,833 $ 8.823 $ 8,925 $ 9,000 Total assets 11.223 11.015 11,131 10,993 11,135 Long-term debt 3,777 3,779 3,756 3,825 3,831 Total shareholders

• equity 3,706 3.588 3.763 3,706 3,677 hiiscellaneous Financial Data Cash ilow from operations

$ 1,006 $ 1,079 913 923 $ 1,110 Capital expenditures 667 531 454 366 396 Average cost rate long-term debt (venr-end) 7,3 % 7.1 % 7.1 % 7.2 % 7.4 % Common Share Data Earnings per common share $ 2.88 $ 2.13 $ 2.80 $ 2.67 $ 3.34 Ditidend payout ratio 72 % 97 % 74 % 77 '7c 61 % Dividends declared $ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06 Dividends paid $ 2.06 $ 2,06 5 2.06 $ 2.06 $ 2.04 Average shares outstanding at year end (millions) 145 145 145 146 147 Return on average common equity 12.03 % 8.87 % i1.85 % 11.64 % 15.23 % lhiok value per share $ 24,51 $ 23.69 $ 23.62 $ 22.89 $ 22,34 Market value per share (year-end) $ 34 % $ 32% $ 34 % $ 26% $ 30 hlarket price: liigh $ 34 % $ 37 % $ 34 % $ 30 % $ 37% Low $ 26W $ 27 % $ 25 % $ 24 % $ 29% hilscellaneous Operating Data System peak demand (AfW) 10,305 10,337 10,049 9,684 9,362 Emiiloyees at year end 8,732 8.526 8.340 84 % 8.919

DTE Energy and Detroit Edison 'w Officers A gj-y.7 9 r g y m p y.g g;;;< +f,f

• Ay.pg a

l p q a.4 A;',Q.L J.,Q -s %, gry% L4 ..f :,i ~O ~"~~;.~,- T ?? ?f 5, g -[ -e - g ,M 4 g. c.1y ' ' p g.- g -rc x g '5'- / o% T. l y P" m, I h s l 1 g 1 9 <T 4 fM y 1 p Q R.la..La d %.v.. a n k X' .u: Front row, from left Robert J. Buckler, Gerard M. Anderson Larry G. Garberding John E. Lobbia and Anthony F. Earley,Jr. Dack row, from left Michael C. Porter, Michael E. Champley, Douglas R. Gipson Leslie L Loomans, David E. Meador. S. Martin Taylor. Susan M. Beale. Christopher C. Nern, Albert J. Tack, William R. Roller and Haven E. Cockerham. John F. l.ohhia,56,19M. Susan St. Ileale,49.1982,

• William R. Roller,52.1965.

Chairman of the Board and Chief Vice President and Corporate Secretary Vice President Power Generation Executive Of ficer since 1990. since 1995. since 1996. Anthony F. Earle,5, Jr.,48,1994,

• Ilasen E. Cockerham,50,1994,
• S. Startin Ta3 or,57,1989, t

President and Chief Operating Officer Vice President, iluman Resources. Vice President, Corporate and since 1994, since 1994. Public Affairs since 1994. 1.arry G. Garherding,59,1990 Leslie !.. l.omnans,54,1966, Albert J. Tack,55,1963, Executive Vice President and Vice President and Treasurer since 1989. General Auditor since 1997. Chief Financial Officer since 1990. 1)asid E. Nicador,40.1997, Officer Retirements Gerard St. Anderson,39,1993. Vice President and Controller since l997. Frank E. Agosti, Senior Vice President, Power Supply, retired hlay 1,1997, after Executive Vice President since 1997. Christopher C. Nern,53,1973, 39 3 ears of ecc. Robert J. Huckler,48,1974, Vice President and General Counsel Executive Vice President since 1997. since 1993. Ronald W. Gresens,Vice President and Controller, retired hlarch 31,1997, after Stichael E. Chample),49,1977,

• Stichael C. Porter,44,1997,

.9 years of mice. Senior Vice President since 1997, Vice President. Corporate Communications since 1997. Key: Name, age, scar joined the

• Douglas R. Gipson,50,1987, C""'P""I "d# ""d > """"'d '"

.('[#"[','y")em,i, gg;mn ony Senior Vice President. Nuclear Generation, since 1993. DTE Energy Affiliate Presidents Gerard $1. Anderson,39 Samuel Snkk Sleyers,46, Curtis T. Ranger,46, DE Energy Services, Inc. DTE Energy Trading, Inc. DTE Hiomass Energy, Inc. since 1994. since 1996. since 1993. F. Stichael Faubert,58. Gary Slittleman,45, Jean St. Redfield,39 DTE Engineering Services. Inc. Plug Power, L.L.C. DTE Edison America. Inc. since 1997. since 1997, since 1997. 1.arry G. Garberding,59 Esan J. O'Neil 53, Fred L, Shusterich,43, DTE Capital Corporation DTE Coal Sers ices. Inc. and Niidwest Energy Resources Company since 1995. DTE Rail Sersices, Inc. since 1997. Edison Development Corporation since 1997. Rkhard A. Zashariason,49, ""C# I997' Paul W. Potter,54, DTE-CoEnergy. L.L.C. Ilarry G. Starkowitz,56, Syndeco Realty Corporation since 1998. DTE Energy Services since 1987. since 1995.

t' DTE Energy and Detr.oit Edison "4s' r p y a y L d O m ?

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4e ~ ( y' t x, e l ( 3 s 5 f n' 0 ~,7 i [ C.. s .h Standing frorn left Alan E. Schwartz Lillian Bauder, Anthony F. Earley, Jr., John E. Lobbia. Larry G. Garberding. Terence E. Adderly. Allan D. Gilmour and Patricia S. Longe. Seated from left Theodore S. Leipprendt, David Bing. Eugene A. Miller. William C. Drooks, Dean E. Richardcoa and William Wegner Terence E. Adderley, M,1987, Larry G. Garberding,59,1990 Dean E. Richardson,70,1977. President and Chief Executive Officer Executive Vice President and Retired Chairman of the Boat c.f of Kelly Services,Inc. Mr Adderley Chief Financial Officer of DTE Energy Manufacturers Nationd Corporation. serves on the Executive. Finance, and and Detroit Edison. Mr. Garberding Mr. Richardson se ves on the Audit. s Organization and Compensation serves on the Executise and Finance Executive Finarce, and Organization and committees. committees. Compensation,ommittees. Lillian llauder,58.1986, Allan D. Gilmour,63,1995, Alan F. Schuartz,72,1969, Vice President for Corporate Affairs of Retired Vice Chairman of Ford Motor A partner in the law rinn of lionigman Masco Corporation and President of the Co. Mr. Gilmour serves on the Finance Miller Schwartz and Cohn in Detroi.t Masco Charitable Trust. Dr. Bauder and Nominating committees. Mr. Schwartz serves on the Executive, serves on the Audit Executive and Theodore S. Leipprandt,64,1990, Finance, Nominating, and O.ganization Nuclear Review committees. Owner of Leipprandt Orchards and and Compensation committees. David Iling,54,1985, retired from Cooperative Elevator Co. William Wegner,71,1990, Chairman of the Board of Bing Steel, Mr. Leipprandt serves on the Audit and Consultant and Owner of W-Squared, Inc. and Chief Executive Officer of Nuclear Review committees. Inc., a consulting firm providing services Superb Manufacturing, a metal stamping John E. Lobbia,56,.' r.18, to nuclear utility companies. Mr. Wegner company. Mr. Bing serves on the Audit Chairman of the Board and Chief serves on the Nuclear Review comnunce. and Organization and Compensation Executive Officer of DTE Energy and comminees. Detroit Edison. Mr. Lobbia serves on Director Retirennent William C. Brool s,64,1997, the Executive comtr;ttee. Patricia S. Longe, Economist and Retired Vice President of Corporate Eugene A. Miller,60,1989, senior partner of The Longe Company. Affairs for General Motors Corporation

• Chairman and Chief Executive Officer an economic consulting firm in Naples, Mr. Brooks serves on the Nominating of Comerica incorporated and Comerica Fla, retired from the floard of Directors emnminee.

Ilank. Mr. Miller senes on the Finance, effective Jan. 26.1998. DTE Energy Anthony F. Earley, Jr.,48,1994, Nominating, and Organization and expresses sincere appreciation to President and Chief Operating Officer Compensation committees. Dr. Longe for her many contributio c of DTE Energy and Detroit Edison. to the Company since joinink th: Mr. Earley serves on the Executise Board of Directors in 1973. committee. Key: Name, age. year. joined the Board. background and committee reywmibihtiet

~,, y Corporate Data f Market for the Company's Common Equity Annual Meeting of Shareholders g and Related Shareholder Matters The 1998 Annual Meeting of DTE Energy Shareholders S On Jan.1,1996, Detroit Edison common stock was auto. will be held at 10 a.m. Detroit time, Monday, April 47,1998 3 matically exchanged, one for-one, for common stock of at Detroit Edison Plaza,660 Plaza Drive, Detroit. { DTE Energy Company. DTE Energy's common stock Shareholders will be asked to elect members of the Board is listed on the New York Stock Exchange and the of Directors and ratify the appointment ofindependent = E Chicago Stock Exchange (symbol DTE). The following auditors. I table indicates the reported high and low sales prices c,f At the 1997 DTE Energy Annual Meeting of Shareholders, 5 DTE Energy common stock on the composite tape of th? five directors were elected: the appointment ofindependent New York Stock Exchange and dividends pa,d per share for auditors was ratified and two shareholder proposals were i each quarterly period during the past two years: rejected. Dividends Corporate Address Paid DTE Energy Company Calendar Quarter High Low Per Share 2000 2nd Ave., Detroit, MI 48226-1279 1996 First 37W 33R $0.515 Telephone: 313.235.4000 Second 34W 28 0.515 http://www.dtoenergy.com Third 31 27"A 0.515 Independent Auditors Fourth 33N 27 % 0.515 Deloitte & Touche LLP 1997 First 32 % 26 % 0.515 600 Renaissance Center, Suite 900, Detroit, MI 48243-1704 Second 28 26R 0.515 Third 32 % 27W 0.515 Form 10-K Fourth 34 % 28 OMIS Copies of Form 10-K, Securities and Exchange Commission Annual Report, are available. Requests should be directed to: Susan M. Beale As of Jan. I, 1998,145,097,829 shares of the Company's common stock were outstanding. These shares were held by Vice President and Corporate Secretary a total of 121,R64 shareholders. DTE Energy Company 2000 2nd Ave., Detroit, MI 48226-1279 The6 aunt of future dividends will depend on the Compny's carnings, financial condition and other factors. Trane*er Agent The Detroit Edison Company Distribution of Ownership of DTE Energy 2000 2nd Ave., Detroit, MI 48226-1279 Common Stock Shareholder Services: 800.551.5009 , Type of Owner: (Jan.1.199M) Registrar of Stock __. ~ _ Owners, _ _ Shares.... _ The Detroit Edison Company Individuals 59,290 13,765,563 2000 2nd Ave., Detroit, MI 48226-1279 Joint Accounts 50,866 17,114,296 (Detroit Edison preferred and DTE Energy common stock) Trust Accounts 10,898 6,491,037 Other Shareholder Information Nominees 28 92,996,301 Shareholders who hold stock in street form may request Institutions & Foundations 190 58,973 quarterly reports by writing to the address below. Brokers & Secunty Dealers 12 28,248 Shareholders of record automatically receive quarterly _ Others. _ _ _ _ _ _ 580, _ I4,643,411 - reports. As a service to shareholders of record DTE Energy _ Total 121,864. _.145,097,829 offers direct deposit of dividend payments. Payments can be electronically transferred directly to the bank or savings State and Country: and loan account of choice on the payment date. Please Owners Shares write to the address below to receive an authorization form Michigan 60,284 33,518,776 to request direct deposit of dividend payments. Florida 8,386 3,434,045 DTE Energy Company California 6,711 2,040,446 clo Detroit Edison, Shareholder Services 434 W.C.B. New York 5,305 94,389,528 2000 2nd Ave. Detroit, MI 48226-1279 lilinois 5,069 1,484,951 Ohio 3,997 1,097,079 This report containsforward-looking statements within the 44 Other States 3I.675 8,982,669 meaning of the Private Securities Litigation Reform Act of1995. _ _ Foreign _ Countries -.. 477.._ _ 150,335 _ These statements are based upon the companp best estimates.

DTE En;rgy i Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan 1 offers existing shareholders and new investors a ','r,i, convenient and economical way to buy and hell I' L;, % l;,,: F DTE Energy Company stock. [', ii, D,, t 1 2 To obtain a Plan Prospectus and enrollment information. 3 \\ y. .i please call our toll-free Shareholder Services number 3. f, - 1. p. ,w<- j 800.551.5009 or retum this business reply card. i' 1 o i Name (Please type car print clearly i Address i City /StatefZip Code l I .o t Free information from DTE Energy AfMHates Obtain the latest catalog of DTE Edison America-energy-related products by calling toll-free t n 1.800.573.6232 or returning the following l business reply form. I l I l 1 l Nam: trieaar e.,pr oremo cIrartyp l l l Address t I City /Statefl.sp Code i Please send me the following: 1 0 DTE Edison America" Catalog i O Detroit Edison Foundation Annual Rep-1 O Detroit Edison Environmental Report j O io.x J O Information on DTE Shareholders United

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