ML061230553

Fermi 2, Annual Financial Report

ML061230553
Person / Time
Site:	Fermi
Issue date:	04/24/2006
From:	Gaston R W Detroit Edison
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
NRC-06-0035
Download: ML061230553 (89)

Text

Fermi 2 6400 North Dixie Hwy., Newport, MI 48166 Detroit Edison 10 CFR 50.71(b)April 24, 2006 NRC-06-0035 U. S. Nuclear Regulatory Commission Attention:

Document Control Desk Washington D C 20555-0001_-:

Reference:

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

Subject:

Annual Financial Report Pursuant to 10 CFR 50.71(b), please find enclosed the 2005 Annual Financial Report for the DTE Energy Company, the parent corporation of the Detroit Edison Company.Should you have any questions or require additional information, please contact me at (734) 586-5197.Sincerely, Ronald W. Gaston Manager, Nuclear Licensing Enclosure cc: wfEnclosure D. H. Jaffe T. J. Kozak NRC Resident Office Regional Administrator, Region III Supervisor, Electric Operators, Michigan Public Service Commission A DTE Energy Company U'. /p ENERGY IS OUR ,.- -v Foundation, Focus, Future LI Y Tableof Cttents 1 t tik 3"4~ e4 ;5 JO ji*T i,'<46w 80'Utility Detroit Edison Detroit Edison generates, distributes and sells electricity to approximately

2.2 million

customers in southeastern Michigan.

The company uses coal, nuclear fuel, oil, natural gas and hydroelectric pumped storage to generate its electrical output.We also purchase electricity from other generators, suppliers and wholesalers.

Founded in 1903, Detroit Edison is the largest electric utility in Michigan and the 10th largest in the nation.MichCon MichCon is engaged in the purchase, storage, transmission, distribution and I ---- -------- --

3/4'S.;-V I Energy Is-our business sale of natural gas to approximately

1.3 million

customers in Michigan.MichCon owns and operates 271 storage wells representing approximately 34 percent of the underground working capacity in Michigan.

There is more capacity in Michigan than in any other state. Founded in 1849, MichCon is the nation's 11th largest natural gas utility.Power and Industrial Projects Our power and industrial projects provide private, utility-type services to select energy-intensive industries.

Ventures include on-site energy projects, industrial scale generation and cogeneration, and biomass projects.Unconventional Gas Production Unconventional gas production comes from drilling in shale and coal seams. DTE Energy produces unconventional gas in northern Michigan's Antrim Shale and has expanded its business into the Barnett Shale inTexas.Fuel Transportation and Marketing We leverage our large physical energy asset base to market and transport gas, coal and power to customers.

We are one of the largest marketers and transporters of coal to third-party customers in North America. We are a leader in gas storage and regional pipeline operations.

We market and trade energy.1 I I I It j Financial Highlights i ,<:i.-(Doflars~

in Milflions, Ex.etPrShar bnS~3<: 7 05204 %Cange i i Electric Utility -Gas Utility Non-Utility Corporate

& Otheer_..'

Eliminations tn! '$ 4,462 $ 3,568 2,138 1,682 3,114 2,425 (702) i621)9,022 -$ 7,071',.'; .: :, Elebctric6 UtiIity: G Gas Utility'-Corporate&

tr DiscontinuedOperations I C m l a t i v E f e t f c u n n g C a e s Cu mu V$ .277 $ .150 37 -20 3114 3" 303 (52) ' ' (12)576 461 .(36) (30)3 (3) -$ 537 $ 431_ J .. L =L__L___I, -.I -I .Non-Utility I='.Corporate

& Other .-t, :i00,< i '. >,XfJ~R'--

Discontinued Operations-:,,,',-,-Cumulative Effect of Accounting Changes;:Dividenrds Declared Per Share,' ,-,,,,.r ,",, '-=, Dividend Yield;`-' , ;` %_,..--Average Common Share's Outstanding (Millions-Basic>'Diluted Book Value Per Share .-,': Market Price at Year End '.Total Market Capitalization-.,Capital Ependitures

--Total Assets--'

..,,.:31 I -, 1.57 , $ 0.87 0.21 o',l. 0.1 ,1.78., ; j -1.75;(0.29) (0.07).,- +r .~ 3.21 j 1 ,i -, -,2.66 ^(0.20) ( (0.17): (0.02) -$ 3.05 -$ 2.49 2.$ 206 $ 2.06 ,

• 8 -4.8 i'175 173, 176 `--173$ 32.44 S 31.85$ 43.19 $ 43.13;$ 7,680, -$ 7,514$, 1.065 $ 904-23,335 $ 21,297-25.1% ,;-;27.1 /28.4 /..41.2/N/A /a~27.6 84.7 85.0 O'D-~- ~" '"" 3.6V N/A%24.9-20.0. %C, -,, 24.6 %-/22.5 %1.7/22 5 178%96/j'JI 1.1: 11 I.I I -.:- I -;.. j , -...... ... t .,, ... .. , .... ...X , ..x ....f -.;E ..... .. .i_.. _._, ..............

__z_,_ ............

.i, .... ..... .. .; a_ ...... , _ ..... , ._ _... .. .....-- ;-..-. ..-E ,0 ...:,.. ..:..,i ,, j$2.100$1.80 090$1.40 80$1.20$1.0 70 9...$.1972 1.1978 1984' --1990i 1996 2002a.. 2005 1995 1997 -1999. , 2001'`' 2003 200'd di Pad S&P .fcd trdr .D 7 -^ .DTE EnergyAnn ual Dividen Dividen d Pad S P El cri nd x v. DT ne g'We'have paid an annual dividend to We have consistently paid an annual-shah for h past96 yearseho dided while others have Cut th 3 ' ', .. ......2 Shreolers-a__Energy is our business T

• Y 2 m ;; ri-6 i o n --..lan'dscapcontinues,...

to evolv I cretingi-.multitude'

'fo-pj" nit es~-and challeenges fo-,>- r I5*;-i se;fiw Thur industry aidne Y' " I.lcopandcpcontinaesd IL~'-Web e ieve -energyilS incteasinglve beoea a su p , res, busins.wi I handful f -rre playrsg ial:;* fi' ;;7-: .r.DTE Energy intends to be among the top competitors.

Our utilities provide a solid foundation with more than a century of service to our customers.

We continue to build on this rich heritage.

A focused portfolio of energy-related non-utility businesses allows us to leverage our utility expertise and broaden our reach. This strong business mix, coupled with a disciplined growth strategy, positions us well to respond to the changing marketplace.

DTE Energy Chairman and Chief Executive Officer Tony Earley.I expected 2005 to be a rebound year and it was.Our 2005 diluted earnings per share were $3.05 compared to $2.49 in 2004, a 22.5 percent increase.Reflected in these results was the improved financial performance of ourtwo utilities.

Rate increases authorized for both Detroit Edison and MichCon had a major impact on our bottom line.So did the favorable weather.-- ,,' -*-'.' ]I_______-<*

Letter to Shareholders I believe both utilities are poised to grow at a level we have not seen for two or three decades. Combined, their earnings could increase 5 percent annually through 2010.To achieve this we must:* Continue the good progress we're making to establish a constructive regulatory environment in Michigan.businesses through 2008. We expect this cash will be generated primarily from synfuel tax credits, assuming the tax credits are not phased out and sufficient taxable income exists to use the credits. The phase out of credits depends on the price of oil.We're focused on three core non-utility business segments:

power and industrial projects, unconventional gas production, and fuel transportation and marketing.

Each segment has the potential to produce net income of $50 million to $100 million by 2008.In 2005, we made good progress.

We closed four on-site energy transactions.

We began operating our first petroleum coke processing plant. We acquired three landfill gas recovery projects in two states. We substantially ramped up our Barnett Shale business.We expanded our gas storage and pipeline capacity.To build on our progress, in 2006 we are focused on significantly improving our cost profile and our operating performance.

We believe that across the board top quartile performance will not only improve our bottom line, but will also help us respond appropriately to the changes occurring in our industry.Our ultimate goal is to provide superior service to our customers and premium returns to our shareholders.

As we worked through our regulatory issues in 2004 and 2005, our shareholder returns were disappointing.

Now we are ready to reap the value we have developed at DTE Energy.Thank you for your continued support as we build an exciting future for your company.Sincerely, Anthony F. Earley Jr.Chairman and Chief Executive Officer March 1, 2006 DTE Energy is a leader in keyhole technology designed to minimize gas leak repair time and costs. Fitters Fred Drys (left) and Alphonso Hill.* Complete a series of utility investments that will increase the asset base on which we earn the 11 percent allowed return.(These investments are reviewed later in this report.)* Lower costs and streamline processes through our Performance Excellence Process.One caveat to this generally positive picture is Michigan's economy. A return to more robust levels would give the company more growth opportunities.

Our non-utility businesses also are on a growth trajectory.

We plan to redeploy approximately

$1 billion of cash to build these 4

• >i2'4~;A;'~z'industry evoling-and-what;--DTE Ener y'isding Jo se' ure ';-5< ;-,:';';..ts'sfutu r ~ wea ' r ofideer'weha'e te'-rght a p rch'N D- the ire o e os4 4-c- ane n g r 444 ace-=i;-D clean ar-concerns' and th e cs '~ IiaM f ypoeaebillionso

6 tininvesmens to meetm andae4 ' 4missios 4targets ovr erthnex -sever '.iars:he avastrange ol requir ben uho e wn e a t ener it future'., We.a' cofien we hav th righ.'t approach0 ia .., -TRND tesnvirn oer adaned e nvironmental controls ;-e -e gy; an --4 .4 --E~~nergwcmanies utblnetete ddsdmn o oe gis i ' > t"- 'i' i'-'6 c p sacean at ti4 f4;clea ar ocer, a e co t of co i c E ! fe bl. o-t DTo E Esntenrgyt we hnVet aleig,and proudghistovern years. Ti vs rangieri' of requirnementsa siu rdsidean will acclre:4 Li :----e :;r, -.; ..: ..4 4;kei.;-=X=

.ofctLvitu inm- 44 fnent.-,--is '7- .' ' -.ceadentean C hief aneratin other rr nede onc ta choi rols, 7ir ' Off = ..; 4 , .rry -.- -c- -t .n-;r;nmental committee of the Edison Electrc Institute.

He also chairs the Michigan Greenways Initiative and is vice chair-of .The Michigan Nature Conservancy board o m j , .-,': ii , \z ,, , .-N.7V i .., ..'-' Nearly 500 Detroit Edison and contract* line workers, tree trimrners and support --personnel assisted electric utilities

-in Louisiana and Mississippi during -'-hurricane relief efforts. Logging more --;; ~~than 3,200 mileisiand 21,600 hours0.00694 days <br />0.167 hours <br />9.920635e-4 weeks <br />2.283e-4 months <br /> of labr'Detroit Edison crews helped restore' 7-7 power and clear debris-4 4 --, -n ` ill X \ -N- .:: I \ -N 'A I~, J j, -1i.: .. , i= ,- .1'- --1k 11;,- .r _I_ ,I , r: II.. I L r : I, X 1 r -.1 X..

ENERGY IS OUR Foundation, Focus, Future TREND Eniom na cntinued),., e reognze ta aropeatins an impact: theenvromen~

Ad rsosay7 That's why we~or harto seour reores efficiently, embrce avancd tchnologies, 6dfn deane waysjtogenerate power(ro ex i, ese morie tha $49o riilint Ov ot netecto a a ae co 1Weuie se roem us ion more SC a MinoeiMollunroeoid2 scrbbrsatalsoouaprgcoroir SCR at Monr isany'sunfitsdi(xie C&rig th'A o_-n Page 8.) -The company plan's to , spen aproiately

$218, mi~ll6r6iln 2006'a7 nd U13to an-additional

$2.2, billion in future cptlex Andiiu`is~

tfirbug h 2018 tof meet',,eemissionreduction reqluirements-, 4 we ar acive on; manyjfro'nts.

Ou0r fossil-fuel plants burnlnearly 60,000' .~ ton of cal e'a"ch day;, of Whicl about', v ~ -~`JO7 percentis b-aie btihing low-sulfur~

i~westerni coaI J Our. electricjutilitya oe of the first to use this, coa to.significantl Vrducs Ijfurdioxide'emission We're alis' looing'at ways to reduce,\nI~~ecury.&emissions:lWhen fully operational,,.,'h 'd 'r teSCRs and scubbrs' at the Monroe\ I~P6owerPlantwillrerrovethedmajority-~'

6 i , I .I I- I --'I I -V I-.iz i -i -'T I tI 7- -M: I : 1 I I-i :- I:'::LJ4: fM 1- i I r I it p: L L iI ; ,:-;" I -, z S-: " .1 --, : v : ' .I I I -z -; i,2 1 I ;Ir. .-. I P- I.:I I I -: I I I 22 3 .1 t! -r --4Q -- -, iS<-Q)U Josh Ackerman at the M ontome rA AN- ' landfill-gas collection system owned and operated by, DTE Biomiass Energy.\w ]7 ENERGY IS OUR Foundation, Focus, Future more than 95 percent of sulfur dioxide emissions.

The scrubbers produce a gypsum byproduct that can be marketed and sold to wallboard companies for use in making theirpproducts.

In addition, the scrubber project will create 450 new construction trade jobs in the metropolitan Detroit area I Wrefocusing the construiction of ne~w emission controlav 2 equinpment at Monroe Power Plant- Detroit Edison's largest plant--:-.- with a capacity of more thanh3,WO(megawatts..Dan Fahrer(left

'engineering manager, environmental projects, and Sam Dubois, construction supervisor.

• -'; --TREND: Environmental: (ontinued)

N i s I a th s l argestsource O emissions free electricity.

'"Today nuclear power is safer, *cleaner.and more efficient han ever before,' says DTE Energy'..Ch'airan and Chief Executive OfficerTony Earley,'- 'wh'o al serves as' 2006 chairman of'the Nuclear' Energy Institute.. -Environmental concerns will drive 'arenaissance of nucle.r power in ouri h r 'country and eventually, in Michigan, too Our Fermi 2. nuclear power plant provided 18 percent of Detroit Edison's total electric jZ X--j.,r-.'generationr in 2005, with virtually no air emissions In fact, since we began operating Fermi 2 in 1987 8 7, -4 ENERGY IS OUR Foundation, Focus, Future--TREND: Volatile Prices (continued)-

L _i; < We're lincreasing natural- 7 gas-producti'on.."In the.long-term,.supplies ofnatural-_I

..gas must increase if we are to redule.r customers' bills'meaningfuill'y" T-according toSteve.EwingDTE Energy'-vice chairman and 2006 chairman of-the American Gas-Association-.1n-testimony before C5ongress, ast fall,.....<

--Ewing urged our nation's policy-makers

-to take decisive action now to solve.the:.<., E ,i supply problem.At DTE Energy we're doing our pa AA Antrim Shale formation:

With mor -Ti~i2,000 producing-%v~ellss~

'approximateK30y 00icresw-roduce enoug_4 -formation to heat183,000 homes..;, ~ ~ -i1 ~j -~ -V~fafull y6a'ear.'

We-drill' about-125 nw -.we llss per yea r and expect the Antrimi'basin to kep pro ucing.fbrfanother-i, H330 yvears.MWe'ret-alsotpiinig into jfA-previosy~

inacess ea- tt-A Shale with ho otal driling technologj

\I I hroughx'tero 0ng position in i AntEiim Shale5wel.2ha 6.e expanhded o-iff ffrts al~~n~jo gas.t6 a,~M rii"Jf1,0 Z,,..eod foirriationi,~th6113arnett'sle-$

Wo art ,Texa- We nearFort o~hTxsW'u rrentI hv ' -., .erly,75,000 leaseholdacres wittpan exad-Wehave<14-apxmateIy,60 prdducin6~wells i.t theBarnet Sh-ale,-'and plan t6 drill'~-ditoa 55wlsin.2O0~9~

1 0., .

We're increasing gas storage and pipeline capacity.We are the second largest gas storage provider in the Midwest. We store gas for our own utility, MichCon, as well as for energy providers across the Midwest and Northeast.

A $45 million expansion of ourWashington 10 storage field north of Detroit, will help us move gas supply to the growing Northeast market.We're planning to expand a second storage field in 2007 and open a new field by 2008. This will give us additional opportunities to store gas for third parties.We're investing

$25 million to expand the Vector pipeline, which moves natural gas from Chicago through Michigan to Dawn, Ontario, and is connected to Washington 10.We're also partners in developing the Millennium pipeline which, when built, will move gas from Michigan's storage fields, through Ontario into Western NewYork and NewYork City. Construction should begin in late 2006, with the pipeline operational by November 2007.Both the storage and pipeline expansion projects will help strengthen our gas distribution business.Coal powers more than half the nation's electric supply.The National Energy Information Center forecasts coal demand will increase 38 percent over the next two decades, with more than 90 percent of that coal sold to utilities.

DTE Energy is among the nation's top three North American coal marketers and transporters.

We specialize in efficient management of coal supply and transportation, moving nearly 40 million tons of coal across the country, in addition to Detroit Edison's 21 million tons. We're looking at opportunities to expand this position.11 ENERGY IS OUR Foundation, Focus, Future I i ,, , 7, , , 1--, ,-A -",% , ,.-- -- I 1, I -.Z ;1 1. .4 -._1I C.,- -*- l._ _.1, n. 1 Operai z. stiljwil-,-- v .*rk s~t f-Sito}re' ; J }t 0 TREND: Volatile Prices-We helpjlarge indlustrial

>-cu sto m ers -co nse rve: energy and 'cut osts-H eavy energy. users served by-our, '.electr-utility, Detroit Edison, can-- e r- _'-- of a iprogram called .f~ * --i.-;. _ .,- ,, -J-. -> 4j , ;% Fw ,, 4 ._customers materially improve.alifaround'.

-. efficiency, and achieve b6tt'omlfine.r.results.-

• , .- -tx -K- -. -s *g We also develop,.own and operate.{

--.-a variety of orinii6eenergy projects -:. through one of our non-utility subsidiaries Itserves customers:

at 24 sites across the.country. in the auto,'steel, pulp and paper,'_.food processing and airport segments*- These projects include operating,.:

',powerhouses backup generation, h'eatingI ,and coohng systems, and waste-water...t, .t* :t .-4 ?, .1/4.I '~.I _________

Lzi.,i.:.t -12 1*'[* K K--, i -,i 11 4"A -,: , i.- -,-. .--"-I j 41- ,-, ;-_ i " , , ';e-1,": , ".1 ,; I '- --

ENERGY IS OUR Foundation, Focus, Future-.1 I . , 144-IM'Y', I--- -ttI- -I.Tvth nearly a quartgr-million customers,> Granh Rapids, Mich.,'ranks, as MichCon's second'-largesltservice region.: Add-1.a- recelntly built highway,--

hospital and heaithtcomplex, and Grand Rapids becomes a thriving market,'with rapidly growing infrastructure needs.'The Jamestown Pipeline,' 28 miillsof 30-inch'steel piping, will meet market demand. When complete, it will allow MichCon to spply natural gas to 220,000 residential customers.

... E. ;4-- A-M M I 'I'll --," 1UL Surveingte Jamnestown Pipeline in Grand Rapids. Mich.,--are Jerry Belarid (left), man~ager of piublic imrprove-ment and, n-and construction.-

._-TREND:

s tuCtur1 Investmhent (conitinuedd)

M-- MichCon atracts approximiately 17,d000" nerseachyea.

As a result of this" growth,'we're installing anew natura gas p ipeline n ea Grand Rappid to seve weste rn , ;^ r Jry ean lftmaaero pbi imprrovnetad.

Michigdn.

constructio ,will begin this! ring.(ee "In the Pipeline:'

left.)I nras ructure investments at oth our utilities ,ncreases their rate bases, g ,vi v i ng t_. it E dison,'and MichCon a the opporunity to grow, while`helping to power Michig.an's aesno TlSy.:> r z- ' ! .^, 3 ..N ;- j, e j: .2 -..2; -A; 'i i ..j ';,_r * .ti:. ^ j ,[ ',*, i:.:0 , f :; --.e* , [,, ..r- > rt,,+ \* , c .I .X: ,, , l,-' ,.,>f. ,.jk _r

• _ I > _ w _v., ' j , 1 ,, ' C, ',,, 'X 't, , , 8 ' .,. S F Q,; ; i.+t.-,i;'.f 'Z';., of-tes S 6 t t rJ i 4 aa jr s.1 a, .j -L s v* : > WErT! :- !, ' e C ' ; ' .-;;: :r = '-: :"s i , g -, 3.;. ..> I 14 TREND: Industry Consolidation As our industry evolves, we believe there will be fewer, but larger energy companies with broader geographic service boundaries.

Our goal is to be among the top 25 percent of all U.S.-based energy companies in terms of customer satisfaction, operational performance and cost. We are striving for excellence and have an aggressive program to get there. It is focused on: 1. Improving the efficiency of our operations and reducing costs across the board; and 2.Growing our businesses to achieve greater scale and scope.We are striving to simplify work, remove roadblocks and reduce costs.In the fourth quarter of 2005, we stepped up our efforts to help prepare DTE Energy for the large slate of investments we plan to make during the next five years to grow our businesses.

Customers, too, will benefit from our work to keep down our costs and their rates.The DTE Energy Operating System is a powerful tool we're using to implement the dramatic change required. (See "When Credit Is Due,' right.) For example, employees at the Electric MeterTesting and Calibration Center achieved dramatic results by applying Operating System tools to their work processes.

Before the re-engineering effort, each worker refurbished 40 meters per day at a cost of $12 per meter. Today each worker produces an astounding 110 meters daily for about $4 per meter.Improvements like this get us closer to our vision of becoming a top-performing company; providing superior service to our customers and premium returns to our shareholders; and positioning ourselves for long-term earnings growth.,'-WHENCRDTIDU D TYEEergyrdce t uncletbs~1 pexpense7prntionyarb usingtheDT nery Oearating

-System. A ross-utinlea of employees jozned the Credit &CGo He ctionsd pdt ient~to-create a morerobut prcessfor

~idehtfyn ovedu bllsan cmmunicatn Cr i 'It Wad r ji Sre t'-.t.[14r i i5::*dj...Credit and Collection Specialist Daderriel Warren and;%<, t his supervisor, Atesia Smith.- -.,;,aquickly ihCsoesusn.a:w-jr.--

i,.Mn k,.process.

..Soon after ,customers are'overdue,atanautomatic callreminds themrto pay. their bll. Eventually,'.unpaid bills'are turned over.to-a-.

,..-; ,-'>.... E.=.collection agency. -. Gustomers have S.said theapprecite'thefi

.,-Xreminder and, after just one call, are more'likely to pay their bills7By)'1 .ptaking proactive steps to address the nthecompanyghas increased; ;fz*sf -pr o blrn th e .o i 2 -'3zz-';;'

Oc`ishflow ,by, $20 .milin ,'.; ~ ~ ~ o ~" t e Wr-7;,%

r;'B ' D i 15 ENERGY IS OUR Foundation, Focus, Future A SOLID FOUNDATION

'-'--TheDTE-Energyl'i,,',, hFoundation awarded morex,:,f .:than $7; million- in grantstoto

nopoft organizations

"'~1-~-.: wil once again rcgnz n it withA, chievtng-Excellece:-e Awards.. Awlard 'wil be> <'presellted in -olla 'aoktidi leadership, sustainability and special achievement.

Past winners have included the Detroit Science Center,' -the Southwest Detroit sl-.."-- " 'Business Association and, the Community%,Fundation..

of the Upper Peninsula.-The Achieving Excellence Awards recognize"'~A exemplary nonprofit organizations, not justf fori.:;what they do; but for ho well they do It-.: .~.The DTE Energy Foundation awards grants--under its 7LEAD guidelines leadership' education, environment.

a chiev'ement development and diversity.

The Detroit'Science Center isa past grant recipient 16 Bob Buckler (right), Detroit Edison president and chief operating officer, 'served ascairm an of the Detroit Super Bowl XL IHost Committee Downtown*Plain~i n Team. With him is Roger Penske, chairman Bo tuch DtritSu per Bowl XL Host Com ittee.I I We provide more than 10,000 jobs in Michigan.

We strengthen communities through the DTE Energy Foundation. (See "A Solid Foundation' left.) In 2005, our employees and retirees pledged $1.7 million to the United Way campaign and $189,000 to Hurricane Katrina relief efforts. Hundreds of employees hold leadership positions in the community.

Among them are Joyce Hayes-Giles, our senior vice president of customer service, who is vice president of the Detroit School Board.Lineman Jim Beaubien is mayor of Gibraltar, Mich. Bea Denard, the human resources director for our energy trading subsidiary, is a board member of Homes for Black Children."There is an intimate connection between community service and good business,'

says Bob Buckler, president and chief operating officer of Detroit Edison."We power almost every aspect of your life and we take this role very seriously:'

Th'e future -is filled with:J r'< i ,5 opportunity.-

We intendto.:wmake the most of it.As our industry evolves, so does-DTE Energy. We believe we have what.it takes to-be a successful company: Astrong foundation

-*A provenstrategy

• A complementary business mix;* A dynamic leadership team* An engaged work force and -o Satisfied customers.2:

--.- --; <-.t At DTE Energy, we believe the tremendous-change within our industry creates endless-possibilities for our company to improve, tou ;-;-innovate,:to grow, to better serve our customers, and ultimaely, to reward our'shareholders.'

-: -.We are committed to making that happen. .'- i -..X .t r 0 0 *X -_ ' f -.. ,0 -4J 17 Standing, from left Gail McGovern, Howard Sims, Frank Hennessey, Allan Gilmour, Josue Robles, Alfred Glancy, and Joe Laymon.Seated, from left John Lobbia, Lillian Bauder, Tony Earley, Eugene Miller and Charles Pryor.Anthony F. Earley Jr., 56, has been the chairman and chief executive officer of DTE Energy since 1998 and was also its president and chief operating officer from 1994to 2004. He joined DTE Energy in 1994 as its president and chief operating officer, the same year he was elected to the DTE Energy Board.Lillian Bauder, 66, has been the vice president of Masco Corporation since January 2005. From 1996 to 2005, she was vice president of Corporate Affairs, Masco Corporation; she was chairman and president of the Masco Corporation Foundation from 2002 until 2005; and served as president from 1996 until 2001. She was elected to the DTE Energy Board in 1986. (N, A, C)Allan D. Gilmour, 71, is the retired vice chairman of Ford Motor Company. He served as vice chairman of Ford Motor Company from 1992 to 1995, and then again from 2002 until his retirement in February 2005. He was elected to the DTE Energy Board in 1995. (F, C, 0)Alfred R. Glancy III, 67, has been the director of Unico Investment Company since 1974 and its chairman since 2000. He is also the retired chairman and chief executive officer of MCN Energy Group Inc., serving in that position from 1988 through 2001. He joined the DTE Energy Board in 2001. (F, P)Frank M. Hennessey, 67, has been the chairman and chief executive officer of Hennessey Capital LLC since 2002. Prior to that, he was the chairman of Emco Limited from 1995 to 2003, and vice chairman and chief executive officer of MascoTech Inc. from 1998 to 2000. He joined the DTE Energy Board in 2001. (A, 0)Joe W. Laymon, 53, is the group vice president, corporate human resources and labor affairs, Ford Motor Company since 2003. He was vice president, corporate human resources at Ford from 2001 to 2003, and executive director, human resources business operation, from 2000 to 2001. Priorto that, he served in other human resources leadership roles at Ford, the U.S. State Department Agency for International Development, Kodak Co., and Xerox Corporation.

He has served on the DTE Energy Board since 2005. (0)John E. Lobbia, 64, is the retired chairman and chief executive officer of DTE Energy. He retired in 1998. He joined the company in 1965 and has served on the DTE Energy Board since 1988. (F, N)Gail J. McGovern, 54, has been a professor at Harvard Business School since 2002. Prior to that, she was president of Fidelity Personal Investments from 1998 to 2002. She was elected to the DTE Energy Board in 2003. (F, P)Eugene A. Miller, 68, is the retired chairman, president and chief executive officer of Comerica Inc. and Comerica Bank. He retired in 2002. He joined the DTE Energy Board in 1989. (C, F, 0)Charles W. Pryor Jr., 61, has been the president and chief executive officer of Urenco Inc. since 2003. Prior to that, he was the chief executive officer of Utility Services Business Group of BNFL He was the former chief executive officer of Westinghouse Electric Company from 1997 to 2002. Dr. Pryor joined the DTE Energy Board in 1999. (F, N)Josue Robles Jr., 60, has been the executive vice president, chief financial officer and corporate treasurer of the United Services Automobile Association since 1994. Priorto that, he spent 28 years in the military, during which he served as the U.S. Army's budget director at the Pentagon.

He was elected to the DTE Energy Board in 2003. (A, P)Howard F. Sims, 72, is the chairman and chief executive officer of the Sims Design Group and chairman of SDG Associates LLC and SDG Design Inc. He had served on the board of MCN Energy since 1988, and joined the DTE Energy Board in 2001. (C, N)Committeemembership:A-Audit C-CorporateGovernance, F-Finance, N-Nuclear Review, O-Organization and Compensation, P-Public Responsibility 18

• .T, -t-7 7  ; -om'-.i-taee___-

--~ ~ ~ ~ ~ ~ ~ xctv Committee w 1 -; ,; k it 7 r I 1 '176 i Anthony F. Earley Jr., 56, is chairman and chief executive officer of DTE Energy. He joined the company in 1994 as president and chief operating officer (COO) and that same year was elected a director.

He was elected to his current position in 1998. Before joining DTE Energy, Earley served as president and COO of Long Island Lighting Company where he had worked since 1985.Stephen E. Ewing, 61, is vice chairman of DTE Energy and president and chief operating officer of MichCon. He was elected to his current position in 2005, and previously served as group president of DTE Energy Gas. He joined the company in 2001 from MCN Energy, where he served as its president and chief operating officer, and president and chief executive officer of its primary subsidiary, MichCon. Ewing joined MichCon in 1971.David E. Meador, 48, is executive vice president and chief financial officer (CFO). He joined DTE Energy in 1997 as vice president and controller and was elected senior vice president and CFO in 2001. In 2004, he was elected to his current position.

In addition to controller, Meador served as senior vice president and treasurer.

Prior to joining DTE Energy, he served in a variety of financial and accounting positions at Chrysler Corporation for 14 years, and was an auditor with Coopers & Lybrand.Lynne Ellyn, 54, is senior vice president and chief information officer. Ellyn joined Detroit Edison in 1998 as vice president and chief information officer after serving as vice president of Business Applications for Netscape Communications.

Ellyn has also held senior leadership positions at Xerox Corporation and Organic Inc. Earlier in her career she spent nine years with Chrysler Corporation managing advanced technologies.

Ron A. May, 54, is senior vice president of DTE2, a multi-year conversion of our IT systems to SAR He joined the company in 1984 as director of planning and control of nuclear administration.

He held a series of increasingly responsible positions, including maintenance superintendent of Fermi 2; manager of service center operations; assistant vice president, energy delivery, and vice president energy distribution.

May was named to his current position in 2003.Gerard M. Anderson, 47, is president and chief operating officer (COO). He was named president in 2004 and COO in 2005. Previously, he served as president of Energy Resources and as executive vice president of DTE Energy. Anderson joined the company in 1993 from McKinsey & Co., where he was a consultant in energy and finance.Robert J. Buckler, 56, is president and chief operating officer of Detroit Edison since 2005.Prior to that, he served as group president of DTE Energy Distribution.

He joined the company in 1974. Buckler has held numerous positions throughout the organization including power plant engineering, construction and operation, fuel supply management, transmission and distribution operation, customer service, marketing and strategic planning.Bruce D. Peterson, 49, is senior vice president and general counsel. Prior to joining DTE Energy in 2002, he was a partner in the Washington, D.C. office of Hunton & Williams, a national law firm specializing in energy industry matters. He spent 14 years with the firm, focusing on energy and infrastructure projectfinance transactions, acquisitions and divestitures, and related contract structuring and regulatory matters.Paul C. Hillegonds, 57, is senior vice president of corporate affairs. He joined the company in 2005 after serving as president of Detroit Renaissance since 1997. Prior to that, Hillegonds served in the Michigan House of Representatives from 1979 to 1996. During nearlytwo decades in the House of Representatives, Hillegonds served as Republican leader, Co-Speaker of the House, and Speaker of the House.Sandra Kay Ennis, 49, is corporate secretary and chief of staff since 2005. Prior to that, she served as director of communication planning.

She joined the company as a technical writer at the Fermi 2 nuclear power plant in 1985 and came to DTE Energy from Bechtel Power Corporation in Ann Arbor, Mich.iall 11't ..F ^ J A E , c; l f i > X t C r z 4 r; z C, {, } ts z Ct T en t x (g I q = _ ,; [, i d g j S 3+ _ <, _ , e = 7 S t A i ts, X, r 1_ t.,. e. <, X t > -4 .; -.< or t ' ^ .4 > > ffi .O _ b S f 4 v ; > : > 9 S I as ... _ ' 4 / .-, ....... r, X , ._. ...z, t= .: i ; i = > i F A Ad }I 7 .f J-s; --V ' = i ' = -> ' ; ' 1 ' = ' ; ' =,;. -+;.. ... .+ i- .: -:;* : -- f .G- .-. l .f !<: it-- sr i- ->- A.: --: v En S *; ff mu? , I,, i,: -i , .A ;-:-. ---n;X ...........

,_,:_, g .t -, 4 _ -a. Am -X ,, 2, Chief Financial Officer's Letter terscale and scope..We shed two under-performing busin~esses to fo cius o-n, three seg-ments where we see the greatest earnings potential:

power and industrial I projects, unconventional gas production, and fuel transportation and marketing:We have , a full pipeline of investment opportunities.,-', -Iam committed to fundingour growth whileb,--

'.- , maintaininga stron'g balance sheet andcash.flow. We reduced pa'rent 'company debt.'$120 million in 2005 and plan to continue to' -..,.,..I-, manage the enterprise debt to the appropriate

'level.' We improved our cash flow, and , consistently meet our cash flow targets. I I am committed to continue improving our:, -, credit metrics. My goal is solid investment g grade ratings from all rating agencies.i I am committed to maintaining an attractive

.:'-dividend yield.: Ourcormpany has paid~a<A--,.Ourfinancial healtheimproved dividend every quarter for he pst 96 years al ealh inorvedconsiderab i in 2005'and we expecttocontinuethe At 4.8 percent, today it s one of the strongest:,r-momentum in'2006. I'm pleased with yields in the in try. --i t theAprogress we're making. ' -And, I amcommitted to continued earnings Driving DT nergys success is a proven -growt'o Ou 200 ne inoe a 25perent businessstrategy that positions us well for, above 2004, and we expect an improvement ini2006. However, net income wil increase.,conrtinued, gro, h,. ,by virtue of exciuding certain non recurring

'The financial performance of our two; items, whic.utilities and the regulatory environment in higher than previous'years.As'we grow, weA it-hich they opertesiginificantlyiniprovedin-

'-will;c_

o ely'manage the company's financial 2005.-Planned andmandatedinvestments in, 'rsk'nd aintai anenirment fsrong Detroit Edison and MichConImay significantly internal controls.

' ' --growour asset base byone third, generating Achieving these financial objectives is my 1 'additional net income of $145 million fromri highestpriority.

-2005to 2010. We will support this investmenti through our broad cost reducti rogram-'now under way while improving customer tisfaction-

• Dvi'd E. Meador -In addition, we are successfully reinvesting:-

Executive Vice President and cash into our non-utility businesses to'grow Chief Financial Officer I I------20 i`_TE Energy Company -C C .<'W tt ni Fina>ia'.niio ndRslts fOeain Overview DTE Energy is a growing and diversified energy company with 2005 revenues in excess of $9 billion and approximately

$23 billion in assets. Since 2003, our asset base has increased by 12% and operating revenues have grown by 29%.We are the parent company of The Detroit Edison Company (Detroit Edison) and Michigan Consolidated Gas Company (MichCon), regulated electric and gas utilities engaged primarily in the business of providing electricity and natural gas sales and distribution services throughout southeastern Michigan.

We operate three energy-related non-utility segments with operations throughout the United States.In 2005, our utilities and Power and Industrial Projects segment generated most of our earnings.

The improvement in earnings was due to rate increases at our Michigan utilities, favorable weather and continued asset gains from the synthetic fuel business.

Earnings were also impacted by mark-to-market losses in our Fuel Transportation and Marketing segment and losses from discontinued operations.

Our 2005 financial performance improved over 2004. The following table summarizes our income since 2003: (in millions, except Earnings per Share) 2005 2004 2003 Net Income $ 537 $ 431 $ 521 Earnings per Diluted Share $ 3.05 $ 2.49 $ 3.09 Excluding Discontinued Operations and Accounting Changes Income from Continuing Operations S 576 $ 461 $ 494 Earnings per Diluted share S 327 $ 2.66 $ 2.93 (Dollars in Millions)Percentage Change from Normal 111 Estimated Effect on Net Income Electric Gas Electric Gas Year Vti1t Utility UWtiiit Utiity Total 2005 47 % 13) % S 63 $ 14) S 59 2004 (171 % (4) % $ (40) $ (9) $ 149)2003 (13) % 2 % $ (24) $ 3 $ (21)I1l Electric Utlity is based on cooling degree days and the Gas Utility is based on heating degree days.The items discussed below influenced our 2005 financial performance and may affect future results:* Effects of weather and accounts receivable on utility operations;

• Electric rate orders, electric Customer Choice program, and coal and uranium supply;* Gas rate and gas cost recovery orders and gas supply;* Synfuel-related earnings and the impact of higher oil prices on production credit phase-outs;

• Investments in our unconventional gas production business;* Mark-to-market losses in our Fuel Transportation and Marketing business; and* Cost reduction efforts and required capital investment.

Utility Operations Weather- Earnings at our utility operations are seasonal and very sensitive to weather. Electric utility earnings are dependent on hot summer weather, while the gas utility's results are dependent on cold winter weather. The following table explains the impact of weather relative to 30-year historical normal weather temperatures for each utility.The positive impact of warmer weather was partially mitigated by the rate cap on residential customers which prevented us from passing through increased generation and purchased power costs incurred to serve the higher demand. Additionally, we occasionally experience various types of storms that damage our electric distribution infrastructure resulting in power outages. Restoration and other costs associated with storm-related power outages lowered pretax earnings by $82 million in 2005, $48 million in 2004 and $72 million in 2003.Receivables-Both utilities continue to experience high levels of past due receivables, especially within our Gas Utility operations.

The increase is attributable to economic conditions, high natural gas prices and the lack of adequate levels of assistance for low-income customers.

We have taken aggressive actions to reduce the level of past due receivables including, increased customer disconnections, contracting with collection agencies and working with the State of Michigan and others to increase the share of low-income funding allocated to our customers.

In 2005, we sold previously written-off accounts of $187 million resulting in a gain and net proceeds of $6 million.The gain was recorded as a recovery through bad debt expense, which is included within operation and maintenance expense.As a result of these factors, our allowance for doubtful accounts expense for the two utilities decreased to $98 million in 2005 from$105 million in 2004.The April 2005 Michigan Public Service Commission (MPSC) gas rate order provided for an uncollectible tracking mechanism for MichCon. We will file an annual application comparing our actual uncollectible expense to our designated revenue recovery of approximately

$37 million. Ninety percent of the difference from the date of the order will be refunded or surcharged after an annual reconciliation proceeding before the MPSC.Electric Utility Electric Rate Orders -In 2004, the MPSC issued interim and final rate orders that authorized electric rate increases totaling$374 million, eliminated transition credits and implemented transition charges for electric Customer Choice customers.

The increases were applicable to all customers not subject to a rate cap.21 The MPSC also authorized the recovery of approximately

$385 million in regulatory assets, including stranded costs. As a result of increased rates, our 2005 pretax margins were higher by $116 million.Electric Customer Choice -Our customers have the option of participating in the electric Customer Choice program where they can select an alternative electric supplier.

Due to distorted pricing mechanisms during the initial period of electric Customer Choice, many commercial customers chose alternative electric suppliers.

The impact of the final rate order in 2004, that increased base rates including the recovery of lost margins and transition charges, combined with recent higher wholesale electric prices has resulted in many former electric Customer Choice customers migrating back to Detroit Edison for electrical generation service, partially mitigating the financial impact of the electric Customer Choice program.The return of customers from the electric Customer Choice program resulted in higher gross margins during 2005. The following graph depicts the electric Customer Choice volumes: Electric Customer Choice Volumes in MMh Uranium Supply- We operate one nuclear facility that undergoes a periodic refueling outage approximately every eighteen months.Uranium prices have been rising due to supply concerns.

In the future, there may be additional nuclear facilities constructed in the industry that may place additional pressure on uranium supplies and prices.Gas Utility Gas Final Rate Order- In April 2005, the MPSC issued a final rate order authorizing MichCon to earn a rate of return on common equity of 11 % based on a 50% debt and 50% equity capital structure.

Highlights of the order include:* $61 million increase in annual base rates;* base rate increase includes $25 million to recover safety and training costs;* deferral as a regulatory liability for the non-capitalized portion of negative pension expense; and* adoption of a tracking mechanism for uncollectible accounts receivable.

9,245;.-g~The final rate order from the MPSC denied recovery or required accounting impairment for the following items: I 2005 2004 2003 We continue to work with the MPSC to address issues associated with the electric Customer Choice program. In February 2005, we filed a revenue-neutral rate restructuring proposal with the MPSC designed to adjust rates for each customer class to be reflective of the full costs incurred to service such customers.

In December 2005, the MPSC issued an order that took some initial steps to improve the current competitive imbalance in Michigan's electric Customer Choice program. The December 2005 order establishes cost-based power supply rates for Detroit Edison's full service customers.

Electric Customer Choice participants will pay cost-based distribution rates, while Detroit Edison's full service commercial and industrial customers will pay cost-based distribution rates that reflect the cost of the residential rate subsidy. Residential customers pay a subsidized below cost rate for distribution service. These revenue neutral revised rates were effective February 1, 2006.Coal Supply- Our generating fleet produces in excess of 70% of its electricity from coal. Increasing coal demand from domestic and international markets has resulted in significant price increases.

In addition, difficulty in recruiting workers, obtaining environmental permits and finding economically recoverable amounts of new coal has resulted in decreasing coal output from the central Appalachian region. Furthermore, as a result of environmental regulation and declining eastern coal stocks, demand for cleaner burning western coal has increased.

This increased demand for western coal has also resulted in a corresponding demand for western rail shipping, straining railroad capacity, resulting in longer lead times for western coal shipments.

• $25 million of allocated merger interest from DTE Energy related to the acquisition of MCN Energy;* $6 million of internal labor and legal costs to remediate manufactured gas plant (MGP) sites;* $5 million as a result of a change to the allocation of historical MGP insurance proceeds;* $6 million of computer equipment and related depreciation; and* $42 million impairment related to 90% of the cost of a computer billing system in place prior to DTE Energy's acquisition of MCN Energy. This impairment had a minimal earnings impact on DTE Energy because a valuation allowance was established for this asset at the time of the MCN acquisition in 2001.Additionally, the rate order adjusted MichCon's depreciation rates and the related revenue requirements with no resulting impact on net income.Gas Cost Recovery (GCR) order- Based on rate orders in place for 2001 and 2002, we filed a gas cost recovery case in 2002 and recorded a $26 million regulatory asset related to unbilled volumes as of December 31, 2001. Over time we recorded $3 million of interest associated with this regulatory asset. In its April 28, 2005 order, the MPSC disallowed recovery and we recorded the impact of the disallowance in the first quarter of 2005.Natural Gas Supply- Increased demand from natural gas power plants, 2005 hurricane related supply disruptions, regulatory constraints and limited exploration have combined to strain existing natural gas supplies and caused substantial increases in prices.Non-utility Operations We anticipate significant investment opportunities within our non-utility businesses.

We employ disciplined investment criteria 22 when assessing opportunities that will leverage our existing assets, skill and expertise.

Specifically, we invest in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with our risk profile. Assuming no phase-out of production tax credits, the source of investment capital is the estimated cumulative

$1.2 billion we anticipate from synfuel cash flow which consists of cash from operations, asset sales, and the utilization of current and previously earned production tax credits to reduce tax payments.

Tax credit carryforward utilization in part could be extended past 2008, if taxable income is reduced from current forecasts.

However, if oil prices remain at current levels or continue to increase, the estimated cash flow from the synfuel business would be significantly less and would adversely impact the success of this strategy, unless we identify alternative sources of cash.Power and Industrial Projects We anticipate building around our core strengths in the markets where we operate. In determining the markets in which to compete, we closely examine the regulatory environment, the number of competitors and our ability to achieve sustainable margins. We plan to maximize the effectiveness of our inter-related businesses as we expand from our current regional focus. As we pursue growth opportunities, our first priority will be to achieve value-added returns.We plan to focus on the following areas for growth:* Optimizing the remaining life of our synfuel portfolio;

• Providing operating services to owners of industrial and power plants;* Acquiring and developing solid fuel-fired power plants;* Expanding on-site energy projects; and* Developing new tax advantaged opportunities.

Synfuel-related Eamings -We operate nine synthetic fuel production plants throughout the United States. Synfuel plants chemically change coal into a synthetic fuel as determined under the Internal Revenue Code. Production tax credits are provided for the production and sale of solid synthetic fuel produced from coal. These tax credits expire on December 31, 2007. Our synthetic fuel plants generate operating losses which are offset by the resulting production tax credits. We have not had sufficient taxable income to fully utilize production tax credits earned in prior periods. As of December 31, 2005, we have $484 million in tax credit carry-forwards.

To optimize income and cash flow from our synfuel operations, we have sold interests in all nine of our facilities, representing 91% of our total production capacity as of December 31, 2005. We will continue to evaluate opportunities to sell additional interests in our two remaining majority-owned plants. Proceeds from the sales are contingent upon production levels and the value of such credits.When we sell an interest in a synfuel project, we recognize the gain as the facility produces and sells synfuel and when there is persuasive evidence that the sales proceeds have become fixed or determinable and collectibility is reasonably assured. In substance, we are receiving synfuel gains and reduced operating losses in exchange for tax credits associated with the projects sold. Sales of interests in synfuel projects allow us to accelerate cash flow while maintaining a stable income base.The value of a production tax credit can vary each year and is adjusted annually by an inflation factor as published by the Internal Revenue Service (IRS) in April of the following year. The value of the production tax credit in a given year is reduced if the Reference Price of oil within the year exceeds a threshold price and is eliminated entirely if the Reference Price exceeds a phase-out price.The Reference Price of a barrel of oil is an estimate of the annual average wellhead price per barrel for domestic crude oil. During 2005, the monthly average wellhead prices were approximately

$6 lower than the New York Mercantile Exchange (NYMEX) price for light, sweet crude oil. The actual or estimated Reference Price and beginning and ending phase-out prices per barrel of oil for 2004 through 2007 are as follows: 2004 (actual)2005 (estimated) 2006 (estimated) 2007 lestimated)

Reference Price$36.75$51 Not Available Not Available Beginning Phase-Out Price$51.35$53$53$54 Ending Phase-Out Price$6446$66$67$68 Recent events have increased domestic crude oil prices, including hurricane-related supply disruptions and continued worldwide demand. Through December 31, 2005, the NYMEX daily closing price of a barrel of oil for 2005 averaged approximately

$57, which due to the uncertainty of the wellhead/NYMEX difference, is comparable to an approximate

$51 Reference Price. For the remaining life of the tax credits, if the Reference Price falls within or exceeds the phase-out range, the availability of production tax credits in that year would be reduced or eliminated.

Any actual tax credit phase-out for 2006 and available tax credits, if any, will not be certain until published by the IRS in April 2007. As of February 28, 2006, the realized and unrealized NYMEX daily closing price of a barrel of oil was $65.08, equating to an estimated Reference Price of $59, which is within the phase-out range. If prices remain at this level throughout 2006, we would experience a phase-out of the production tax credits and our synthetic fuel business would be adversely affected; this could have an impact on our synthetic fuel production plans which, in turn, may have a material adverse impact on our results of operations, cash flow, and financial condition.

However, we cannot predict with any certainty the Reference Price for 2006 or beyond.There is legislation pending in Congress that may impact the potential phase-out of production tax credits for 2006 and 2007.The legislation would use the prior year oil price to determine the current year Reference Price. We are unable to predict the outcome of this legislation.

The gain from the sale of synfuel facilities is comprised of fixed and variable components.

The fixed component represents note payments of principal and interest, is not subject to refund, and is recognized as a gain when earned and collectibility is assured. The variable component is based on an estimate of tax credits allocated to our partners, is subject to refund based on the annual oil price phase-out, and is recognized as a gain only when the probability of refund is considered remote and collectibility is assured. Additionally, based on estimates of tax credits allocated, our partners reimburse us (through the project entity) for the operating losses of the synfuel 23 facilities.

In the event that the tax credit is phased out, we are contractually obligated to refund to our partners all or a portion of the operating losses funded by our partners.

To assess the probability of refund, we use valuation and analysis models that calculate the probability of surpassing the estimated lower band of the phase-out range for the Reference Price of oil for the year.Due to the rise in oil prices, there was a possibility that the 2005 Reference Price of oil could have reached the threshold at which production tax credits would have begun to phase-out.

We deferred all variable gains for the first three quarters of 2005. However, in the fourth quarter of 2005, when there was persuasive evidence that the Reference Price of oil would not surpass the estimated lower band of the phase-out range, we recognized all the variable gains related to 2005, of which $167 million (pre-tax) were attributable to the first three quarters of 2005.Due to changes in the agreements with certain of our synfuel partners and the exercise of existing rights by other of our synfuels partners, a higher percentage of the expected payments in 2006 may be variable note payments.

As a result, a larger portion of the 2006 synfuel payments may be subject to refund should a phase-out occur. We will likely defer recognition of the quarterly variable and certain indemnified fixed note payments in 2006 until the probability of refund is remote and collectibility is assured.As discussed in Note 12, we have entered into derivative and other contracts to economically hedge a portion of our 2006 and 2007 synfuel cash flow exposure related to the risk of oil prices increasing.

The derivative contracts are marked to market with changes in fair value recorded as an adjustment to synfuel gains. We recorded a pretax mark to market gain of $48 million during 2005. As part of our synfuel-related risk management strategy, we continue to evaluate alternatives available to mitigate unhedged exposure to oil price volatility.

These contracts, and other actions we can take.and have taken, will protect approximately 53% of our 2006 cash flow and 31 % of our 2007 cash flow. As our risk management position changes due to market volatility or legislative actions, we may adjust our hedging strategy in response to changing conditions.

In addition to entering into economic hedges, we can mitigate our exposure to a tax credit phase-out by shutting down or reducing production at our synfuel facilities, which decreases the amount of operating losses we generate.

We regularly monitor oil prices and have created contingency plans to cease synfuel production.

Assuming no synfuel tax credit phase-out, we expect cash flow from our synfuel business will be approximately

$1.2 billion from 2006 to 2008. If prices remain at current levels or increase throughout 2006, synfuel production levels may be reduced, which would reduce the income and cash flow from this business.

If the Reference Price results in a complete phase out of the synfuel tax credits for 2006, and assuming the previously discussed current level of economic hedges and an early cessation of synfuel production to avoid operating losses, there is a potential negative impact to net income and cash flow of $160 million and $140 million, respectively, before any potential asset impairment and goodwill write-off.

Unconventional Gas Production During the past year, natural gas prices have reached historically high levels. These high prices provide attractive opportunities for our Unconventional Gas Production business segment. We are an experienced operator with 15 years of experience in the Antrim shale in northern Michigan, and we recently expanded our operations in the Barnett shale basin in north central Texas. Recent leasehold acquisitions have increased our total leasehold acreage to 452,621 acres (366,693 net of interest of others). Over the next few years, our goal is to expand our existing leasehold acreage position and transform unproved acreage into proved reserves.Antrim Shale -We plan to grow through the extension of existing producing areas and acquisition of other producer's properties.

Additionally, we intend to develop existing acreage using the latest horizontal drilling techniques and to continue to search for expansion acreage. Some of our long-term fixed-price obligations for production of Antrim gas begin to expire in 2006. This will create opportunities to remarket Antrim production at significantly higher current market rates.2005 2004 2003 Michigan -Antrim Shale Net Producing Wells 1,630 1,523 1,471 Production Volume (Bcfe) 21.5 2Z5 23.2 Proved Reserves IlBcfe) 338.4 335.4 351.9 Net Developed Acreage 217,643 213,959 212,067 Net Undeveloped Acreage 73,056 79,025 81,133 Capital Expenditures (in millions)

$ 37 $ 22 $ 26 Future Net Cash Flows (in millions)

(11) $ 1,307 $ 760 $ 485 Average gas pricewith hedges (per Mcfl $ 3.10 $ 3.10 $ 2.97 Average gas price without hedges (per Mcf) (2) S 7.73 $ 5.57 $ 4.98 (11) Represents the standardized measure of discounted future net cash flows as calculated by an independent engineering firm utilizing extensive estimates.

The estimated future net cash flow computations should not be considered to represent our estimate of the expected revenues or the current value of existing proved reserves and do not include the impact of hedge contracts.

12i The gas produced in the Antrim shale is subject to hedges that begin to expire in 2006.In 2006, we expect to remarket 2.0 Bcf at current market pricing. For 2007, we antici-pate remarketing an additional 1.8 Bcf.Bamett Shale -We anticipate significant opportunities in our existing Barnett shale acreage and expect continued extension of producing areas within the Fort Worth Basin. We are currently in the test and development phase for unproved and recently acquired Barnett shale acreage. We plan to increase our acreage through small negotiated acquisitions to build scale.24 2005 2004 2003 Texas -Barnett Shale Net Producing Wells 55 1 -Production Volume (Bcfe) 0.7 --Proved Reserves (Bcfe) 58.6 7.9 -Net Developed Acreage 14,637 316 -NetUndevelopedAcreage 61,627 48,541 3,156 Capital Expenditures (in millions)

S 107 $ 16 $ 2 Future Net Cash Flows (in millions)

(1) S 127 $ 7 -Average gas price (per Mcf) S 9.01 S 5.70 (11 Represents the standardized measure of discounted future net cash flows as calculated by an independent engineering firm utilizing extensive estimates.

The estimated future net cash flow computations should not be considered to represent our estimate of the expected revenues or the current value of existing proved reserves and do not include the impact of hedge contracts.

Due to high natural gas prices and the potential for successes within the Barnett shale, more capital is being invested into the region. The competition for opportunities and goods and services may result in increased operating costs. However, our experience in the Antrim shale and our experienced Barnett shale personnel provide an advantage in addressing potential cost increases.

We expect to invest a combined amount of approximately

$100 million to $130 million in our unconventional gas business in 2006.Fuel Transportation and Marketing Pipelines, Processing and Storage is in the process of expanding our storage capacity in Michigan and expanding and building new pipeline capacity to the northeast United States. Our Coal Transportation and Marketing business will seek to build our capacity to transport greater amounts of western coal and may seek to expand into coal terminals.

Significant portions of the electric and gas marketing and trading portfolio are economically hedged. The portfolio includes financial instruments and gas inventory, as well as owned and contracted natural gas pipelines and storage capacity positions.

Most financial instruments are deemed derivatives, whereas the gas inventory, pipelines and storage assets are not derivatives.

As a result, this segment may experience dramatic earnings volatility as derivatives are marked to market without revaluing the underlying non-derivative contracts and assets. This results in gains and losses that are recognized in different accounting periods. We incur gains or losses in one period that are subsequently reversed when transactions are settled.During 2005, our earnings were negatively impacted by the economically favorable decision in early 2005 to delay previously planned withdrawals from gas storage due to a decrease in the current price for natural gas and an increase in the forward price for natural gas. The financial impact of this timing difference has begun to reverse as the gas is withdrawn from storage in the current storage cycle and is sold at prices significantly in excess of the cost of gas in storage. In addition, we entered into forward power contracts to economically hedge certain physical and capacity power contracts.

Some of these underlying contracts are not derivatives, while the related economic hedges are derivatives, and therefore marked to market. As a result, these transactions produce the timing related earnings swings from period to period.We expect the timing difference on the forward power contracts will not be fully realized until 2007.Operating System and Performance Excellence Process We continuously review and adjust our cost structure and seek improvements in our processes.

Beginning in 2002, we adopted the DTE Energy Operating System, which is the application of tools and operating practices that have resulted in operating efficiencies, inventory reductions and improvements in technology systems, among other enhancements.

Some of these cost reductions may be returned to our customers in the form of lower Power Supply Cost Recovery (PSCR) charges and the remaining amounts may impact our profitability.

As an extension of this effort, in mid-2005, we initiated a company-wide review of our operations called the Performance Excellence Process. The overarching goal has been and remains to become more competitive by reducing costs, eliminating waste and optimizing business processes while improving customer service.Many of our customers are under intense economic pressure and will benefit from our efforts to keep down our costs and their rates. Additionally, we will need significant resources in the future to invest in the infrastructure necessary to compete. Specifically, we began a series of focused improvement initiatives within our Electric and Gas Utilities, and our corporate support function.The process will be rigorous and challenging and seeks to yield sustainable performance to our customers and shareholders.

We have identified the Performance Excellence Process as critical to our long-term growth strategy.

We are entering the implementation phase and expect to begin to realize the benefits from the effort in 2006. The cost to execute the Performance Excellence Process could result in non-recurring restructuring charges in 2006.Capital Investment We anticipate significant capital investment across all of our business segments.

Most of our capital expenditures will be concentrated within our utility segments.

Our electric utility currently expects to invest approximately

$4 billion due to increased environmental requirements and reliability enhancement projects through 2010. Our gas utility currently expects to invest approximately

$900 million on system expansion, pipeline safety and reliability enhancement projects through the same period.We plan to seek regulatory approval to include these capital expenditures within our regulatory rate base.During 2005, we began the first wave of implementation of DTE2, an enterprise resource planning system initiative to improve existing processes and to implement new core information systems. We anticipate spending $165 million to $190 million over the next two years as the remaining system elements are developed and business segments fully adopt DTE2.In the future, we may build a new base-load electric generating plant. The last base load plant constructed within our electric utility 25 service territory was approximately twenty years ago. A recently completed study, sponsored by the MPSC, projected that Michigan may need to install 7,000 megawatts (MW) of additional capacity over the next ten years. We estimate that a new base-load plant will cost between $1 billion and $2 billion.Outlook The next few years will be a time of rapid change for DTE Energy and for the energy industry.

Our strong utility base combined with our integrated non-utility operations position us well for long-term growth. Due to the enactment of the Energy Policy Act of 2005 and the repeal of the Public Utility Holding Company Act of 1935 there are fewer barriers to mergers and acquisitions of utility companies.

We anticipate greater industry consolidation over the next few years resulting in the creation of large regional utility providers.

Looking forward, we will focus on several points that we expect will improve future performance:

• continuing to pursue regulatory stability and investment recovery for our utilities;

• managing the growth of our utility asset base;* enhancing our cost structure across all business segments;* improving our Electric and Gas Utility customer satisfaction;

• increasing the scale in our three non-utility business segments; and* investing in businesses that integrate our assets and leverage our skills and expertise.

Along with pursuing a leaner organization, we expect to receive an estimated

$1.2 billion (assuming no phase-out) of synfuel cash flow through 2008, which consists of cash from operations, asset sales, and the utilization of production tax credits to reduce tax payments.

Tax credit utilization in part could be extended past 2008, if taxable income is reduced from current forecasts.

However, if oil prices remain at current levels or continue to increase, the estimated cash flow from the synfuel business would, as a result of production tax credit phase-out, be significantly less and would adversely impact the success of this strategy, unless we identify alternative sources of cash.Anticipated redeployment of this expected available cash will reduce DTE Energy's debt and replace the value of synfuel operations inherent in our share price by pursuing investments in targeted energy markets. If adequate investment opportunities are not available, share repurchases may be used to build shareholder value. We remain committed to a strong balance sheet and financial coverage ratios, and paying an attractive dividend.Results of Operations Net income in 2005 was $537 million, or $3.05 per diluted share, compared to net income of $431 million, or $2.49 per diluted share in 2004 and net income of $521 million, or $3.09 per diluted share in 2003. The comparability of earnings was impacted by our discontinued businesses, DTE Energy Technologies (Otech), Southern Missouri Gas Company and International Transmission Company (ITC), and the adoption of a new accounting rule in 2005 and two new accounting rules in 2003. Excluding discontinued operations and the cumulative effect of accounting changes, our income from con-tinuing operations in 2005 was $576 million, or $3.27 per diluted share, compared to income of $461 million, or $2.66 per diluted share in 2004 and income of $494 million, or $2.93 per diluted share in 2003. The following sections provide a detailed discussion of our segments, operating performance and future outlook.(in Millions, exceptper share data) 2005 2004 2003 Net Income (Loss)Electric Utility $ 277 S 150 $ 252 Gas Utility 37 20 29 Non-utility Operations:

Power and Industrial Projects 308 179 197 Unconventional Gas Production 4 6 12 Fuel Transportation and Marketing 2 118 69 Corporate

& Other (52) (12) (65)Income (Loss) from Continuing Operations:

Utility 314 170 281 Non-utility 314 303 278 Corporate

& Other (52) (12) (65)576 461 494 Discontinued Operations (36) (301 54 Cumulative Effect of Accounting Changes (3) -(27)Net Income S 537 $ 431 $ 521 Diluted Earnings Per Share Total Utility S 1.78 $ .98 $ 1.67 Non-utility Operations 1.78 1.75 1.65 Corporate

& Other (.29) (.07) (.39)Income from Continuing Operations 3.27 2.66 2.93 Discontinued Operations

(.20) (.17) .32 Cumulative Effect of Accounting Changes (.02) -(.16)Net Income S 3.05 $ 2.49 $ 3.09 The earnings per share of any segment does not represent a direct legal interest in the assets and liabilities allocated to any one segment but rather represents a direct or indirect equity interest in DTE Energy's assets and liabilities as a whole.Electric Utility Our Electric Utility segment consists of Detroit Edison, which is engaged in the generation, purchase, distribution and sale of electricity to approximately

2.2 million

customers in southeastern Michigan.Factors impacting income: Our net income increased

$127 million to $277 million in 2005 from $150 million in 2004. 2004 net income decreased

$102 million from $252 million in 2003. These results primarily reflect higher rates due to the November 2004 MPSC final rate order, return of customers from the electric Customer Choice program, warmer weather and lower operations and maintenance expenses in 2005, partially offset by a portion of higher fuel and purchased power costs, which were unrecoverable as a result of residential rate caps (which expired January 1, 2006), and increased depreciation and amortization expenses.26 (in Millions) 2005 2004 2003 Operating Revenues $ 4,462 $ 3,568 $ 3,695 Fuel and Purchased Power 1,590 885 939 Gross Margin Z872 2,683 2,756 Operation and Maintenance 1,308 1,395 1,332 Depreciation and Amortization 640 523 473 Taxes OtherThan Income 241 249 257 Asset (Gains) and Losses, Net (26) (1) 20 Operating Income 709 517 674 Other (Income) and Deductions 283 303 277 Income Tax Provision 149 64 145 Net Income $ 277 $ 150 $ 252 Operating Income as a Percent of Operating Revenues 16% 14% 18%previously recorded in operation and maintenance expenses in 2004, is now reflected in purchased power expenses.

The PSCR mechanism provides related revenues for the transmission expense.The decline in 2004 revenues was partially offset by increased base rates resulting from the interim and final rate orders.Revenues in 2004 were adversely impacted by reduced cooling demand resulting from mild summer weather. In addition, operating revenues and fuel and purchased power costs decreased in 2004 reflecting a $1.27 per MWh (8%) decline in fuel and purchased power costs. The loss of retail sales under the electric Customer Choice program also resulted in lower purchase power require-ments, as well as excess power capacity that was sold in the wholesale market. Under the 2004 interim and final rate orders, revenues from selling excess power reduce the level of recover-able fuel and purchased power costs and, therefore, do not impact margins associated with uncapped customers.

The rate orders also lowered PSCR revenues, which were partially offset by increased base rate and transition charge revenues.Since fuel and purchased power costs are a pass-through with the reinstatement of the PSCR in 2004, a decrease affects both revenues and fuel and purchased power costs but does not affect margins or earnings associated with uncapped customers.

The decrease in fuel and purchased power costs is attributable to lower priced purchases and the use of a more favorable power supply mix driven by higher generation output. The favorable mix is due to lower purchases, driven by lost sales under the electric Customer Choice program.Gross margins increased

$189 million during 2005 and declined$73 million in 2004. Operating revenues increased due to higher demand resulting from warmer weather in 2005 and increased rates due to the November 2004 MPSC final rate order, partially offset by unrecovered power supply costs as a result of residential rate caps (which expired January 1, 2006) and a poor Michigan economy in 2005. Gross margins were favorably impacted by decreased electric Customer Choice penetration, whereby Detroit Edison lost 12% of retail sales to electric Customer Choice customers in 2005 and 18% of such sales during 2004 as retail customers migrated back to Detroit Edison as their electric generation provider rather than remaining with alternative suppliers.

The following table displays changes in various gross margin components relative to the comparable prior period: (in Millions) 2005 2004 Increase (Decrease) in Gross Margin Components Compared to Prior Year Weather related margin S 166 $ (25)MPSC 2004 rate orders 116 22 Unrecovered power supply costs -residential customers (73) -Transmission charges (1) (93) -Electric Customer Choice program 79 (82)Service territory economic performance (23) 9 Other, net 17 3 Increase (decrease) in gross margin $ 189 $ (73)I1) Transmission expenses were recorded in operation and maintenance expense in 23004.Operating revenues and fuel and purchased power costs increased in 2005 reflecting a $8.79 per megawatthour of electricity (MWh)(58%) increase in fuel and purchased power costs during the year.Fuel and purchased power costs are a pass-through with the reinstatement of the PSCR mechanism, except for residential customers whose rate caps expired in January 2006.(in Thousands of MWh)Power Generated and Purchased Power Plant Generation Fossil Nuclear 2005 2004 2003 40,756 73 %8,754 16 49,510 89.-- .-.-Purchased Power 6,378 11 System Output 55,888 10 %Less Line Loss and Internal use (3,205)Net System Output 52,583 Average Unit Cost ($/MWh)Generation (1) S 15.47 Purchased Power S 89.37 Overall Average Unit Cost S 23.90 (11) Represents fuel costs associated with power plants.39,432 75 % 38,052 72 %8,440 16 8,114 16 47,872 91 46,166 88 4,650 9 6,354 12 52522 100% 52,520 100%(3,574) 13,248)48,948 49,272$12.98 $12.89$ 37.06 $41.73$ 15.11 $16.38 The increase in power supply costs was driven by higher seasonal demand, higher purchased power rates, higher coal prices and increased power purchases due to weather and plant outages.Pursuant to the MPSC final rate order, transmission expense, 27 (in Thousands of MMVVI)Electric Sales Residential 2005 2004 2003 Asset (gains) and losses, net increased

$25 million in 2005 as a result of our sale of land near our headquarters.

Commercial Industrial Wholesale Other 16,812 15,618 12,317 2,329 390 47,466 15,081 13,425 11,472 2,197 401 42,576 15,074 15,942 12,254 2,241 402 45,913 Interconnectionsales(1) 5,217 6,372 3,359 Total Electric Sales 52683 48,948 49,272 Electric Deliveries Retail and Wholesale 47,466 42,576 45,913 Electric Choice 6,760 9,245 6,193 Electric Choice -Self Generators (2) 518 595 1,088 Total Electric Sales and Deliveries 54,744 52,416 53,194 1) Represents power that is not distributed by Detroit Edison.12) Represents deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements.

Operation and maintenance expense decreased

$87 million in 2005 and increased

$63 million in 2004. As a result of the MPSC final rate order, transmission and Midwest Independent System Operator (MISO) expenses in 2005 are now included in purchased power expense with related revenues recorded through the PSCR mechanism.

In addition, as a result of the MPSC final rate order, merger interest is no longer allocated from the DTE Energy parent company to Detroit Edison. Partially offsetting the lack of merger interest expense and the transmission expense accounting reclassification were higher 2005 storm expenses.The 2004 increase reflects costs associated with maintaining our generation fleet, including costs of scheduled and forced plant outages. Additionally, the increase in 2004 is due to incremental costs associated with the implementation of our DTE2 project.Storm Restoration Costs (in millions)Other income and deductions expense decreased

$20 million in 2005 and increased

$26 million in 2004. The 2005 decrease is due primarily to lower interest expense as a result of lower interest rates and a favorable adjustment related to tax audit settlements.

The 2004 increase is primarily due to lower income associated with recording a return on regulatory assets, as well as costs associated with addressing the structural issues of PA 141.Outlook -We continue to improve the operating performance of Detroit Edison. During the past year we have resolved many of our regulatory issues and continue to pursue additional regulatory solutions for structural problems within our competitive environment, mainly electric Customer Choice and the need to adjust rates for each customer class to reflect the full cost of service.Concurrently, we will move forward in our efforts to improve performance.

Looking forward, additional issues, such as rising prices for coal, uranium and health care, continued under-performance of Michigan's economy and capital spending, will result in us taking meaningful action to address our costs while continuing to provide quality customer service. We will utilize the DTE Operating System and the Performance Excellence Process to seek opportunities to improve productivity, remove waste, decrease our costs, while improving customer satisfaction.

Long term, we will be required to invest an estimated

$2.4 billion on emission controls through 2018. Should we be able to recover these costs in future rate cases, we may experience a growth in earnings.

Additionally, our service territory may require additional generation capacity.

A new base-load generating plant has not been built within the State of Michigan in the last 20 years. Should our regulatory environment be conducive to such a significant capital expenditure, we may build or expand a new base- load facility, with an estimated cost of $1 billion to $2 billion.Operation and maintenance expense in both years includes higher employee pension and health care benefit costs due to financial market performance, discount rates and health care cost trend rates, and increased reserves for uncollectible accounts receivable, reflecting high past-due amounts attributable to economic conditions.

In addition, we accrued a refund due from the Midwest Independent System Operator in 2004 for transmission services.Depreciation andamortization expense increased

$117 million in 2005 and increased

$50 million in 2004. The increases reflect the income effect of recording regulatory assets, which lowered depreciation and amortization expenses.

The regulatory asset deferrals totaled $46 million in 2005, $107 million in 2004 and $153 million in 2003, representing net stranded costs and other costs we believe are recoverable under Public Act (PA) 141. Additionally, higher 2005 sales volumes compared to 2004 resulted in greater amortization of regulatory assets.The following variables, either in combination or acting alone, will impact our future results:* amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals, or new legislation;

• our ability to reduce costs;* variations in market prices of power, coal and gas;* plant performance;

• economic conditions within the state of Michigan;* weather, including the severity and frequency of storms; and* levels of customer participation in the electric Customer Choice program.We expect cash flows and operating performance will continue to be at risk due to the electric Customer Choice program until the issues associated with this program are adequately addressed.

We will accrue as regulatory assets any future unrecovered generation-related fixed costs (stranded costs) due to electric Customer Choice that we believe are recoverable under Michigan legislation and MPSC orders. We cannot predict the outcome of these matters.See Note 4.28 Gas Utility Our Gas Utility segment consists of MichCon and Citizens Fuel Gas Company (Citizens), natural gas utilities subject to regulation by the MPSC. MichCon is engaged in the purchase, storage, transmission, distribution and sale of natural gas to approximately

1.3 million

residential, commercial and industrial customers in the State of Michigan.

MichCon also has subsidiaries involved in the gathering and transmission of natural gas in northern Michigan.

MichCon operates one of the largest natural gas distribution and transmission systems in the United States. Citizens distributes natural gas in Adrian, Michigan.Factors impacting income: Gas Utility's net income increased

$17 million in 2005 and declined $9 million in 2004, compared to the prior year, primarily reflecting the impact of the MPSC's April 2005 gas cost recovery and final rate orders.The MPSC final gas rate order disallowed recovery of 90% of the costs of a computer billing system that was in place prior to DTE Energy's acquisition of MCN Energy in 2001. MichCon impaired this asset by approximately

$42 million in the first quarter of 2005.This disallowance was not reflected at the DTE Energy level since this impairment was previously reserved at the time of the MCN acquisition in 2001.2005 2004 2003 Gas Markets (in Millions)Gas sales $ 1,860 S 1,435 $ 1,242 End user transportation 134 119 136 1,994 1,554 1,378 Intermediate transportation 58 56 51 Other 86 72 69 S 2138 $ 1,682 $ 1,498 Gas Markets (in Bcf)Gas sales 168 173 181 End usertransportation 157 145 152 325 318 333 Intermediate transportation 432 536 576 757 854 909 (in Millions) 2005 2004 2003 Operating Revenues $ 2138 $ 1,682 $ 1,498 Cost of Gas 1,490 1,071 909 Gross Margins 648 611 589 Operation and Maintenance 424 403 371 Depreciation and Amortization 95 103 101 Taxes Other Than Income 43 49 52 Asset (Gains) and Losses, Net 4 (3) -Operating Income 82 59 65 Other (Income) and Deductions 47 48 36 Income Tax Benefit (2) (9) -Net Income $ 37 $ 20 $ 29 Operating Income as a Percent of Operating Revenues 4 % 4 % 4%Operation and maintenance expense increased

$21 million in 2005 and $32 million in 2004. The 2005 increase is primarily due to the impact of the MPSC rate order that disallowed certain environmental expenses that had been recorded as a regulatory asset and its requirement to defer negative pension expense as a regulatory liability.

For 2005, uncollectible accounts receivables expense remained consistent with 2004, reflecting higher past due amounts attributable to an increase in gas prices, continued weak economic conditions and inadequate government-sponsored assistance for low-income customers.

The 2005 final rate order provided revenue for an uncollectible expense tracking mechanism to mitigate some of the effect of increasing uncollectible expense. The increase in operation and maintenance expense was partially offset by the DTE Energy parent company no longer allocating merger-related interest to MichCon effective in April 2005, as a result of the disallowance of those costs in the April 2005 final rate order.The increase was also partially offset by a decline in accruals for injuries and damages during 2005.The 2004 period reflects higher reserves for uncollectible accounts receivable and pension and health care costs. The increase in uncollectible accounts expense reflects high past due amounts attributable to an increase in gas prices, continued weak economic conditions and a lack of adequate public assistance for low-income customers.

Uncollectible Accounts Expense (in millions)Gross margins increased

$37 million in 2005 and increased

$22 million in 2004, compared to the prior year. Gross margins in 2005 were favorably affected by higher base rates as a result of the interim and final gas rate orders, and revenue associated with the uncollectible expense tracking mechanism authorized by the MPSC.In April 2005, the MPSC issued an order in the 2002 GCR reconciliation case that disallowed

$26 million representing unbilled revenues at December 2001. We recorded the impact of the disallowance during the first quarter of 2005. Operating revenues and cost of gas increased in 2005 reflecting higher gas prices which are recoverable from customers through the GCR mechanism.

The 2004 gross margin comparison was also affected by a $26.5 million pre-tax reserve recorded in 2003 for the potential disallowance in gas costs pursuant to an MPSC order in MichCon's 2002 GCR plan case. See Note 4.a,1W$~~60`, mmml -a -2005 2004 2003 Asset (gains) and losses; net declined $7 million in 2005 as a result of a write-off of certain computer equipment and related depreciation resulting from the April 2005 final rate order.Income taxes increased by $7 million in 2005 and decreased by$9 million in 2004 due to variations in pre-tax earnings.29 Outlook- Operating results are expected to vary as a result of factors such as regulatory proceedings, weather, changes in economic conditions, cost containment efforts and process improvements.

Higher gas prices and economic conditions have resulted in continued pressure on receivables and working capital requirements partially mitigated by the GCR mechanism.

We believe our allowance for doubtful accounts is based on reasonable estimates.

In the April 2005 final gas rate order, the MPSC adopted MichCon's proposed tracking mechanism for uncollectible accounts receivable.

Each year, MichCon will file an application comparing its actual uncollectible expense for the prior calendar year to its designated revenue recovery of approximately

$37 million. Ninety percent of the difference will be refunded or surcharged after an annual reconciliation proceeding before the MPSC.Non-utility Operations Power and Industrial Projects Power and Industrial Projects is comprised of Coal-Based Fuels, On-Site Energy Projects, Non-Utility Power Generation, Landfill Gas Recovery and Waste Coal Recovery.

Coal-Based Fuels operations include producing synthetic fuel from nine synfuel plants and producing coke from two coke battery plants. The production of synthetic fuel from all of our synfuel plants and the production of coke from one of our coke batteries generate production tax credits.On-Site Energy Projects include pulverized coal injection, power generation, steam production, chilled water production, wastewater treatment and compressed air supply. Non-Utility Power Generation owns and operates four gas-fired peaking electric generating plants and manages and operates one additional gas-fired power plant under contract.

Landfill Gas Recovery develops, owns and operates landfill recovery systems throughout the United States.Waste Coal Recovery uses proprietary technology to produce high quality coal products from fine coal slurries typically discarded from coal mining operations.

Factors impacting income: Netincome increased

$129 million in 2005 and decreased

$18 million in 2004, compared to 2003. These results primarily reflect higher gains recognized from selling interests in our synfuel plants, gains and losses on synfuel hedges, and varying levels of production tax credits.Operating revenues increased

$256 million in 2005 and $162 million in 2004 primarily reflecting higher synfuel sales due to increased production, and higher market prices for our coke production.

Operating expenses associated with synfuel projects exceed operating revenues and therefore generate operating losses, which have been more than offset by the resulting production tax credits. When we sell an interest in a synfuel project, we recognize the gain from such sale as the facility produces and sells synfuel and when there is persuasive evidence that the sales proceeds have become fixed or determinable and collectibility is reasonably assured.The improvement in 2004 synfuel revenues results from increased production due to additional sales of project interests in 2004, reflecting our strategy to produce synfuel primarily from plants in which we had sold interests in order to optimize income and cash flow.Synfuel Earnings (in millions)$198$197 E Gains on Synfuel Sales, including interest M Production Tax Credits 3Operating Losses, net of Wu inority Interest 2005 2004 2003 (in Millions) 2005 2004 2003 Operating Revenues $ 1,356 $ 1,100 $ 938 Operation and Maintenance 1,497 1,216 1,108 Depreciation and Amortization 107 89 90 Taxes other than Income 34 16 18 Asset (Gains) and Losses, Net (368) (215) (114)Operating Income (Loss) 86 (6) (164)Other (Income) and Deductions (30) (15) 1 Minority Interest (281) (212) (91)Income Taxes Provision (Benefit) 144 80 (30)Production Tax Credits (55) (38) (241)89 42 (271)Net Income $ 308 $ 179 $ 197 Revenues from on-site energy projects increased in 2005, reflecting the addition of new facilities, completion of new long-term utility services contracts with a large automotive company and a large manufacturer of paper products.

Revenues in 2004 include a $9 million pre-tax fee generated in conjunction with the development of a related energy project, 50% of which was sold to an unaffiliated partner.Operation and maintenance expense increased

$281 million in 2005 and $108 million in 2004, reflecting costs associated with increased synfuel production, 2005 acquisitions of three on-site energy projects and coke operations.

Partially offsetting 2004 higher synfuel operating costs was the recording of insurance proceeds associated with an accident at one of our coke batteries.

Asset (gains) and losses, net increased

$153 million in 2005 and$101 million in 2004. The improvements are due to increased production and sales volume from our synfuel projects.

To economically hedge our exposure to the risk of an increase in oil prices that could reduce synfuel sales proceeds, we entered into derivative and other contracts.

The derivative contracts are marked to market with changes in their fair value recorded as an adjustment to synfuel gains. We recorded 2005 synfuel hedge mark to market gains of $48 million, compared to 2004 mark to market losses of$12 million. See Note 12.Minority interestincreased

$69 million in 2005 and $121 million in 2004, reflecting our partners' share of operating losses associated with synfuel operations.

The sale of interests in our synfuel facilities during prior periods resulted in allocating a larger percentage of such losses to our partners.3(

Income taxes increased

$47 million in 2005 and $313 million in 2004. The increase in 2005 reflects higher taxable earnings, partially offset by higher production tax credits. The increase in 2004 reflects higher taxable earnings and a decline in the level of production tax credits due to the sale of interests in synfuel facilities.

Outlook- We may sell additional interests in our synfuel plants and take actions to protect our expected synfuel cash flows from the risk of an oil price-related phase-out.

Synfuel-related tax credits expire on December 31, 2007.In the third quarter of 2005, we executed an agreement to purchase five on-site energy projects and closed on three of the projects in 2005.Power and Industrial Projects will continue leveraging its extensive energy-related operating experience and project management capability to develop and grow the on-site energy business.

We expect solid earnings from our on-site energy business in 2006.Production tax credits generated by our Coal-Based Fuels and Landfill Gas Recovery businesses are subject to the same phase out risk if domestic crude oil prices reach certain levels. See Note 13.Unconventional Gas Production Unconventional Gas Production is primarily engaged in natural gas exploration, development and production.

Our Unconventional Gas Production business produces gas from the Antrim and Barnett shales and sells most of the gas to the Fuel Transportation and Marketing segment.Factors impacting income: Net income decreased

$2 million in 2005 and decreased

$6 million in 2004. The decline in 2005 is due to higher operating and Michigan severance tax expenses.

The decline in 2004 is due to increased interest costs and a gain that was recognized in 2003 as a result of a sale of a non-core asset.Other (income) and deductions decreased

$2 million in 2005 and increased

$3 million in 2004. Interest expense was the primary contributor to the variances.

Outlook- We expect to continue to develop our proved areas, test unproved areas and prudently add new acreage in Michigan and Texas. During 2005 we increased our acreage holdings by 38,437 acres 124,852 net of the interest of others) in the Antrim and Barnett shales. Results from the Barnett shale test wells drilled during 2005 are expected during the first half of 2006. We expect to invest a combined amount of approximately

$100 million to$130 million in our unconventional gas business in 2006.Fuel Transportation and Marketing Fuel Transportation and Marketing consists of DTE Energy Trading, Coal Transportation and Marketing and the Pipelines, Processing and Storage business.DTE Energy Trading focuses on physical power and gas marketing, structured transactions, enhancement of returns from DTE Energy's power plants and the optimization of contracted natural gas pipelines and storage capacity positions.

Our customer base is predominantly utilities, local distribution companies, large industrials, and other marketing and trading companies.

We enter into derivative financial instruments as part of our marketing and hedging activities.

Most of the derivative financial instruments are accounted for under the mark-to-market method, which results in earnings recognition of unrealized gains and losses from changes in the fair value of the derivatives.

We utilize forwards, futures, swaps and option contracts to mitigate risk associated with our marketing and trading activity as well as for proprietary trading within defined risk guidelines.

DTE Energy Trading is integral in providing commodity risk management services to the other unregulated businesses within DTE Energy.Coal Transportation and Marketing provides fuel, transportation and rail equipment management services.

We specialize in minimizing fuel costs and maximizing reliability of supply for energy-intensive customers.

Additionally, we participate in coal trading and coal-to-power tolling transactions, as well as the purchase and sale of emissions credits. We recently initiated a new business line, coal mine methane extraction, in which we recover methane gas from mine voids for processing and delivery to natural gas pipelines, industrial users, or for small power generation projects.Pipelines, Processing and Storage has a partnership interest in an interstate transmission pipeline, seven carbon dioxide processing facilities and a natural gas storage field, as well as lease rights to another natural gas storage field. The assets of these businesses are well integrated with other DTE Energy operations.

Factors impacting income: Net income decreased

$116 million in 2005, consisting primarily of a $131 million decline at DTE Energy Trading associated with mark-to-market losses on gas storage hedges.Net income increased

$49 million in 2004, consisting primarily of a$47 million improvement at DTE Energy Trading. The comparability of results is impacted by a $74 million one-time pretax gain from a contract modification/termination recorded in the first quarter of 2004 and significant 2005 mark-to-market losses on derivative contracts used to economically hedge our gas in storage and forward power contracts.(in Millions) 2005 2004 2003 Operating Revenues $ 74 $ 71 S 70 Operation and Maintenance 30 27 22 Depreciation and Amortization 20 18 17 Taxes OtherThan Income 11 7 7 Operating Income 13 19 24 Other (Income) and Deductions 8 10 7 Income Tax Provision 1 3 5 Net Income S 4 $ 6 $ 12 Operating revenues increased

$3 million in 2005 and increased$1 million in 2004 due primarily to higher gas prices.Operations and maintenance expenses increased

$3 million in 2005 and increased

$5 million in 2004. Increases are associated with the addition of approximately 300 producing wells during the three year period. The 2004 increase is also due to a $6 million pretax gain on the sale of non-core assets recorded in 2003.Taxes other than income increased

$4 million in 2005 due to higher severance taxes associated with gas price increases.

31 (in Millions) 2005 2004 2003 Operating Revenues $ 1,684 S 1,254 $ 1,061 Fuel, Purchased Power and Gas 970 473 643 Operation and Maintenance 710 596 334 Depreciation and Amortization 7 6 4 Taxes Other Than Income 3 4 2 Operating Income (Loss) (6) 175 78 Other (Income) and Deductions (7) (7) (32)Income Tax Provision (Benefit)

(1) 64 41 Netincome S 2 $ 118 $ 69 Operating revenues increased

$430 million in 2005 and increased$193 million in 2004. Both Coal Transportation and Marketing and DTE Energy Trading experienced revenue growth in 2005 due to higher demand, higher commodity pricing, the sale of emission credits and increased trading volume. Comparability of 2005 to 2004 is affected because our trading operations recorded an adjustment in 2004 that increased revenue by $86 million related to the modification of a future purchase commitment under a transportation agreement with an interstate pipeline company. See Note 13.Coal Transportation and Marketing revenues in 2004 were affected by our strategy to produce synfuel primarily from plants in which we had sold interests.

This strategy resulted in the reduction of synfuel production levels. We were contractually obligated to supply coal to customers at certain sites that did not produce synfuel as a result of our production strategy.

To meet our obligations to provide coal under long-term contracts with customers, we acquired coal that was resold to customers.

The coal was sold at prices higher than the prices at which synfuel would have been sold to these customers.

Fuel, purchased powerand gas increased

$497 million in 2005 and decreased

$170 million in 2004. During 2005, our earnings have been negatively impacted by the economically favorable decision in early 2005 to delay previously planned withdrawals from gas storage due to a decrease in the current price for natural gas and an increase in the forward price for natural gas. We anticipate the financial impact of this timing difference will reverse when the gas is withdrawn from storage in the current storage cycle and is sold at prices significantly in excess of the cost of gas in storage. In addition, we entered into forward power contracts to economically hedge certain physical and capacity power contracts.

We expect the timing difference on the forward power contracts will be fully realized by the end of 2007.In 2004, our trading operations recorded a gas inventory adjustment that increased expense by $12 million related to the termination of a long-term gas exchange agreement with an interstate pipeline company. See Note 13. Under the gas exchange agreement, we received gas from the customer during the summer injection period and redelivered the gas during the winter heating season.Operation and maintenance expenses increased

$114 million in 2005 and increased

$262 million in 2004. During 2005, our Coal Transportation and Marketing business experienced higher throughput volumes and increased prices for coal. The increase in 2004 was due primarily to increased coal purchases and increased lease expense.Other (income) and deductions for 2005 remained consistent with 2004, and decreased

$25 million in 2004. The decline in 2004 is primarily due to gains recorded in 2003 from selling our 16%pipeline interest in the Portland Natural Gas Transmission System.Income tax provision decreased

$65 million in 2005 and increased$23 million in 2004 due to variations in earnings.Outlook- We expect to continue to grow our Coal Services and DTE Energy Trading businesses in a manner consistent with, and complementary to, the growth of our other business segments.Gas storage and transportation capacity enhances our ability to provide reliable and custom-tailored bundled services to large-volume end users and utilities.

This capacity, coupled with the synergies from DTE Energy's other businesses, positions the segment to add value and mitigate risks.We expect to continue to grow our Pipeline, Processing and Storage business by expanding existing assets and developing new assets.Pipelines, Processing and Storage received MPSC approval in September 2005 and executed long-term contracts for a capacity expansion at one of our Michigan storage fields that will facilitate an additional 14 Bcf of storage service sales starting in April 2006.Vector Pipeline has secured long-term market commitments to support an expansion project, for approximately 200 MMcf per day, with a projected in-service date of November 2007. Vector Pipeline expects to receive Federal Energy Regulatory Commission (FERC) approval in the second quarter of 2006. The Millennium Pipeline filed an application for FERC approval in August 2005. In addition, Pipeline, Processing and Storage owns a 10.5% interest in the Millennium Pipeline and is currently negotiating to increase its equity interest.Significant portions of the Fuel Transportation and Marketing portfolio are economically hedged. The portfolio includes financial instruments and gas inventory, as well as capacity positions of natural gas storage and pipelines and power transmission contracts.

The financial instruments are deemed derivatives, whereas the gas inventory, pipelines and storage assets are not derivatives.

As a result, we will experience earnings volatility as derivatives are marked to market without revaluing the underlying non-derivative contracts and assets. The majority of such earnings volatility is associated with the natural gas storage cycle, which does not coincide with the calendar and fiscal year, but runs annually from April of one year to March of the next year. Our strategy is to economically hedge the price risk of storage with over-the-counter forwards and futures. Current accounting rules require the marking to market of forward sales and futures, but do not allow for the marking to market of the related gas inventory.

This results in gains and losses that are recognized in different interim and annual accounting periods. We generally anticipate the financial impact of this timing difference will reverse by the end of each storage cycle. See 'Fair Value of Contracts" section that follows.Corporate

& Other Corporate

& Other includes various corporate support functions such as accounting, legal and information technology services.

As these functions essentially support the entire Company, their costs are fully allocated to the various segments based on services utilized.32 Therefore the effect of the allocation on each segment can vary from year to year. Additionally, Corporate

& Other holds certain non-utility debt, assets held for sale, and energy related investments.

Factors impacting income: Corporate

& Other results declined $40 million in 2005, compared to a $53 million improvement in 2004.The 2005 decline was primarily a result of the parent company not allocating merger interest to Detroit Edison and MichCon. Partially offsetting 2005 increased expenses were reduced Michigan Single Business Taxes and gains on the sale of non-strategic assets. The 2004 improvement was affected by a $14 million net of tax gain from the sale of 3.5 million shares of Plug Power stock, as well as lower Michigan Single Business Taxes, resulting from tax saving initiatives.

Corporate

& Other also benefited from lower financing costs.Discontinued Operations DTE Energy Technologies (Dtech)- We own Dtech, which assembles, markets, distributes and services distributed generation products, provides application engineering, and monitors and manages on-site generation system operations.

In July 2005, management approved the restructuring of this business resulting in the identification of certain assets and liabilities to be sold or abandoned, primarily associated with standby and continuous duty operations.

We recognized a net of tax restructuring loss of $23 million during the third quarter of 2005 primarily representing the write down to fair value of the assets of Dtech, less costs to sell, and the write-off of goodwill.

As we execute the restructuring plan, there may be adjustments to amounts recorded related to the impairment and exit costs. We anticipate completing the restructuring plan by mid-2006.Southern Missouri Gas Company -We owned Southern Missouri Gas Company (SMGC), a public utility engaged in the distribution, transmission and sale of natural gas in southern Missouri.

In the first quarter of 2004, management approved the marketing of SMGC for sale. As of March 31, 2004, SMGC met the criteria of an asset "held for sale" and we have reported its operating results as a discontinued operation.

We recognized a net of tax impairment loss of approximately

$7 million, representing the write-down to fair value of the assets of SMGC, less costs to sell, and the write-off of allocated goodwill.

In November 2004, we entered into a definitive agreement providing for the sale of SMGC. Regulatory approval was received in April 2005 and the sale closed in May 2005.During the second quarter of 2005, we recognized a net of tax gain of $2 million.International Transmission Company- In February 2003, we sold ITC, our electric transmission business, to affiliates of Kohlberg Kravis Roberts & Co. and Trimaran Capital Partners, LLC. Through December 31, 2004, we recorded a gain of $58 million (net of tax).During the second quarter of 2005, the gain was adjusted to $56 million (net of tax).See Note 3.Cumulative Effect Of Accounting Changes In the fourth quarter of 2005, we adopted additional new accounting rules for asset retirement obligations.

The cumulative effect of adopting these new accounting rules reduced 2005 earnings by $3 million.On January 1, 2003, we adopted new accounting rules for asset retirement obligations and energy trading activities.

The cumulative effect of adopting these new accounting rules reduced 2003 earnings by $27 million.See Note 2.Capital Resources and Liquidity DTE Energy and its subsidiaries require cash to operate and is provided by both internally and externally generated sources. We manage our liquidity and capital resources to maintain financial flexibility to meet our current and future cash flow needs.Cash Requirements We use cash to maintain and expand our electric and gas utilities and to grow our non-utility businesses, retire and pay interest on long-term debt and pay dividends.

Our strategic direction anticipates base level capital investments and expenditures for existing businesses in 2006 of up to $1.2 billion. The capital needs of our utilities will increase due primarily to environmental related expenditures.

We may spend an additional

$200 million to $400 million on growth-related projects within our non-regulated businesses in 2006.Capital spending for general corporate purposes will increase in 2006, primarily as a result of DTE2 and environmental spending.During 2005, we began the first wave of implementation of DTE2, an enterprise resource planning system initiative to improve existing processes and to implement new core information systems. We anticipate spending $165 million to $190 million over the next two years as the remaining system elements are developed and business segments fully adopt DTE2.We anticipate environmental capital expenditures of approximately

$250 million in 2006 and up to approximately

$2.3 billion of future capital expenditures to satisfy both existing and proposed new requirements.

We expect non-utility capital spending will approximate

$200 million to $400 million annually for the next several years. Capital spending for growth of existing or new businesses will depend on the existence of opportunities that meet our strict risk-return and value creation criteria.Debt maturing in 2006 totals approximately

$682 million.We believe that we will have sufficient internal and external capital resources to fund anticipated capital requirements.

33 (in Millions) 2005 2004 2003 Cash and Cash Equivalents Cash Flow From (Used For)Operating activities:

Net income $ 537 $ 431 $ 521 Depreciation, depletion and amortization 872 744 691 Deferred income taxes 147 129 (220)Gain on sale of ITC, synfuel and other assets, net (405) (236) (228)Working capital and other (150) (73) 186 1,001 995 950 Investing activities:

Plant and equipment expenditures

-utility (850) (815) (679)Plant and equipment expenditures

-non-utility (215) (89) (72)Business acquisitions, net of cash acquired (50) --Proceeds from sale of ITC, synfuels and other assets, net of cash divested 409 325 758 Restricted cash and other investments (96) (102) 3 (802) (681) 10 Financing activities:

Issuance of long-term debt and common stock 1,041 777 571 Redemption of long-term debt (1,266) (759) (1,208)Short-term borrowings, net 437 33 (44)Repurchase of common stock (13) --Dividends on common stock and other (366) (363) (358)(167) (312) (1,039)Net Increase (Decrease) in Cash and Cash Equivalents

$ 32 $ 2 $ (79)result of improved revenues and gross margin stemming from higher rates granted in the 2004 rate orders, warmer weather, and lower customer choice penetration.

The offsetting increase in working capital requirements was driven by a $127 million PSCR under-recovery in 2005 as compared to a $112 million over-recovery in 2004. Working capital requirements also reflect the higher cost of gas at MichCon and our Fuel Transportation and Marketing segment.MichCon's working capital and other requirements were $136 million higher in 2005 compared to 2004 primarily due to the impact of higher gas costs. This impact was reflected by accounts receivable balances that were $198 million higher at December 31, 2005 than the previous year at MichCon. The increase in working capital requirements was mitigated by lower income tax payments in 2005 and company initiatives to improve cash flow, including better inventory management, cash sales transactions and the utilization of letters of credit.Our net operating cash flow in 2004 was $995 million, reflecting a$45 million increase from 2003. The operating cash flow comparison reflects an increase of over $300 million in net income, after adjusting for non-cash items (depreciation, depletion, amortization, deferred taxes and gains), substantially offset by a $259 million increase in working capital and other requirements.

A portion of this improvement is attributable to the change in our strategy to primarily produce synfuel from plants in which we have sold interests.

As previously discussed, synfuel projects generate operating losses, which have been more than offset by tax credits that we have been unable to fully utilize, thereby negatively affecting operating cash flow. Cash for working capital primarily reflects higher income tax payments of $172 million in 2004, reflecting a different payment pattern of taxes in 2004 compared to 2003. The increase in working capital was mitigated by Company initiatives to improve cash flow, including better inventory management, cash sales transactions, deferral of retirement plan contributions and the utilization of letters of credit. Certain cash initiatives in 2003 lowered cash flow in 2004.Outlook- We expect cash flow from operations to increase over the long-term primarily due to improvements from utility rate increases and the sales of interests in our synfuel projects, partially offset by higher cash requirements on environmental and other utility capital as well as growth investments in our non-utility portfolio.

We are likely to incur costs associated with implementation of our Performance Excellence Process, but we expect to realize long term cost savings. We also may be impacted by the delayed collection of underrecoveries of our PSCR and GCR costs and electric and gas accounts receivable as a result of recent MPSC orders. Gas prices are likely to be a source of volatility with regard to working capital requirements for the foreseeable future. We are continuing our efforts to identify opportunities to improve cash flow through working capital improvement initiatives.

Operating cash flow from our utilities is expected to increase in 2006. Due to the structure of the interim and final rate orders, we will begin to realize the full benefits of interim and final rate relief in 2006 when all customer rate caps expire. Improvements in cash flow from our utilities are also expected from better management of our working capital requirements, including the continued focus on reducing past due accounts receivable.

Our emphasis in these businesses will continue to be cash generation and conservation.

Cash from Operating Activities A majority of the Company's operating cash flow is provided by our two utilities, which are significantly influenced by factors such as weather, electric Customer Choice, regulatory deferrals, regulatory outcomes, economic conditions and operating costs.Our non-utility businesses also provide sources of cash flow to the enterprise and reflect a range of operating profiles.

The profiles vary from our synthetic fuels business, which we believe will provide approximately

$1.2 billion of cash during 2006-2008 (assuming no phase-out), to new startups.

These new start-ups include our unconventional gas and waste coal recovery businesses, which we are growing and, if successful, could require significant investment.

Cash from operations totaling $1.001 billion in 2005 was up $6 million from the comparable 2004 period. The operating cash flow comparison reflects an increase of over $83 million in net income, after adjusting for non-cash items (depreciation, depletion, amortization, deferred taxes and gains), substantially offset by a $77 million increase in working capital and other requirements.

Most of the improvement was driven by higher net income at Detroit Edison which was the 34 Assuming no production tax credit phase-out, cash flows from our synfuel business are expected to be approximately

$400 million, $500 million and $300 million in 2006, 2007 and 2008, respectively, including$300 million tax credit carryforward utilization by DTE Energy.The redeployment of this cash represents a unique opportunity to increase shareholder value and strengthen our balance sheet.We expect to use this cash to reduce debt, to continue to pursue growth investments that meet our strict risk-return and value creation criteria and to potentially repurchase common stock if adequate investment opportunities are not available.

Our objectives for cash redeployment are to strengthen the balance sheet and coverage ratios to improve our current credit rating and outlook, and to replace the value of synfuel operations currently inherent in our share price. However, if oil prices remain at current levels or increase throughout 2006, the expected cash flow from the synfuel business would be less and could adversely impact the success of this strategy, unless the Company identifies alternative sources of cash. Synfuel cash flow consists of variable and fixed payments from partners, proceeds from option and other contracts used to protect us from risk of loss from a tax credit phase-out and the use of prior years' tax credit carry-forwards.

Since 2004, we have spent approximately

$105 million hedging our future synfuel cash flow and may spend up to $50 million in 2006.Our other operating non-utility businesses are expected to contribute approximately

$500 million through 2008. Remaining start-up businesses such as unconventional gas production, waste coal recovery and distributed generation will continue to use cash in excess of their cash generation over the next couple of years while they are being further developed.

Certain of the previously discussed cash initiatives resulted in accelerating the receipt of cash in 2005, which will have the impact of lowering cash flow in 2006.Cash from Investing Activities Cash inflows associated with investing activities are primarily generated from the sale of assets. In any given year, we will look to realize cash from under-performing or non-strategic assets.Capital spending within the utility business is primarily to maintain our generation and distribution infrastructure, comply with environmental regulations and gas pipeline replacements.

Capital spending within our non-utility businesses is for ongoing maintenance and expansion.

The balance of non-utility spending is for growth, which we manage very carefully.

We look to make investments that meet strict criteria in terms of strategy, management skills, risks and returns. All new investments are analyzed for their rates of return and cash payback on a risk adjusted basis. We have been disciplined in how we deploy capital and will not make investments unless they meet our criteria.

For new business lines, we invest tentatively based on research and analysis.

We start with a limited investment, we evaluate results and either expand or exit the business based on those results. In any given year, the amount of growth capital will be determined by the underlying cash flows of the Company with a clear understanding of any potential impact on our credit ratings.Net cash outflows relating to investing activities increased

$121 million in 2005 and $691 million in 2004, compared to the prior year. The 2005 change was primarily due to increased capital expenditures, partially offset by higher synfuel proceeds.

Spending on growth project investments increased

$123 million in 2005 while spending on environmental projects was $44 million higher than the 2004 period. The 2004 change was primarily due to proceeds received in 2003 totaling $758 million from the sale of ITC, interests in three synfuel projects and non-strategic assets. Additionally, the change was due to variations in cash contractually designated for debt service.Longer term, with the expected improvement at our utilities and assuming continued cash generation from the synfuel business, cash flows are expected to improve. We will continue to pursue opportunities to grow our businesses in a disciplined fashion if we can find opportunities that meet our strategic, financial and risk criteria.Cash from Financing Activities We rely on both short-term borrowing and long-term financing as a source of funding for our capital requirements not satisfied by the Company's operations.

Short-term borrowings, which are mostly in the form of commercial paper borrowings, provide us with the liquidity needed on a daily basis. Our commercial paper program is supported by our unsecured credit facilities.

Our strategy is to have a targeted debt portfolio blend as to fixed and variable interest rates and maturity.

We continually evaluate our leverage target, which is currently 50% or lower, to ensure it is consistent with our objective to have a strong investment grade debt rating. We have completed a number of refinancings with the effect of extending the average maturity of our long-term debt and strengthening our balance sheet. The extension of the average maturity was accomplished at interest rates that lowered our debt costs.Net cash used for financing activities improved $145 million in 2005 and improved $727 million in 2004, compared to the prior periods.The improvement in 2005 was primarily driven by the issuance of common stock which resulted from the conversion of our equity security units. The change in 2004 was primarily due to higher issuances of long-term debt and levels of short-term debt borrowings which exceeded the requirements of long-term debt redemptions.

See Note 9 -Long-Term Debt and Preferred Securities and Note 10 -Short-Term Credit Arrangements and Borrowings for more information regarding financing activities.

Amounts available under shelf registrations include $500 million at DTE Energy, $250 million at Detroit Edison and $200 million at MichCon. In 2006, we plan on filing new shelf registration statements for DTE Energy and Detroit Edison.Common stock issuances or repurchases can also be a source or use of cash. In January 2005, we announced that the DTE Energy Board of Directors has authorized the repurchase of up to $700 million in common stock through 2008. The authorization provides Company management with flexibility to pursue share repurchases from time to time, and will depend on future cash flows and investment opportunities.

No share repurchases were made in 2005. As of January 1, 2005, we discontinued issuing new DTE Energy shares for our dividend reinvestment plan, which generated approximately

$50 million annually.

We also contributed

$170 million of DTE Energy common stock to our pension plan in the first quarter 35 of 2004. In August 2005, we issued 3.7 million shares of common stock in conjunction with the settlement of the stock purchase component of our equity security units.Contractual Obligations The following table details our contractual obligations for debt redemptions, leases, purchase obligations and other long-term obligations as of December 31, 2005: Credit Rating Agency Entity Description 0TE Energy Senior Unsecured Debt Commercial Paper Detroit Edison Senior Secured Debt Commercial Paper MichCon Senior Secured Debt Commercial Paper Standard& Poors BBB-A-2 BBB+A-2 BBB A-2 Moody's Investors Service Baa2 P-2 A3 P-2 A3 P-2 Fitch Ratings BBB F2 A-F2 A-F2 (in Millions)

Total Contractual Obligations Long-term debt Mortgage bonds, notes and other $ 5,821 S Securitization bonds 1,400 Equity-linked securities 175 Trust preferred-linked securities 289 Capital lease obligations 124 Interest 6,035 Operating leases 536 Electric, gas, fuel, transportation and storage purchase obligations

11) 6,333 Other long-termn obligations 337 Total obligations

$ 21,050.ess Than 1-3 1 Year Years 4-5 After Years 5Years 577 $105 16 455 63 634 $ 1,305 $ 3,305 363 290 642 175 --43 1,222 128 24 673 61 289 41 3,685 284 Critical Accounting Estimates There are estimates used in preparing the consolidated financial statements that require considerable judgment.

Such estimates relate to regulation, risk management and trading activities, production tax credits, goodwill, pension and postretirement costs, the allowance for doubtful accounts, and legal and tax reserves.Regulation A significant portion of our business is subject to regulation.

Detroit Edison and MichCon currently meet the criteria of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation.

Application of this standard results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses.

SFAS No. 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses.

Future regulatory changes or changes in the competitive environment could result in discontinuing the application of SFAS No. 71 for some or all of our businesses.

If we were to discontinue the application of SFAS No. 71 on all our operations, we estimate that the extraordinary loss would be as follows: 3,718 1,747 188 153 117 21 5,087 S 4,429 S 2562 680 46$ 8,972 (1) Excludes amounts associated with full requirements contracts where no stated minimum purchase volume is required.Credit Ratings Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold securities.

Management believes that the current credit ratings of the Company provide sufficient access to the capital markets. However, disruptions in the banking and capital markets not specifically related to the company may affect our ability to access these funding sources or cause an increase in the return required by investors.

We have issued guarantees for the benefit of various non-utility subsidiaries.

In the event that our credit rating is downgraded to below investment grade, certain of these guarantees would require us to post cash or letters of credit valued at approximately

$536 million at December 31, 2005. Additionally, upon a downgrade, our trading business could be required to restrict operations and our access to the short-term commercial paper market could be restricted or eliminated.

While we currently do not anticipate such a downgrade, we cannot predict the outcome of current or future credit rating agency reviews. The following table shows our credit rating as determined by three nationally respected credit rating agencies.

All ratings are considered investment grade and affect the value of the related securities.(in Millions)Utility Detroit Edison (1)MichCon Total (1) Excludes securitized regulatory assets$ (154)(43)$ (197)Management believes that currently available facts support the continued application of SFAS No. 71 and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment.

See Note 4.Risk Management and Trading Activities All derivatives are recorded at fair value and shown as 'Assets or liabilities from risk management and trading activities" in the consolidated statement of financial position.

Risk management activities are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Through December 2002, trading activities were accounted for in accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 98-10, Accounting for Energy Trading and Risk Management Activities.

36 Effective January 2003, trading activities are accounted for in accordance with SFAS No. 133. See Note 2.The offsetting entry to "Assets or liabilities from risk management and trading activities" is to other comprehensive income or earnings depending on the use of the derivative, how it is designated and if it qualifies for hedge accounting.

The fair values of derivative contracts were adjusted each reporting period for changes using market sources such as:* published exchange traded market data* prices from external sources* price based on valuation models Market quotes are more readily available for short duration contracts.

Derivative contracts are only marked to market to the extent that markets are considered highly liquid where objective, transparent prices can be obtained.

Unrealized gains and losses are fully reserved for transactions that do not meet this criterion.

Production Tax Credits We generate production tax credits from our synfuel, coke battery and landfill gas recovery operations.

We recognize earnings as tax credits are generated at our facilities in one of two ways. First, to the extent we have sold an interest in our synfuel facilities to third parties, we recognize gains as synfuel is produced and sold, and when there is persuasive evidence that the sales proceeds have become fixed or determinable and collectibility is reasonably assured.Second, to the extent we generate credits to our own account, we recognize earnings through reduced tax expense.estimated cash flows are revised downward, the reporting unit may be required to write down all or a portion of its goodwill, which would adversely impact our earnings.As of December 31, 2005, our goodwill totaled $2.1 billion. The majority of our goodwill is allocated to our utility reporting units, with$772 million allocated to the Gas Utility reporting unit. The value of the utility reporting units may be significantly impacted by rate orders and the regulatory environment.

The Gas Utility reporting unit is comprised primarily of MichCon. We have made certain assumptions for MichCon that incorporate earnings multiples used in the cash flow valuations.

These assumptions may change as regulatory and market conditions change.We also have $41 million of goodwill allocated to the Power and Industrial Projects reporting unit. The value of the Power and Industrial Projects reporting unit may be significantly impacted by any phase-out of tax credits related to our synfuel business.

We have assumed there will be no phase-out of synfuel tax credits and will monitor the status of any potential phase-out and its impact on our valuation assumptions.

During 2005 we recorded an impairment of $16 million to goodwill related to discontinuing the operations of Dtech.Based on our 2005 goodwill impairment test, we determined that the fair value of our remaining operating reporting units exceed their carrying value and no impairment existed. We will continue to monitor our estimates and assumptions regarding future cash flows. While we believe our assumptions are reasonable, actual results may differ from our projections.

All production tax credits are subject to audit by the IRS. However, all of our synfuel facilities have received favorable private letter rulings from the IRS with respect to their operations.

Audits of five of our synfuel facilities were successfully completed in the past two years. If production tax credits were disallowed in whole or in part as a result of an IRS audit, there could be a significant write-off of previously recorded earnings from such tax credits.Tax credits generated by our facilities were $617 million in 2005, as compared to $449 million in 2004 and $387 million in 2003. The portion of tax credits generated for our own account was $55 million in 2005, as compared to $38 million in 2004 and $241 million in 2003, with the remaining credits generated allocated to third party partners.Goodwill Certain of our business units have goodwill resulting from purchase business combinations.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, each of our reporting units with good-will is required to perform impairment tests annually or whenever events or circumstances indicate that the value of goodwill may be impaired.

In order to perform these impairment tests, we must determine the reporting unit's fair value using valuation techniques, which use estimates of discounted future cash flows to be generated by the reporting unit. These cash flow valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future performance.

To the extent Pension and Postretirement Costs Our costs of providing pension and postretirement benefits are dependent upon a number of facfors, including rates of return on plan assets, the discount rate, the rate of increase in health care costs and the amount and timing of plan sponsor contributions.

We had pension costs for qualified pension plans of $90 million in 2005, $81 million in 2004, and $47 million in 2003. Postretirement benefits costs for all plans were $155 million in 2005, $125 million in 2004, and $118 million in 2003. Pension and postretirement benefits costs for 2005 are calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on our plan assets of 9.0%. In developing our expected long-term rate of return assumption, we evaluated input from our consultants, including their review of asset class risk and return expectations as well as inflation assumptions.

Projected returns are based on broad equity and bond markets. Our 2006 expected long-term rate of return on plan assets is based on an asset allocation assumption utilizing active investment management of 66% in equity markets, 25% in fixed income markets, and 9%invested in other assets. Because of market volatility, we periodically review our asset allocation and rebalance our portfolio when considered appropriate.

Given market conditions, we believe that 8.75% is a reasonable long-term rate of return on our plan assets for 2006. We will continue to evaluate our actuarial assumptions, including our expected rate of return, at least annually.37 We base our determination of the expected return on qualified plan assets on a market-related valuation of assets, which reduces year-to-year volatility.

This market-related valuation recognizes changes in fair value in a systematic manner over a three-year period. Accordingly, the future value of assets will be impacted as previously deferred gains or losses are recorded.

We have unrecognized net losses due to the performance of the financial markets. As of December 31, 2005, we had $6 million of cumulative losses that remain to be recognized in the calculation of the market-related value of assets.The discount rate that we utilize for determining future pension and postretirement benefit obligations is based on a yield curve approach and a review of bonds that receive one of the two highest ratings given by a recognized rating agency. The yield curve approach matches projected plan pension and postretirement benefit payment streams with bond portfolios reflecting actual liability duration unique to our plans. The discount rate determined on this basis decreased from 6.0% at December 31, 2004 to 5.9% at December 31, 2005. Due to recent financial market performance, lower discount rates and increased health care trend rates, we estimate that our 2006 pension costs will approximate

$80 million compared to $96 million in 2005 and our 2006 postretirement benefit costs will approximate

$192 million compared to $155 million in 2005.In the last several years, we have made modifications to the pension and postretirement benefit plans to mitigate the earnings impact of higher costs. Future actual pension and postretirement benefit costs will depend on future investment performance, changes in future discount rates and various other factors related to plan design. Additionally, future pension costs for Detroit Edison will be affected by a pension tracking mechanism, which was authorized by the MPSC in its November 2004 rate order. The tracking mechanism provides for the recovery or refunding of pension costs above or below the amount reflected in Detroit Edison's base rates. In April 2005, the MPSC approved the deferral of the non-capitalized portion of MichCon's negative pension expense. MichCon will record a regulatory liability for any negative pension costs, as determined under generally accepted accounting principles.

Lowering the expected long-term rate of return on our plan assets by one-percentage-point would have increased our 2005 qualified pension costs by approximately

$24 million. Lowering the discount rate and the salary increase assumptions by one-percentage-point would have increased our 2005 pension costs by approximately

$10 million. Lowering the health care cost trend assumptions by one-percentage-point would have decreased our postretirement benefit service and interest costs for 2005 by approximately

$20 million.Pension and postretirement costs and pension cash funding requirements may increase in future years without substantial returns in the financial markets. We made a $222 million cash contribution in 2003 and a $170 million contribution to our pension plan in the form of DTE Energy common stock in 2004. We did not make pension contributions in 2005. We contributed

$80 million to our postretirement plans in 2004. We did not contribute to our postretirement plans in 2003 and 2005. We do not anticipate making a contribution to our qualified pension plans in 2006. At the discretion of management, we may make up to a $120 million contribution to our postretirement plans in 2006.In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act was signed into law. This Act provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit established by law. The effects of the subsidy on the measurement of net periodic postretirement benefit costs reduced costs by $20 million in 2005 and $16 million in 2004.See Note 14.Allowance for Doubtful Accounts We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, economic conditions, age of receivables and other information.

Higher customer bills due to increased gas prices, the lack of adequate levels of assistance for low-income customers and economic conditions have also contributed to the increase in past due receivables.

As a result of these factors, our allowance for doubtful accounts increased in 2004 and 2005. We believe the allowance for doubtful accounts is based on reasonable estimates.

As part of the 2005 rate order for MichCon, the MPSC provided for the establishment of an uncollectible accounts tracking mechanism that partially mitigates the impact associated with MichCon uncollectible expenses.

However, failure to make continued progress in collecting our past due receivables in light of rising energy prices would unfavorably affect operating results and cash flow.Legal and Tax Reserves We are involved in various legal and tax proceedings, claims and litigation arising in the ordinary course of business.

We regularly assess our liabilities and contingencies in connection with asserted or potential matters, and establish reserves when appropriate.

Legal reserves are based upon management's assessment of pending and threatened legal proceedings and claims against the Company.Tax reserves are based upon management's assessment of potential adjustments to tax positions taken. We regularly review ongoing tax audits and prior audit experience, in addition to current tax and accounting authority in assessing potential adjustments.

Environmental Matters Protecting the environment, as well as correcting past environmental damage, continues to be'a focus of state and federal regulators.

Legislation and/or rulemaking could further impact the electric utility industry including Detroit Edison. The U.S. Environmental Protection Agency (EPA) and the Michigan Department of The market value of our pension and postretirement benefit plan assets has been affected by the financial markets. The value of our plan assets increased from $2.9 billion at December 31, 2003 to$3.3 billion at December 31, 2004. The value at December 31, 2005 was $3.3 billion. The investment performance returns and declining discount rates required us to recognize an additional minimum pension liability, an intangible asset and an entry to other compre-hensive loss (shareholders' equity) in 2003, 2004, and 2005. The additional minimum pension liability and related accounting entries will be reversed on the balance sheet in future periods if the fair value of plan assets exceeds the accumulated pension benefit obligations.

The recording of the minimum pension liability does not affect net income or cash flow.38 Environmental Quality (MDEQ) have aggressive programs to clean-up contaminated property.Electric Utility Air- Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. In March 2005, EPA issued additional emission reduction regulations relating to ozone, fine particulate, regional haze and mercury air pollution.

The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions.

To comply with these requirements, Detroit Edison has spent approximately

$644 million through 2005. We estimate Detroit Edison will incur future capital expenditures of up to $218 million in 2006 and up to $2.2 billion of additional capital expenditures through 2018 to satisfy both the existing and pro-posed new control requirements.

Under the June 2000 Michigan restructuring legislation, beginning January 1, 2004, annual return of and on this capital expenditure was deferred in ratemaking until December 31, 2005, the expiration of the rate cap period.The EPA has ongoing enforcement actions against several major electric utilities citing violations of new source provisions of the Clean Air Act. Detroit Edison received and responded to information requests from the EPA on this subject. The EPA has not initiated proceedings against Detroit Edison. In October 2003, the EPA promulgated revised regulations to clarify new source review provisions going forward. Several states and environmental organizations have challenged these regulations and, in December 2003, a stay was issued until the U.S. Court of Appeals D.C. Circuit renders an opinion in the case. We cannot predict the future impact of this issue upon Detroit Edison.Water- Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities.

Based on the results of the studies to be conducted over the next several years, Detroit Edison may be required to install additional control technologies to reduce the impacts of the intakes. It is estimated that we will incur up to$50 million over the next four to six years in additional capital expenditures to comply with these requirements.

Contaminated Sites -Detroit Edison conducted remedial investiga-tions at contaminated sites, including two former MGP sites, the area surrounding an ash landfill and several underground and aboveground storage tank locations.

We have a reserve balance of$13 million as of December 31, 2005 for the remediation of these sites over the next several years.Gas Utility Contaminated Sites -Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. Gas Utility owns, or previously owned, 15 former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MPG sites, Gas Utility is also in the process of cleaning up other contaminated sites. Cleanup activities associated with these sites will be conducted over the next several years. As a result of these determinations, we have recorded liabilities of $35 million and$1 million for the MGPs and other contaminated sites, respectively.

It is estimated that Gas Utility may incur $5 million in expenses related to cleanup costs in 2006. While we cannot make any assurances, we believe that a cost deferral and rate recovery mechanism for the MGP sites, approved by the MPSC, will prevent these costs from having a material adverse impact on our results of operations.

In 1993, a cost deferral and rate recovery mechanism was approved by the MPSC for investigation and remediation costs incurred at former MGP sites in excess of this reserve. Gas Utility employed outside consultants to evaluate remediation alternatives for these sites, to assist in estimating its potential liabilities and to review its archived insurance policies.

As a result of these studies, Gas Utility accrued an additional liability and a corresponding regulatory asset of $35 million during 1995. During 2005, we spent approximately

$4 million investigating and remediating these former MGP sites.In December 2005, we retained multiple environmental consultants to estimate the projected cost to remediate each MGP site. We accrued an additional

$9 million in remediation liabilities associated with two of our MGP sites, to increase the reserve balance to $35 million at December 31, 2005.Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites and thereby affect the Company's financial position and cash flows. However, we anticipate the cost deferral and rate recovery mechanism approved by the MPSC will prevent environmental costs from having a material adverse impact on our results of operations.

Other Our non-utility affiliates are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants.

We are in the process of installing new environmental equipment at our coke battery facilities in Michigan.We expect the projects to be completed within two years at a cost of approximately

$25 million. Our other non-utility affiliates are substantially in compliance with all environmental requirements.

Various state and federal laws regulate our handling, storage and disposal of waste materials.

The EPA and the MDEQ have aggressive programs to manage the clean up of contaminated property.

We have extensive land holdings and, from time to time, must investigate claims of improperly disposed contaminants.

We anticipate our utility and non-utility companies may periodically be included in various types of environmental proceedings.

DTE2 In 2003, we began the development of DTE2, an enterprise resource planning (ERP) system initiative to improve existing processes and to implement new core information systems, relating to finance, human resources, supply chain and work management.

As part of this initiative, we are implementing Enterprise Business Systems software including, among others, products developed by SAP AG and MRO Software, Inc. The first phase of implementation occurred in 2005 in the regulated electric fossil generation unit. Full implementation throughout the Company is not anticipated until 2007.39 The conversion of data and the implementation and operation of the ERP will be continuously monitored and reviewed and should ultimately strengthen our internal control structure and lead to increased cost efficiencies.

Although our implementation plan includes detailed testing and contingency arrangements to ensure a smooth and successful transition, we can provide no assurance that complications will not arise that could interrupt our operations.

We have spent approximately

$210 million through the end of 2005 and expect total spending over the life of the project to be between $375 million and $400 million. We expect the benefits of lower costs, faster business cycles, repeatable and optimized processes, enhanced internal controls, improvements in inventory management and reductions in system support costs to outweigh the expense of our investment in this initiative.

Midwest Independent System Operator (MISO)The MISO was formed in 1996 by its member transmission owners and in December 2001 received FERC approval as a Regional Transmission Organization (RTO) authorized to provide regional transmission services as prescribed by FERC in its Order 2000.Order 2000 requires an RTO to perform eight functions, including tariff administration, transmission system congestion management, provision of ancillary services to support transmission operations, market monitoring, interregional coordination and the coordination of system planning and expansion.

MISO's independence from ownership of either generation or transmission facilities is intended to enable it to ensure fair access to the transmission grid, and through its congestion management role, MISO is also charged with ensuring grid reliability.

MISO's initial provision of transmission services in December 2001 was known as fay 1 operations.

In keeping with Order 2000, which permits RTOs to provide real-time energy imbalance services and a market-based mechanism for congestion management, MISO, on April 1, 2005, launched its Midwest Energy Market, or Day 2 operations, and began regional wholesale electric market operations and transmission service throughout its area. A key feature of the Midwest Energy Market is the establishment of Locational Marginal Prices (LMPs) which provide price transparency for the sale and purchase of wholesale electricity at different locations in the market territory.

The LMP is the market clearing price at a specific pricing location in the Midwest Energy Market that is equal to the cost of supplying the next increment of load at that location.

The value of an LMP is the same whether a purchase or sale is made at that location.

Detroit Edison participates in the Midwest Energy Market by offering its generation on a day-ahead and real time basis and by bidding for power in the market to serve its load. The cost of power procured from the market net of any gain realized from generation sold into the market is included and recovered through the PSCR mechanism.

In addition, LMPs are expected to encourage new generation to locate where the power produced is of most value to the load and is expected to identify where new transmission facilities are needed to relieve grid congestion.

MISO is compensated for assuring grid reliability and for supporting the energy market through FERC-approved rates charged to load.Detroit Edison became a non-transmission owning member of MISO in compliance with section 10w (1) of PA 141. The MPSC has ordered that MISO costs charged to Detroit Edison should be recovered through the PSCR mechanism.

Federal Energy Policy Act of 2005 In August 2005, the Energy Policy Act of 2005 (Energy Act) was signed into law. Among other provisions, the Energy Act:* establishes mandatory electric reliability standards;

• repeals the Public Utility Holding Company Act of 1935;* renews the Price Anderson Act for twenty years which provides liability protection for nuclear power plants;* increases funding levels for the Low-Income Home Energy Assistance Program; and* increases FERC oversight responsibilities for the electric utility industry.The implementation of the Energy Act requires proceedings at the state level and development of regulations by the FERC, as well as other federal agencies.

The impact of the Energy Act on our results of operations will depend on the implementation of final rules and cannot be fully determined at this time.NewAccounting Pronouncements See Note 2- New Accounting Pronouncements for discussion of new pronouncements.

FairValue of Contracts The following disclosures are voluntary and provide enhanced transparency of the derivative activities and position of our trading businesses and our other businesses.

We use the criteria in Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, to determine if certain contracts must be accounted for as derivative instruments.

The rules for determining whether a contract meets the criteria for derivative accounting are numerous and complex. Moreover, significant judgment is required to determine whether a contract requires derivative accounting, and similar contracts can sometimes be accounted for differently.

If a contract is accounted for as a derivative instrument, it is recorded in the financial statements as "assets or liabilities from risk management and trading activities", at the fair value of the contract.

The recorded fair value of the contract is then adjusted quarterly to reflect any change in the fair value of the contract, a practice known as mark to market (MTM) accounting.

Fair value represents the amount at which willing parties would transact an arms-length transaction.

To determine the fair value of contracts accounted for as derivative instruments, we use a combination of quoted market prices and mathematical valuation models. Valuation models require various inputs, including forward prices, volatility, interest rates, and exercise periods.40 Contracts we typically classify as derivative instruments are power, gas and oil forwards, futures, options and swaps, as well as foreign currency contracts.

Items we do not generally account for as derivatives (and which are therefore excluded from the following tables) include gas inventory, gas storage and transportation arrangements, full-requirements power contracts and gas and oil reserves.

As subsequently discussed, we have fully reserved the value of derivative contracts beyond the liquid trading timeframe thereby not impacting income.The subsequent tables contain the following four categories repre-sented by their operating characteristics and key risks.* "Proprietary Trading" represents derivative activity transacted with the intent of taking a view, capturing market price changes, or putting capital at risk. This activity is speculative in nature as opposed to hedging an existing exposure.* 'Structured Contracts" represents derivative activity transacted with the intent to capture profits by originating substantially hedged positions with wholesale energy marketers, utilities, retail aggregators and alternative energy suppliers.

Although transactions are generally executed with a buyer and seller simultaneously, some positions remain open until a suitable offsetting transaction can be executed.* "Economic Hedges" represents derivative activity associated with assets owned and contracted by DTE Energy, including forward sales of gas production and trades associated with owned transportation and storage capacity.

Changes in the value of derivatives in this category economically offset changes in the value of underlying non-derivative positions, which do not qualify for fair value accounting.

The difference in accounting treatment of derivatives in this category and the underlying non-derivative positions can result in significant earnings volatility as discussed in more detail in the preceding Results of Operations section.* "Other Non-Trading Activities" primarily represent derivative activity associated with our Michigan gas reserves and synfuel operations.

A substantial portion of the price risk associated with the gas reserves has been mitigated through 2013.Changes in the value of the hedges are recorded as "assets or liabilities from risk management and trading activities", with an offset in other comprehensive income to the extent that the hedges are deemed effective.

Oil-related derivative contracts have been executed to economically hedge cash flow risks related to underlying, non-derivative synfuel related positions through 2007. The amounts shown in the following tables exclude the value of the underlying gas reserves and synfuel proceeds including changes therein.Roll-Forward of Mark to Market Energy Contract Net Assets The following tables provide details on changes in our mark to market net asset or (liability) position during 2005: Trading Activities (Proprietary Structured

.Economic Non-Ither-Trading (in Millions)

Trading Contracts Hedges Total Activities Total MTM at December31, 2004 $ 3 $ 23 $ (98) $ (72) S (100) $ (172)Reclassed to realized upon settlement (2) (16) 32 14 66 80 Changes in fair value recorded to income 6 (91) (58) (143) 43 (100)Amortization of option premiums --(3) (3) (26) (29)Amounts recorded to unrealized income 4 (107) (29) (132) 83 (49)Amounts recorded in OCI (Note 1) -(54) 17 (37) (187) (224)Option premiums paid and other (115) 2 -(113) 64 (49)MTM at December31, 2005 $ (108) $ (136) S (110) $ (354) $ (140) S (494)The following table provides a current and noncurrent analysis of "assets and liabilities from risk management and trading activities", as reflected in the consolidated statement of financial position as of December 31, 2005. Amounts that relate to contracts that become due within twelve months are classified as current and all remaining amounts are classified as noncurrent.

Trading Activities Proprietary Structured Economic Other Non-Trading Total Assets (in Millions)

Trading -Contracts Hedges Eliminations Totals Activities (Liabilities)

Current assets $ 295 $ 161 $ 205 $ (3) $ 658 S 148 $ 806 Noncurrent assets 9 53 186 (6) 242 74 316 Total MTM assets 304 214 391 (9) 900 222 1,122 Current liabilities (359) (232) (301) 3 (889) (200) (1,089)Noncurrent liabilities (53) .- (118) (200) 6 (365) (162) (527)Total MTM liabilities (412) (350) (501) 9 (1,254) (362) (1,616)Total MTM net assets liabilities)

$ (108) $ (136) $ (110) $ -$ (354) $ (140) S (494)41 Maturity of Fair Value of MTM Energy Contract Net Assets We fully reserve all unrealized gains and losses related to periods beyond the liquid trading timeframe.

Our intent is to recognize MTM activity only when pricing data is obtained from active quotes and published indexes. Actively quoted and published indexes include exchange traded (i.e., NYMEX) and over-the-counter positions for which broker quotes are available.

Although the NYMEX has currently quoted prices for the next 72 months, broker quotes for gas and power are generally available for 18 and 24 months into the future, respectively, we fully reserve all unrealized gains and losses related to periods beyond the liquid trading timeframe and which therefore do not impact income.As a result of adherence to generally accepted accounting principles, the tables above do not include the expected favorable earnings impacts of certain non-derivative gas storage and power contracts.

We entered into economically favorable transactions in early 2005 to delay previously planned withdrawals from gas storage due to a decrease in the current price for natural gas and an increase in the forward price for natural gas. We anticipate the financial impact of this timing difference will reverse when the gas is withdrawn from storage in the current storage cycle and is sold at prices significantly in excess of the cost of gas in storage. In addition, we entered into forward power contracts to economically hedge certain physical and capacity power contracts.

We expect the timing difference on the forward power contracts will be fully realized by the end of 2007.landfill gas recovery operations are subject to phase-out if domestic crude oil prices reach certain levels. We have entered into a series of derivative contracts for 2006 through 2007 to economically hedge the impact of oil prices on a portion of our synfuel cash flow.See Note 12.Credit Risk Bankruptcies We purchase and sell electricity, gas, coal, coke and other energy products from and to numerous companies operating in the steel, automotive, energy, retail and other industries.

Certain of our customers have filed for bankruptcy protection under Chapter 11 of the U. S. Bankruptcy Code. We regularly review contingent matters relating to these customers and our purchase and sale contracts and we record provisions for amounts considered at risk of probable loss. We believe our previously accrued amounts are adequate for probable loss. The final resolution of these matters is not expected to have a material effect on our financial statements.

Other We engage in business with customers that are non-investment grade. We closely monitor the credit ratings of these customers and, when deemed necessary, we request collateral or guarantees from such customers to secure their obligations.

The table below shows the maturity of our MTM positions: (in Milrions)Total Fair We utilize both external and internally generated credit assessments when determining the credit quality of our trading counterparties.

The following table displays the credit quality of our trading counterparties as of December 31, 2005: Source of Fair Value 2006 2007 2008 Value Proprietary Trading $ (64) S (441 $ -$ (108)Structured Contracts (71) (611 (4) (1361 Economic Hedges (96) (41 (10) (110)TotalTradingActivities (231) (109) (141 (354)Other Non-Trading Acvities (52) (63) (25) (140)Total S (2831 $ (172) $ (391 S (494)Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk DTE Energy has commodity price risk arising from market price fluctuations in conjunction with the anticipated purchases of coal, uranium, and electricity to meet its obligations during periods of peak demand. We also are exposed to the risk of market price fluctuations on gas sale and purchase contracts, gas production and gas inventories.

To limit our exposure to commodity price fluctuations, we have entered into a series of electricity and gas futures, forwards, option and swap contracts.

Commodity price risk associated with our electric and gas utilities is limited due to the PSCR and GCR mechanisms.

See Note 1.Our Coal-Based Fuels and Landfill Gas Recovery businesses are also subject to crude oil price risk. As previously discussed, production tax credits generated by DTE Energy's synfuel, coke battery and Credit Exposure before Net Cash Credit (in Millions)

Collateral Collateral Exposure Investment Grade (1)A- and Greater S 444 S (46) $ 398 BBB+ and BBB 290 (9) 281 BBB- 17 -17 Total Investment Grade 751 (55) 696 Non-investment grade (2) 52 (13) 39 Internally Rated -investment grade (3) 129 (9) 120 Internally Rated -non-investment grade (4) 11 -11 Total $ 943 $ (77)$ 866 (Il This category includes counterparties with minimum credit ratings of Baa3 assigned by Moody's Investors Service (Moody's) and B1B- assigned by Standard & Poor's Rating Group (Standard

& Poor's). The five largest counterparty exposures combined for this category represented 29% of the total gross credit exposure.(2) This category includes counterparties with credit ratings that are below investment grade. The five largest counterparty exposures combined for this category represented less than 5% of the total gross credit exposure.(3) This category includes counterparties that have not been rated by Moody's or Standard& Poor's, but are considered investment grade based on 0TE Energy's evaluation of the counterparty's creditworthiness.

The five largest counterparty exposures combined for this category represented 7% of the total gross credit exposure.(4) This category includes counterparties that have not been rated by Moody's or Standard & Poor's, and are considered non-investment grade based on OTE Energy's evaluation of the counterparty's creditworthiness.

The five largest counterparty exposures combined for this category represented less than 1% of the gross credit exposure.42 Interest Rate Risk DTE Energy is subject to interest rate risk in connection with the issuance of debt and preferred securities.

In order to manage interest costs, we use treasury locks and interest rate swap agreements.

Our exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial paper rates and London Inter-Bank Offered Rates ILIBOR). As of December 31, 2005, the Company has a floating rate debt to total debt ratio of approximately 15%(excluding securitized debt).Foreign Currency Risk DTE Energy has foreign currency exchange risk arising from market price fluctuations associated with fixed priced contracts.

These contracts are denominated in Canadian dollars and are primarily for the purchase and sale of power as well as for long-term transportation capacity.

To limit our exposure to foreign currency fluctuations, we have entered into a series of currency forward contracts through 2008. Additionally, we may enter into fair value currency hedges to mitigate changes in the value of contracts or loans.Summary of Sensitivity Analysis We performed a sensitivity analysis to calculate the fair values of our commodity contracts, long-term debt instruments and foreign currency forward contracts.

The sensitivity analysis involved increasing and decreasing forward rates at December 31, 2005 by a hypothetical 10% and calculating the resulting change in the fair values. The results of the sensitivity analysis calculations follow: (in Millions)Assuming a 10%0 Assuming a I0/increase decrease Change in the Activity in rates in rates fair value of Gas Contracts

$ (9) $ 7 Commodity contracts and options Power Contracts

$ (20) $ 21 Commodity contracts Oil Contracts

$ 39 $ (40) Commodity options Interest Rate Risk $ (296) $ 318 Long-term debt Foreign Currency Risk $ 3 $ (3) Forward contracts Reporofanag~ee 7ResonsibiIify.f&rinanciaI Statemnents.

1Y1:R d rn o Financial Statements We have reviewed this annual report to shareholders, and based on our knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. Also, based on our knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of DTE Energy as of, and for, the periods presented.

DTE Energy Company management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -Integrated Framework.

Based on our assessment, management believes that, as of December 31, 2005, DTE Energy Company's internal control over financial reporting was effective based on those criteria.Our management's assessment of the effectiveness of the company's internal control over financial reporting has been audited by DTE Energy's independent registered public accounting firm, as stated in their report which is included herein.Internal Control Over Financial Reporting The management of DTE Energy Company is responsible for establishing and maintaining adequate internal control over financial reporting.

DTE Energy Company's internal control system was designed to provide reasonable assurance to the company's management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of the effectiveness to future periods are subject to the risks that control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Anthony F. Earley Jr.Chairman and Chief Executive Officer David E. Meador Executive Vice President and Chief Financial Officer 43 DT~egy. ompany~4`, , * .t , ..': .. tL -4 i ,IX Reprt ofInepndntRgite~dPuli ccunin Fr A,~~~~~~~~~~~

Al Ir~o4t !iiF-: ;l a_~~~~~~~

~ 1.:.- XALCX , .d U To the Board of Directors and Shareholders of DTE Energy Company: We have audited management's assessment, included in the accompanying Management's report on internal control over financial reporting, that OTE Energy Company and subsidiaries (the Company')

maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of December 31, 2005 and for the year then ended; and our report dated March 7, 2006 expressed an unqualified opinion on those consolidated financial statements.

LLP Detroit, Michigan March 7, 2006 Deloitte.Deloitte &Touche LLP Suite 900, 600 Renaissance Center Detroit Michigan 48243-1704 To the Board of Directors and Shareholders of DTE Energy Company: We have audited the consolidated statement of financial position of DTE Energy Company and subsidiaries (the 'Company')

as of December 31, 2005 and 2004, and the related consolidated statements of operations, cash flows, and changes in shareholders' equity and comprehensive income for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.in conformity with accounting principles generally accepted in the United States of America.As discussed in Note 2 to the consolidated financial statements, in connection with the required adoption of certain new accounting principles, in 2005 the Company changed its method of accounting for asset retirement obligations and in 2003 the Company changed its method of accounting for asset retire-ment obligations, energy trading contracts and gas inventories.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of DTE Energy Company and subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 tz-aPt- I Teat& cP Detroit, Michigan March 7, 2006 Deloitte.Deloitte &Touche LU'Suite 900, 600 Renaissance Center Detroit Michigan 48243-1704 44 DtE _ XiDE y a a hX any M~~" XCnoiae Satmn of Ec, ;HiOpra5d

$8tions t--f o-.E Year Ended December 31 (in Millions, Exceptper ShareAmounts) 2005 2004 2003 Operating Revenues S 9,022 S 7,071 $ 7,005 Operating Expenses Fuel, purchased power and gas 3,530 2,007 2,241 Operation and maintenance 3,793 3,355 3,055 Depreciation, depletion and amortization 869 742 685 Taxes otherthan income 274 312 334 Asset (gains) and losses, net (390) (215) (77)8,076 6,201 6,238 Operating Income 946 870 767 Other (income) and Deductions Interest expense 519 516 545 Interest income (57) (55) (37)Other income (68) (81) (110)Other expenses 55 67 82 449 447 480 Income Before Income Taxes and Minority Interest 497 423 287 Income Tax Provision (Benefit) (Note 7) 202 174 (116)Minority Interest (281) (212) (91)Income from Continuing Operations 576 461 494 Income (Loss) from Discontinued Operations, net of tax (Note 3) (36) (30) 54 Cumulative Effect of Accounting Changes, net of tax (Note 2) (3) -(27)Net Income $ 537 $ 431 S 521 Basic Earnings per Common Share (Note 8)Income from continuing operations S 3.29 S 2.67 $ 2.95 Discontinued operations

(.20) (.17) .33 Cumulative effect of accounting changes (.02) -(.17)Total $ 3.07 $ 2.50 $ 3.11 Diluted Earnings per Common Share (Note 8)Income from continuing operations S 327 $ 2.66 $ 2.93 Discontinued operations (20) (.17) .32 Cumulative effect of accounting changes (.02) -(.16)Total S 3.05 $ 2.49 $ 3.09 Average Common Shares Basic 175 173 168 Diluted 176 173 168 Dividends Declared per Common Share S 2.06 $ 2.06 $ 2.06 See Notes to Consolidated Financial Statements 45 December 31 an Millions)ASSETS Current Assets Cash and cash equivalents Restricted cash (Note 1)Accounts receivable Customer (less allowance for doubtful accounts of $136 and $129, respectively)

Accrued unbilled revenues Collateral held by others Other Inventories Fuel and gas Materials and supplies Deferred income taxes Assets from risk management and trading activities Other 2005 2004$ 88 122 1288 458 286 549$ 56 126 865 378 44 354 522 146 257 806 160 509 159 94 296 115 4,682 2,996 Investments Nuclear decommissioning trustfunds 646 590 Other 530 558 1,176 1,148 Property Property, plant and equipment 18,660 18,011 Less accumulated depreciation and depletion (Notes 1 and 2) (7,830) 17,520)10,830 10,491 Other Assets Goodwill 2,057 2,067 Regulatory assets (Note 4) 2074 2,119 Securitized regulatory assets (Note 4) 1,340 1,438 Notes receivable 409 529 Assets from risk management and trading activities 316 125 Prepaid pension assets 186 184 Other 265 200 6,647 6,662 Total Assets $ 23,335 $ 21,297 See Notes to Consolidated Financial Statements 46 0_Consolida'ted St'atement fFnnilP sto-17-December31 (in Millions, Except Shares) 2005 2004 V ABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 1,187 $ 892 Accrued interest 115 111 Dividends payable 92 90 Accrued payroll 34 33 Income taxes -16 Short-term borrowings 943 403 Current portion long-term debt, including capital leases 691 514 Liabilities from risk management and trading activities 1,089 369 Other 769 581 4,920 3,009 Other Liabilities Deferred income taxes 1,396 1,124 Regulatory liabilities (Notes 2 and 4) 715 817 Asset retirement obligations (Note 2) 1,091 916 Unamortized investment tax credit 131 143 Liabilities from risk management and trading activities 527 224 Liabilities from transportation and storage contracts 317 387 Accrued pension liability 284 265 Deferred gains from asset sales 188 414 Minority interest 92 132 Nuclear decommissioning (Notes 2 and 5) 85 77-Other 740 635 5,566 5,134 Long-Term Debt (net of current portion) (Note 9)Mortgage bonds, notes and other 5,234 5,673 Securitization bonds 1,295 1,400 Equity-linked securities 175 178 Trust preferred-linked securities 289 289 Capital lease obligations 87 66 7,080 7,606 Commitments and Contingencies (Notes 4,5 and 13)Shareholders' Equity Common stock, without par value, 400,000,000 shares authorized, 177,814,429 and 174,209,034 shares issue and outstanding, respectively 3,483 3,323 Retained earnings 2,557 2,383 Accumulated other comprehensive loss (271) (158)5,769 5,548 Total Liabilities and Shareholders' Equity S 23,335 $ 21,297 See Notes to ConsolidatedFinancialStatements 47 DTE E'nergy Comfpanyh

.-....-.!~~Conisolid'a-ted-Statem-he ntofCsFlw-, r , Year Ended December 31 (in Millions) 2005 2004 2003 Operating Activities Net income $ 537 $ 431 $ 521 Adjustments to reconcile net income to net cash from operating activities:

Depreciation, depletion and amortization 872 744 691 Deferred income taxes 147 129 (220)Gain on sale of interests in synfuel projects (367) (219) (83)Gain on sale of ITC and other assets, net (38) (17) (145)Partners' share of synfuel project losses (318) (223) (78)Restructuring charges 33 --Contributions from synfuel partners 243 141 65 Cumulative effect of accounting changes 3 -27 Changes in assets and liabilities, exclusive of changes shown separately (Note 1) (111) 9 172 Net cash from operating activities 1,001 995 950 Investing Activities Plant and equipment expenditures

-utility (850) (815) (679)Plant and equipment expenditures

-non-utility (215) (89) (72)Acquisitions, net of cash acquired (50)Proceeds from sale of interests in synfuel projects 349 221 89 Proceeds from sale of ITC and other assets, net of cash divested 60 104 669 Restricted cash for debt redemptions 4 5 106 Proceeds from sale of nuclear decommissioning trust fund assets 201 254 199 Investment in nuclear decommissioning trust funds (235) (287) (231)Other investments (66) (74) (71)Net cash from (used for) investing activities (802) (681) 10 Financing Activities Issuance of long-term debt 869 736 527 Redemption of long-term debt (1,266) (759) (1,208)Short-term borrowings, net 437 33 (44)Issuance of common stock 172 41 44 Repurchase of common stock (13)Dividends on common stock (360) (354) (346)Other (6) (9) (12)Net cash used for financing activities (167) (312) (1,039)Net Increase (Decrease) in Cash and Cash Equivalents 32 2 (79)Cash and Cash Equivalents at Beginning of Period 56 54 133 Cash and Cash Equivalents at End of Period $ 88 $ 56 $ 54 See Notes to ConsolidatedFinancialStatements 48

~K ~+ DT E~rydm~any ij,', fa ~ i '~'S-t'-'

b-'h;land Cmprehensive Common Stock Retained Accumulated Other (Dollars in Millions, Shares in 7housands)

Shares Amounts Earnings Comprehensive Loss Total Balance, December31, 2002 167,462 S 3,052 $ 2,132 S (619) $ 4,565 Net income --521 -521 Issuance of new shares 1,225 57 --57 Dividends declared on common stock --(348) -(348)Repurchase and retirement of common stock (80) (1) --(1)Pension obligations (Note 14) ---420 420 Net change in unrealized losses on derivatives, net of tax ---17 17 Net change in unrealized gains on investments, net of tax ---52 52 Unearned stock compensation and other -1 3 -4 Balance, December31,2003 168,607 3,109 2,308 (130) 5,287 Net income --431 -431 Issuance of new shares 5,671 223 --223 Dividends declared on common stock --(357) -(357)Repurchase and retirement of common stock (69) (3) --(3)Pension obligations (Note 14) ---7 7 Net change in unrealized losses on derivatives, net of tax ---(15) (15)Net change in unrealized losses on investments, net of tax ---(20) (20)Unearned stock compensation and other -(6) 1 -(5)Balance, December31, 2004 174,209 3,323 2,383 (158) 5,548 Net income --537 -537 Issuance of new shares 3,686 172 --172 Dividends declared on common stock --(363) -(363)Repurchase and retirement of common stock (288) (13) (13)Pension obligations (Note 14) ---4 4 Net change in unrealized losses on derivatives, net of tax ---(106) (106)Net change in unrealized losses on investments, net of tax ---(11) (11)Unearned stock compensation and other 207 1 --1 Balance, December 31, 2005 177,814 S 3,483 S 2,557 S (271) S 5,769 The following table displays comprehensive income (loss): (in Millions) 2005 2004 2003 Net income $ 537 $ 431 $ 521 Other comprehensive income (loss), net of tax: Pension obligations, net of taxes of $2,$4 and $226 (Notes 4 and 14) 4 7 420 Net unrealized losses on derivatives:

Gains (losses) arising during the period, net of taxes of S(78),S(26) and $8 (145) (49) 16 Amounts reclassified to income, net of taxes of $21, $18 and $- 39 34 1 (106) (15) 17 Net unrealized gains (losses) on investments:

Gains (losses) arising during the period, net of taxes of $(3), $(3) and $28 (6) (5) 52 Amounts reclassified to income, net of taxes of S12), $(8) and $- (5) (15) -E11) (20) 52 Comprehensive income S 424 $ 403 $ 1,010 I See Notes to Consolidated Financial Statements 49 12 ~-'<~DEnergy ompany~`,'"s

,__,..-,NotesToC ConSbidatebd~FinanhciaI Statemendts~~"'

T ,----- -- I- ---I---NOTE 1 -SIGNIFICANT ACCOUNTING POLICIES of America. These accounting principles require us to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.

Actual results may differ from our estimates.

Corporate Structure DTE Energy owns the following businesses:

• The Detroit Edison Company (Detroit Edison), an electric utility engaged in the generation, purchase, distribution and sale of electric energy to approximately

2.2 million

customers in southeast Michigan;* Michigan Consolidated Gas Company (MichCon), a natural gas utility engaged in the purchase, storage, transmission and distribution and sale of natural gas to approximately

1.3 million

customers throughout Michigan; and* Other non-utility subsidiaries engaged in a variety of energy related businesses such as synfuels, energy services, natural gas exploration and production, energy marketing and trading, coal transportation and gas storage and transportation.

Detroit Edison and MichCon are regulated by the Michigan Public Service Commission (MPSC). The Federal Energy Regulatory Commission (FERC) regulates certain activities of Detroit Edison's business as well as various other aspects of businesses under DTE Energy. In addition, we are regulated by other federal and state regulatory agencies including the Nuclear Regulatory Commission (NRC), the U.S. Environmental Protection Agency (EPA) and the Michigan Department of Environmental Quality (MDEQ).References in this report to "we," 'us," "our" or "Company" are to DTE Energy and its subsidiaries, collectively.

We reclassified certain prior year balances to match the current year's financial statement presentation.

Revenues Revenues from the sale and delivery of electricity, and the sale, delivery and storage of natural gas are recognized as services are provided.

Detroit Edison and MichCon record revenues for electric and gas provided but unbilled at the end of each month.Detroit Edison's accrued revenues include a component for the cost of power sold that is recoverable through the Power Supply Cost Recovery (PSCR) mechanism.

MichCon's accrued revenues include a component for the cost of gas sold that is recoverable through the Gas Cost Recovery (GCR) mechanism.

Annual PSCR and GCR proceedings before the MPSC permit Detroit Edison and MichCon to recover prudent and reasonable supply costs. Any overcollection or undercollection of costs, including interest, will be reflected in future rates. Prior to 2004, Detroit Edison's retail rates were frozen under Public Act (PA) 141. Accordingly, Detroit Edison did not accrue revenues under the PSCR mechanism prior to 2004. See Note 4.Non-utility businesses recognize revenues as services are provided and products are delivered.

Our Fuel Transportation and Marketing segment records in revenues net unrealized derivative gains and losses on energy trading contracts, including those to be physically settled.Principles of Consolidation We consolidate all majority owned subsidiaries and investments in entities in which we have controlling influence.

Non-majority owned investments are accounted for using the equity method when the company is able to influence the operating policies of the investee.Non-majority owned investments include investments in limited liability companies, partnerships or joint ventures.

When we do not influence the operating policies of an investee, the cost method is used. We eliminate all intercompany balances and transactions.

For entities that are considered variable interest entities, we apply the provisions of Financial Accounting Standards Board (FASB)Interpretation No. (FIN) 46-R, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB)No. 51. For a detailed discussion of FIN 46-R, see Note 2.Basis of Presentation The accompanying consolidated financial statements are prepared using accounting principles generally accepted in the United States Gains from Sale of Interests in Synthetic Fuel Facilities Through December 2005, we have sold interests in all of our synthetic fuel production plants, representing approximately 91% of our total production capacity.

Proceeds from the sales are contingent upon production levels, the production qualifying for production tax credits, and the value of such credits. Production tax credits are subject to phase-out if domestic crude oil prices reach certain levels. See Note 13 for further discussion.

We recognize gains from the sale of interests in the synfuel facilities as synfuel is produced and sold, and when there is persuasive evidence that the sales proceeds have become fixed or determinable and collectibility is reasonably assured. Until the gain recognition criteria are met, gains from selling interests in synfuel facilities are deferred.

It is possible that gains will be deferred in the first, second and/or third quarters of each year until there is persuasive evidence that no tax credit phase out will occur for the applicable calendar year. This could result in shifting earnings from earlier quarters to later quarters of a calendar year. We have recorded pre-tax gains from the sale of interests in synthetic fuel facilities totaling $367 million, $219 million and $83 million during 2005, 2004 and 2003, respectively.

50 The gain from the sale of synfuel facilities is comprised of fixed and variable components.

The fixed component represents note payments of principal and interest, is not subject to refund, and is recognized as a gain when earned and collectibility is assured. The variable component is based on an estimate of tax credits allocated to our partners, is subject to refund based on the annual oil price phase out, and is recognized as a gain only when the probability of refund is considered remote and collectibility is assured. In the event that the tax credit is phased-out, we are contractually obligated to refund to our partners an amount equal to all or a portion of the operating losses funded by our partners.

To assess the probability of refund, we use valuation and analyst models that calculate the probability of surpassing the estimated lower band of the phase-out range for the Reference Price of oil for the year. Due to the rise in oil prices, there is a possibility that the Reference Price of oil could reach the threshold at which production tax credits begin to phase out.Comprehensive Income Comprehensive income is the change in common shareholders' equity during a period from transactions and events from non-owner sources, including net income. As shown in the following table, amounts recorded to other comprehensive income at December 31, 2005 include: unrealized gains and losses from derivatives accounted for as cash flow hedges, unrealized gains and losses on available for sale securities and, minimum pension liabilities.

Property, Retirement and Maintenance, and Depreciation and Depletion Summary of property by classification as of December 31: (in Millions) 2005 2004 Property, Plant and Equipment Electric Utility Generation

$ 7,375 $ 7,100 Distribution

-6,041 5,831 Total Electric Utility 13,416 12,931 Gas Utility Distribution 2,098 2,020 Storage 237 221 Other 929 883 Total Gas Utility 3,264 3,124 Other Non-utility and Other 1,980 1,956 Total Property, Plant and Equipment 18,660 18,011 Less Accumulated Depreciation and Depletion Electric Utility Generation (3,439) (3,277)Distribution (2I156) (2,077)Total Electric Utility (5,595) (5,354)Gas Utility Distribution (891) (845)Storage (104) (1001 Other (481) (448)Total Gas Utility (1,476) (1,393)Other Non-utility and Other (759) (773)Total Accumulated Depreciation and Depletion (7,830) (7,520)Net Property, Plant and Equipment

$ 10,830 $ 10,491 Net Unrealized Losses on Net Unrealized Gains on Minimum Pension Liability Accumulated Other Comprehensive (in Millions)

Derivatives Investments Adjustment Loss Beginning balance $ (100) S 33 s (911 $ (158)Current-period change (106) (11) 4 (113)Ending balance S (206) S 22 $ 187) S (2711 Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand, cash in banks and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held to satisfy requirements of certain debt and partnership operating agreements.

Restricted cash is classified as a current asset as all restricted cash is designated for interest and principal payments due within one year.Inventories We value fuel inventory and materials and supplies at average cost.Gas inventory at MichCon is determined using the last-in, first-out (LIFO) method. At December 31, 2005, the replacement cost of gas remaining in storage exceeded the $119 million LIFO cost by $496 million. At December 31, 2004, the replacement cost of gas remaining in storage exceeded the $89 million LIFO cost by $330 million. During 2004, MichCon liquidated

5.7 billion

cubic feet of prior years' LIFO layers. The liquidation benefited 2004 cost of gas by approximately

$7 million, but had no impact on earnings as a result of the GCR mechanism.

Our Fuel Transportation and Marketing segment uses the average cost method for its gas in inventory.

Property is stated at cost and includes construction-related labor, materials, overheads and an allowance for funds used during construction.

The cost of properties retired, less salvage, at Detroit Edison and MichCon is charged to accumulated depreciation.

Expenditures for maintenance and repairs are charged to expense when incurred, except for Fermi 2. Approximately

$25 million of expenses related to the anticipated Fermi 2 refueling outage scheduled for 2006 were accrued at December 31, 2005. Amounts are being accrued on a pro-rata basis over an 18-month period that began in November 2004. We have utilized the accrue-in-advance policy for nuclear refueling outage costs since the Fermi 2 plant was placed in service in 1988. This method also matches the regulatory recovery of these costs in rates set by the MPSC.We base depreciation provisions for utility property at Detroit Edison and MichCon on straight-line and units of production rates approved by the MPSC. The composite depreciation rate for Detroit Edison was 3.4% in 2005, 2004 and 2003. The composite depreciation rate for MichCon was 3.2%, 3.6%, and 3.5% in 2005, 2004 and 2003, respectively.

The average estimated useful life for each class of utility property, plant and equipment as of December 31, 2005 follows: 51 Estimated Useful Lives in Years Utility Generation Distribution Transmission Electric 39 37 N/A Gas N/A 26 30 Non-utility property is depreciated over its estimated useful life using straight-line, declining-balance or units-of-production methods.We credit depreciation, depletion and amortization expense when we establish regulatory assets for stranded costs related to the electric Customer Choice program and deferred environmental expenditures.

We charge depreciation, depletion and amortization expense when we amortize the regulatory assets. We credit interest expense to reflect the accretion income on certain regulatory assets.Gas Production We follow the successful efforts method of accounting for investments in gas properties.

Under this method of accounting, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves.

If an exploratory well has not found proved reserves, the costs of drilling the well are expensed.The costs of development wells are capitalized, whether productive or nonproductive.

Geological and geophysical costs on exploratory prospects and the costs of carrying and retaining unproved properties are expensed as incurred.

An impairment loss is recorded to the extent that capitalized costs of unproved properties, on a property-by-property basis, are considered not to be realizable.

An impairment loss is recorded if the net capitalized costs of proved gas properties exceed the aggregate related undiscounted future net revenues.Depreciation, depletion and amortization of proved gas properties are determined using the units-of-production method.Long-Lived Assets Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

If the carrying amount of the asset exceeds the expected future cash flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.Intangible Assets, Including Software Costs Our intangible assets consist primarily of software.

We capitalize the costs associated with computer software we develop or obtain for use in our business.

We amortize intangible assets on a straight-line basis over the expected period of benefit, ranging from 3 to 30 years. Intangible assets amortization expense was$41 million in 2005, $43 million in 2004 and $40 million in 2003. The gross carrying amount and accumulated amortization of intangible assets at December 31, 2005 were $531 million and $167 million, respectively.

The gross carrying amount and accumulated amortization of intangible assets at December 31, 2004 were $445 million and$151 million, respectively.

Amortization expense of intangible assets is estimated to be $46 million annually for 2006 through 2010.Excise and Sales Taxes We record the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no impact on the consolidated statement of operations.

Deferred Debt Costs The costs related to the issuance of long-term debt are deferred and amortized over the life of each debt issue. In accordance with MPSC regulations applicable to our electric and gas utilities, the unamortized discount, premium and expense related to debt redeemed with a refinancing are amortized over the life of the replacement issue. Discount, premium and expense on early redemptions of debt associated with non-utility operations are charged to earnings.Insured and Uninsured Risks Our comprehensive insurance program provides coverage for various types of risks. Our insurance policies cover risk of loss from property damage, general liability, workers' compensation, auto liability and directors' and officers' liability.

Under our risk management policy, we self-insure portions of certain risks up to specified limits, depending on the type of exposure.

We have an actuarially determined estimate of our incurred but not reported liability prepared annually and adjust our reserves for self-insured risks as appropriate.

Stock-Based Compensation We have a stock-based employee compensation plan, which is described in Note 15. The plan permits the awarding of various stock awards, including options, restricted stock and performance shares. We account for stock awards under the plan under the recognition and measurement principles of Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, and follow the nominal vesting period approach for awards with retire-ment eligibility provisions.

This approach differs from the non-sub-stantive vesting period approach required by SFAS 123-R, Share-Based Payments.

Upon adoption of SFAS 123-R, we will apply the non-substantive vesting period approach for recognizing compensa-tion cost for all newly granted awards with retirement eligibility provisions.

No compensation cost related to stock options is reflect-ed in earnings, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The recognition provisions under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, require the recording of compensation expense for stock options equal to their fair value at date of grant as determined using an option pricing model. The following table illustrates the effect on net income and earnings per share if we had recorded compensation expense for options granted under the fair value recognition provisions of SFAS No. 123.52 (in Millions, except pershare amounts) 2005 2004 2003 Net Income as Reported $ 537 $ 431 $ 521 Less: Total Stock-based Expense (1) (4) (6) (7)Pro Forma Net Income S 533 $ 425 $ 514 Income Per Share Basic -as reported $ 3.07 S 2.50 $ 3.11 Basic -pro forma S 3.05 S 2.46 $ 3.06 Diluted -as reported S 3.05 S 2.49 $ 3.09 Diluted -pro forma S 3.03 $ 2.45 S 3.05 (1) Expense determined using a Black-Scholes based option pricing model.Investments in Debt and Equity Securities We generally classify investments in debt and equity securities as either trading or available-for-sale and have recorded such investments at market value with unrealized gains or losses included in earnings or in other comprehensive income or loss, respectively.

Changes in the fair value of nuclear decommissioning-related investments are recorded as adjustments to regulatory assets or liabilities.

See Note 5.Investment in Plug Power We own 8.8 million shares of Plug Power Inc. We account for our investment under the cost method of accounting.

We record our investment at market value and account for unrealized gains and losses in other comprehensive income or loss. In December 2005, we contributed

1.8 million

shares of Plug Power to the DTE Energy Foundation that resulted in a gain of approximately

$1 million due to related tax effects.In May 2004, we sold 3.5 million shares of Plug Power stock and recorded a gain of approximately

$14 million (net of taxes).Consolidated Statement of Cash Flows A detailed analysis of the changes in assets and liabilities that are reported in the consolidated statement of cash flows follows: Supplementary cash and non-cash information for the years ended December 31, were as follows: (in Millions)Cash Paid for: Interest (excluding interest capitalized)

Income taxes Noncash Investing and Financing Activities Notes received from sale of synfuel projects Common stock contribution to pension plan Exchange of debt Sale of assets Note receivable Other assets 2005 2004 2003$s$516 $ 517 $ 552 80 $ 203 S 31$ 20 $ 214 $ 238 S-$ 170 $-$ -$100 47 $45 $We have entered into a Margin Loan Facility (Facility) with an affiliate of the clearing agent of a commodity exchange in lieu of posting additional cash collateral (a non-cash transaction).

The loan outstanding under the Facility was $103 million as of December 31, 2005 and the related margin deposit is included in collateral held by others on the consolidated statement of financial position.See Note 10.See the following notes for other accounting policies impacting our financial statements:

Note Title 2 New Accounting Pronouncements 4 Regulatory Matters 7 Income Taxes 12 Financial and Other Derivative Instruments 14 Retirement Benefits and Trusteed Assets (in Millions)Changes in Assets and Liabilities, Exclusive of Changes Shown Separately Accounts receivable, net $Accrued unbilled receivable Accrued GCR revenue Inventories Accrued/Prepaid pensions Accounts payable Accrued PSCR refund Exchange gas payable Income taxes payable General taxes Risk management and trading activities Postretirement obligation Other assets Other liabilities 2005 2004 2003 Note 2 -New Accounting Pronouncements (553)$(80)(16)(6)17 290 (127)5 (38)(11)73 $(62)(35)(40)88 266 112 (43)(170)(14)(50)(20)29 (61)(196)(21)90 135 (12)Energy Trading Activities Under Emerging Issues Task Force (EITF) Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities, companies were required to use mark-to-market accounting for contracts utilized in energy trading activities.

EITF Issue No. 98-10 was rescinded in October 2002, and energy trading contracts must now be reviewed to determine if they meet the definition of a derivative under SFAS No. 133, Accounting for Derivative Instruments andHedgingActivities.

SFAS No. 133 requires all derivatives to be recognized in the statement of financial position as either assets or liabilities measured at their fair value. SFAS No. 133 also requires that changes in the fair value of derivatives be recognized in earnings unless specific hedge accounting criteria are met.Energy trading contracts not meeting the definition of a derivative are accounted for under settlement accounting, effective October 25, 2002 for new contracts and effective January 1, 2003 for existing contracts.

Derivative contracts are only marked to market to the extent that markets are considered highly liquid where objective, 353 132 52 (129)(64)29 55 (186)127 112 67 (28)$ (111) $ 9 $ 172 53 transparent prices can be obtained.

Unrealized gains and losses are fully reserved for transactions that do not meet the criteria.Additionally, inventory utilized in energy trading activities accounted for under the fair value method of accounting as prescribed by ARB No. 43 is no longer permitted.

Our Fuel Transportation and Marketing segment uses gas inventory in its trading operations and switched from the fair value method to the average cost method in January 2003.Effective January 1, 2003, we no longer applied EITF Issue No. 98-10 to energy contracts and ARB No. 43 to gas inventory.

As a result of discontinuing the application of these accounting principles, we recorded a cumulative effect of accounting change that reduced net income in 2003 by $16 million after-tax.

Consolidation of Variable Interest Entities In January 2003, FIN 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, was issued and requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity to consolidate the assets, liabilities and results of operations of the entity. A variable interest entity is an entity in which the equity investors do not have controlling interests, the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from other parties, or equity investors do not share proportionally in gains or losses.In October 2003 and December 2003, the FASB issued Staff Position No. FIN 46-6 and FIN 46-Revised (FIN 46-R), respectively, which clarified and replaced FIN 46 and also provided for the deferral of the effective date of FIN 46 for certain variable interest entities.We have evaluated all of our equity and non-equity interests and have adopted all current provisions of FIN 46-R. The adoption of FIN 46-R did not have a material effect on our financial statements.

Medicare Act Accounting In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act) was signed into law. The Medicare Act provides for a non-taxable federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least "actuarially equivalent" to the benefit established by law. We elected at that time to defer the provisions of the Medicare Act, and its impact on our accumulated postretirement benefit obligation and net periodic postretirement benefit cost, pending the issuance of specific authoritative accounting guidance by the FASB.In May 2004, FASB Staff Position (FSP) No. 106-2 was issued on accounting for the effects of the Medicare Act. The guidance in this FSP is applicable to sponsors of single-employer defined benefit postretirement health care plans for which (a) the employer has concluded the prescription drug benefits available under the plan to some or all participants are "actuarially equivalent" to Medicare Part D and thus qualify for the subsidy under the Medicare Act and (b) the expected subsidy will offset or reduce the employer's share of the cost of the underlying postretirement prescription drug coverage on which the subsidy is based. We believe we qualify for the subsidy under the Medicare Act and the expected subsidy will partially offset our share of the cost of postretirement prescription drug coverage.In June 2004, we adopted FSP No. 106-2, retroactive to January 1, 2004.As a result of the adoption, our accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service was reduced by approximately

$95 million and was accounted for as an actuarial gain. The effects of the subsidy reduced net postretirement costs by $20 million in 2005 and $16 million in 2004.Stock Based Payments In December 2004, the FASB issued SFAS No. 123-R, Stock Based Payments, which established the accounting for transactions in which an entity exchanges equity instruments for goods or services.SFAS No. 123-R was effective for interim or annual periods beginning after June 15, 2005 with earlier adoption encouraged.

In April 2005, the U.S. Securities and Exchange Commission delayed the effective date by requiring implementation beginning in the next fiscal year that begins after June 15, 2005. We adopted SFAS No.123-R effective January 1, 2006. Based on historical levels of stock based payments, we estimate that the new standard will reduce net income by approximately

$5 million to $10 million per year.Asset Retirement Obligations On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations, which requires the fair value of an asset retirement obligation be recognized in the period in which it is incurred.

We identified a legal retirement obligation for the decommissioning costs for our Fermi 1 and Fermi 2 nuclear plants.To a lesser extent, we have retirement obligations for our synthetic fuel operations, gas production facilities, asphalt plant, gas gather-ing facilities and various other operations.

On December 31, 2005, we adopted FASB Interpretation FIN No.47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143. FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settle-ment are conditional on a future event. FIN 47 also clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if fair value can be reasonably estimated.

The accounting for FIN 47 uses the same methodology as SFAS 143. When a new liability is recorded, an entity will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

As to regulated operations, we believe that adoptions of SFAS No. 143 and FIN 47 result primarily in timing differences in the recognition of legal asset retirement costs that we are currently recovering in rates. We will be deferring such differences under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.

As a result of adopting FIN 47 on December 31, 2005, we identified conditional retirement obligations for gas pipeline retirement costs and disposal of asbestos at certain of our power plants. To a lesser extent, we have conditional retirement obligations at certain service 54 centers, compressor and gate stations, and PCB disposal costs within transformers and circuit breakers.

We recorded a plant asset of $26 million with offsetting accumulated depreciation of $14 million, and an asset retirement obligation liability of $124 million. We also recorded a cumulative effect amount related to utility operations as a reduction to a regulatory liability of $108 million and a cumulative effect charge against earnings of $3 million, after-tax in 2005.Dtech assets are $6 million, consisting primarily of receivables and inventory, and liabilities are $6 million at December 31, 2005.As shown in the following table, we have reported the business activity of Dtech as a discontinued operation.

The amounts include the impairment loss recorded in the third quarter of 2005 and exclude general corporate overhead costs and operations that are to be retained: If we had applied FIN 47 to prior periods, we would have recorded asset retirement obligations of $123 million and $121 million as of December 31, 2004 and 2003, respectively, with an immaterial effect on earnings.No liability has been recorded with respect to lead-based paint, as the quantities of lead-based paint are unknown. In addition, there is no incremental cost to demolitions of lead-based paint facilities vs. non-lead based paint facilities and no regulations currently exist requiring any type of special disposal of items containing lead-based paint.Ludington Hydroelectric Power Plant has an indeterminate life and no legal obligation currently exists to decommission the plant at some future date. Substations, manholes and certain other distribution assets within Detroit Edison have an indeterminate life, therefore, no liability has been recorded for this asset.A reconciliation of the asset retirement obligation for 2005 follows: (in Millions) 2005 2004 2003 Revenues11)

$ 18 $ 43 $ 36 Expenses 67 70 57 Loss before taxes (49) (27) (21)Income tax benefit (14) (9) (7)(Loss)fromdiscontinuedoperations S (35) $ (18) $ (14)1l Includes intercompany revenues of $6 million for 2005 and $5 million for 2004.Southern Missouri Gas Company -Discontinued Operation We owned Southern Missouri Gas Company (SMGC), a public utility engaged in the distribution, transmission and sale of natural gas in southern Missouri.

In the first quarter of 2004, management approved the marketing of SMGC for sale. As of March 31, 2004, SMGC met the SFAS No. 144 criteria of an asset "held for sale" and we reported its operating results as a discontinued operation.

We recognized a net of tax impairment loss in 2004 of approximately

$7 million, representing the write-down to fair value of the assets of SMGC, less costs to sell, and the write-off of allocated goodwill.In November 2004, we entered into a definitive agreement providing for the sale of SMGC. Regulatory approval was received in April 2005 and the sale was closed in May 2005. During the second quarter of 2005, we recognized a net of tax gain of $2 million.(in Millions)Asset retirement obligations at January 1, 2005 $ 916 Accretion 61 Liabilities incurred (primarily adoption of FIN 47) 129 Liabilities settled (15)Asset retirement obligations at December 31, 2005 $ 1,091 A significant portion of the asset retirement obligations represents nuclear decommissioning liabilities which are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.Note 3 -Dispositions DTE Energy Technologies (Dtech) -Discontinued Operation We own Dtech, which assembles, markets, distributes and services distributed generation products, provides application engineering, and monitors and manages on-site generation system operations.

In July 2005, management approved the restructuring of this business resulting in the identification of certain assets and liabilities to be sold or abandoned, primarily associated with standby and continuous duty operations.

The systems monitoring business and certain other operations are planned to be retained.

We anticipate completing the restructuring plan by mid-2006.During the third quarter of 2005, the restructuring plan met criteria to classify the assets as "held for sale." Accordingly, we recognized a net of tax restructuring loss of $23 million during the third quarter of 2005 primarily representing the write down to fair value of the assets of Dtech, less costs to sell, and the write-off of goodwill of $16 million. After the restructuring charge, International Transmission Company -Discontinued Operation In February 2003, we sold International Transmission Company (ITC), our electric transmission business, for $610 million to affiliates of Kohlberg Kravis Roberts & Co. and Trimaran Capital Partners, LLC.The sale generated a preliminary net of tax gain of $63 million in 2003. The gain was net of transaction costs, the portion of the gain that was refundable to customers and the write off of approximately

$44 million of allocated goodwill.

The gain was lowered to $58 million in 2004 under the MPSC's November 2004 final rate order that resulted in a revision of the applicable transaction costs and customer refund.During 2005, the net of tax gain was adjusted to $56 million.We have reported the operations of ITC, from January 1, 2003 through February 28, 2003, as a discontinued operation as shown in the following table: (in Millions) 2003 Revenues (1) $ 21 Expenses (2) 13 Operating income 8 Income taxes 3 Income from discontinued operations S 5 (1) Includes intercompany revenues of $18 million.(2) Excludes general corporate overhead coststhatwere previously alocated to ITc.55 Detroit Edison's Steam Heating Business In January 2003, we sold Detroit Edison's steam heating business to Thermal Ventures 11, LP. Due to the continuing involvement of Detroit Edison in the steam heating business, including the commitment to purchase steam, fund certain capital improvements and guarantee the buyer's credit facility, we recorded a net of tax loss of approximately

$14 million in 2003. As a result of Detroit Edison's continuing involvement, this transaction is not considered a sale for accounting purposes.

See Note 13.Note 4 -Regulatory Matters Regulation Detroit Edison and MichCon are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting and operating-related matters. Detroit Edison is also regulated by the FERC with respect to financing authorization and wholesale electric activities.

As subsequently discussed in the "Electric Industry Restructuring" section, Detroit Edison's rates were frozen through 2003 and capped for small business customers through 2004 and for residential customers through 2005 as a result of PA 141. However, Detroit Edison was allowed to defer certain costs to be recovered once rates could be increased, including costs incurred as a result of changes in taxes, laws and other governmental actions.Regulatory Assets and Liabilities Detroit Edison and MichCon apply the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, to their regulated operations.

SFAS No. 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue and expense in non-regulated businesses.

Continued applicability of SFAS No. 71 requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers.

Future regulatory changes or changes in the competitive environment could result in the Company discontinuing the application of SFAS No. 71 for some or all of its utility businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued application of SFAS No. 71 to Detroit Edison and MichCon.The following are balances and a brief description of the regulatory assets and liabilities at December 31: (in Millions) 2005 2004 Assets Securitized regulatory assets $ 1,34 $ 1,438 Recoverable income taxes related to securitized regulatory assets $ 734 $ 788 Recoverable minimum pension liability 544 605 Asset retirement obligation 196 183 Other recoverable income taxes 104 109 Recoverable costs under PA 141 Netstranded costs 112 122 Excess capital expenditures 22 7 Deferred Clean Air Act expenditures 82 76 Midwest Independent System Operator charges 56 27 Electric Customer Choice implementation costs 98 95 Enhanced security costs 13. 8 Unamortized loss on reacquired debt 73 63 Deferred environmental costs 34 31 Accrued GCR revenue 42 55 Accrued PSCR revenue 144 -Recoverable uncollectibles expense 11 -Other 6 5 2,271 2,174 Less amount included in current assets (197) (55)S 2,074 $ 2,119 Liabilities Asset removal costs $ 567 $ 679 Accrued pension 23 1 Refundable income taxes 125 135 Accrued GCR disallowance

-28 Accrued PSCR refund 129 112 Other 2 4 846 959 Less amount included in current liabilities (131) (142)S 715 $ 817 Assets* Securitized regulatory assets -The net book balance of the Fermi 2 nuclear plant was written off in 1998 and an equivalent regulatory asset was established.

In 2001, the Fermi 2 regulatory asset and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge recovers the securitized regulatory asset over a fourteen-year period ending in 2015.* Recoverable income taxes related to securitized regulatory assets -Receivable for the recovery of income taxes to be paid on the non-bypassable securitization bond surcharge.

A non-bypassable securitization tax surcharge recovers the income tax over a fourteen-year period ending 2015.56

• Recoverable minimum pension liability-An additional minimum pension liability was recorded under generally accepted accounting principles due to the current under funded status of certain pension plans. The traditional rate setting process allows for the recovery of pension costs as measured by generally accepted accounting principles.

Accordingly, the minimum pension liability associated with utility operations is recoverable.

See Note 14.* Asset retirement obligation

-Asset retirement obligations were recorded pursuant to adoption of SFAS No. 143 in 2003 and FIN 47 in 2005. These obligations are primarily for Fermi 2 decommissioning costs that are recovered in rates.* Other recoverable income taxes -Income taxes receivable from Detroit Edison's customers representing the difference in property-related deferred income taxes receivable and amounts previously reflected in Detroit Edison's rates.* Net stranded costs- PA 141 permits, after MPSC authorization, the recovery of and a return on fixed cost deficiency associated with the electric Customer Choice program. Net stranded costs occur when fixed cost related revenues do not cover the fixed cost revenue requirements.

• Excess capital expenditures

-Starting in 2004, PA 141 permits, after MPSC authorization, the recovery of and a return on capital expenditures that exceed a base level of depreciation expense.* Deferred CleanAirActexpenditures-PA 141 permits, after MPSC authorization, the recovery of and a return on Clean Air Act expenditures.

• Midwest Independent System Operator charges -PA 141 permits, after MPSC authorization, the recovery of and a return on charges from a regional transmission operator such as the Midwest Independent System Operator.* Electric Customer Choice implementation costs -PA 141 permits, after MPSC authorization, the recovery of and a return on costs incurred associated with the implementation of the electric Customer Choice program.* Enhancedsecuritycosts-PA 609 of 2002 permits, after MPSC authorization, the recovery of enhanced security costs for an electric generating facility.* Unamortizedloss on reacquired debt- The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue.* Deferred environmental costs -The MPSC approved the deferral and recovery of investigation and remediation costs associated with Gas Utility's former manufactured gas plant (MGP) sites.* Accrued 6CR revenue -Receivable for the temporary under-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism.

• Accrued PSCR revenue -Receivable for the temporary under-recovery of and a return on fuel and purchased power costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.

• Recoverable uncollectibles expense -MichCon receivable for the MPSC approved uncollectible expense true-up mechanism that tracks the difference in the fluctuation in uncollectible accounts and amounts recognized pursuant to the MPSC authorization.

Liabilities

• Asset removal costs -The amount collected from customers for the funding of future asset removal activities.

• Accrued pension -Pension expense refundable to customers representing the difference created from volatility in the pension obligation and amounts recognized pursuant to MPSC authorization.

• Refundable income taxes -Income taxes refundable to MichCon's customers representing the difference in property-related deferred income taxes payable and amounts recognized pursuant to MPSC authorization.

• Accrued 6CR disallowance

-Refund resulting from an MPSC order in MichCon's 2002 GCR plan case that required MichCon to reduce revenues in the calculation of its 2002 GCR expense.* Accrued PSCR refund- Payable for the temporary over-recovery of and a return on power supply costs, and beginning with the MPSC's November 2004 rate order, transmission costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.

Electric Rate Restructuring Proposal In February 2005, Detroit Edison filed a rate restructuring proposal with the MPSC to restructure its electric rates and begin phasing out subsidies within the current pricing structure.

In December 2005, the MPSC issued an order that did not provide for the comprehensive realignment of the existing rate structure that Detroit Edison requested in its rate restructuring proposal.

The MPSC order did take some initial steps to improve the current competitive imbalance in Michigan's electric Customer Choice program. The December 2005 order establishes cost-based power supply rates for Detroit Edison's full service customers.

Electric Customer Choice participants will pay cost-based distribution rates, while Detroit Edison's full service commercial and industrial customers will pay cost-based distribution rates that reflect the cost of the residential rate subsidy. Residential customers continue to pay a subsidized below cost rate for distribution service. These revenue neutral revised rates were effective February 1, 2006. Detroit Edison was also ordered to file a general rate case by July 1, 2007, based on 2006 actual results.Other Postretirement Benefits Costs Tracker In February 2005, Detroit Edison filed an application, pursuant to the MPSC's November 2004 final rate order, requesting MPSC approval of a proposed tracking mechanism for retiree health care costs. This mechanism would recognize differences between cost levels collected in rates and the actual costs under current accounting rules as regulatory assets or regulatory liabilities with an annual reconciliation proceeding before the MPSC. In February 2006, the MPSC denied Detroit Edison's request and ordered that this issue be addressed in the next general rate case due to be filed by July 1, 2007.2004 PSCR Reconciliation and 2004 Net Stranded Cost Case In accordance with the MPSC's direction in Detroit Edison's November 2004 rate order, in March 2005, Detroit Edison filed a joint application and testimony in its 2004 PSCR Reconciliation Case and its 2004 Net Stranded Cost Recovery Case. The combined 57 proceeding will provide a comprehensive true-up of the 2004 PSCR and production fixed cost stranded cost calculations, including treatment of Detroit Edison's third party wholesale sales revenues.Under the MPSC's preferred methodology, Detroit Edison incurred approximately

$112 million in stranded costs for 2004. Detroit Edison also received approximately

$218 million in third party wholesale sales.In the filing, Detroit Edison recommended the following distribution of the $218 million of third party wholesale sale revenues:

$91 million to offset PSCR fuel expense and $74 million to offset 2004 production operation and maintenance expense. The remaining$53 million would be allocated between bundled customers and electric Customer Choice customers.

This allocation would result in a refund of approximately

$8 million to bundled customers and a net stranded cost amount to be collected from electric Customer Choice customers of approximately

$99 million.Included with the application was the filing of a motion for a temporary interim order requesting the continuation of the existing electric Customer Choice transition charges until a final order is issued. The MPSC denied this motion in August 2005. A final order is expected in the first half of 2006.Electric Industry Restructuring Electric Rates, Customer Choice and Stranded Costs -In 2000, the Michigan Legislature enacted PA 141 that reduced electric retail rates by 5%, as a result of savings derived from the issuance of securitization bonds. The legislation also contained provisions freezing rates through 2003 and preventing rate increases (i.e., rate caps) for small business customers through 2004 and for residential

---

__ s__.H nn~r TL__ __ At _ r la -A}------ S ^denied in December 2003. The MPSC's November 2004 order authorized recovery of $44 million of historical stranded costs incurred in 2002, 2003 and January and February 2004 collectible from electric Customer Choice customers through transition charges.From March 2004 through the first quarter of 2005, Detroit Edison recorded $112 million of additional stranded costs as a regulatory asset as the result of rate caps and higher electric Customer Choice sales losses than included in the 2004 MPSC interim order. In March of 2005, Detroit Edison filed an application for its 2004 stranded cost recovery case. A final order is expected in the first half of 2006.Securitization

-Detroit Edison formed The Detroit Edison Securitization Funding LLC (Securitization LLC), a wholly owned subsidiary, for the purpose of securitizing its qualified costs, primarily related to the unamortized investment in the Fermi 2 nuclear power plant. In March 2001, the Securitization LLC issued $1.75 billion of securitization bonds, and Detroit Edison sold $1.75 billion of qualified costs to the Securitization LLC. The Securitization LLC is independent of Detroit Edison, as is its ownership of the qualified costs. Due to principles of consolidation, the qualified costs and securitization bonds appear on our consolidated statement of financial position.We make no claim to these assets. Ownership of such assets has vested in the Securitization LLC and been assigned to the trustee for the securitization bonds. Neither the qualified costs nor funds from an MPSC approved non-bypassable surcharge collected from Detroit Edison's customers for the payment of costs related to the Securitization LLC and securitization bonds are available to Detroit Edison's creditors.

DTE2 Accounting In July 2004, Detroit Edison filed an accounting application with ,L- Ano.^ _.._:- -.1 5: _s rA al P c J Trv.

2006 Plan Year- In September 2005, Detroit Edison filed its 2006 PSCR plan case seeking approval of a levelized PSCR factor of 4.99 mills per kWh above the amount included in base rates for residential customers and 8.29 per kWh above the amount included in base rates for commercial and industrial customers.

Included in the factor for all customers are power supply costs, transmission expenses, MISO market participation costs, and nitrogen oxide emission allowance costs. The Company's PSCR Plan includes a matrix which provides for different maximum PSCR factors contingent on varying electric Customer Choice sales levels. The plan also includes $97 million for recovery of its projected 2005 PSCR under-collection associated with commercial and industrial customers.

Additionally, the PSCR plan requests MPSC approval of expense associated with sulfur dioxide emission allowances, mercury emission allowances, and fuel additives.

In conjunction with DTE Energy's sale of the transmission assets of ITC in February 2003, the FERC froze ITC's transmission rates through December 2004. In approving the sale, FERC authorized ITC recovery of the difference between the revenue it would have collected and the actual revenue ITC did collect during the rate freeze period. At December 31, 2005 this amount is estimated to be $66 million which is to be included in ITC's rates over a five-year period beginning June 1, 2006. It is expected that this amortization will increase Detroit Edison's transmission expense in 2006 by $7 million. As previously discussed, Detroit Edison received rate orders in 2004 that allow for the recovery of transmission expenses through the PSCR mechanism.

In December 2005, the MPSC issued a temporary order authorizing the Company to begin implementation of maximum quarterly PSCR factors on January 1, 2006. The quarterly factors reflect a downward adjustment in the Company's total power supply costs of approximately 2% to reflect the potential variability in cost projections.

The quarterly factors will allow the Company to more closely track the costs of providing electric service to our customers and, because the non-summer factors are well below those ordered for the summer months, effectively delay the higher power supply costs to the summer months at which time our customers will not be experiencing large expenditures for home heating. The MPSC did not adopt the Company's request to recover its projected 2005 PSCR under-collection associated with commercial and industrial customers nor did it adopt the Company's request to implement contingency factors based upon the Company's increased costs associated with providing electric service to returning electric Customer Choice customers.

The MPSC deferred both of those Company proposals to the final order on the Company's entire 2006 PSCR Plan.Administrative and General Expenses Report to the MPSC In October 2005, the MPSC ordered Detroit Edison to file a report on why its administrative and general expenses appear to be higher than levels incurred by Consumers Energy, Michigan's other major electric utility. On February 1, 2006, a report was filed that explained Detroit Edison's administrative and general expense differences, as well as its overall cost and rate competitiveness.

Emergency Rules for Electric and Gas Bills In October 2005, the MPSC established emergency billing practices in effect for electric and gas services rendered November 1, 2005 through March 31, 2006. These emergency rules apply to retail electric and gas customers.

The rule changes:* lengthen the period of time before a bill is due once it is transmitted to the customer;* prohibit shut off or late payment fees unless an actual meter read is made;* limit the required monthly payment on a settlement agreement;

• increase the income level qualifying for shut-off protection and lower the payment required to remain on shut-off protection; and* lessen or eliminate certain deposit requirements.

Transmission Proceedings In November 2004, a FERC order approved a transmission pricing structure to facilitate seamless trading of electricity between MISO and the PJM Interconnection.

The pricing structure eliminates layers of transmission charges between the two regional transmission organizations.

The FERC noted that the new pricing structure may result in transmission owners facing abrupt revenue shifts. To facilitate the transition to the new pricing structure, the FERC authorized a Seams Elimination Cost Adjustment (SECA), effective from December 2004 through March 2006. Under MISO's filing with the FERC, Detroit Edison's SECA obligation was approximately

$2 million per month from December 2004 through March 2005 and approximately

$1 million per month from April 2005 through March 2006. In December 2004, Detroit Edison filed a request for rehearing with the FERC which states, among other things, that SECA is retroactive ratemaking and is unlawful under the Federal Power Act. FERC has not ruled on Detroit Edison's request for rehearing.

However in February 2005, FERC ordered hearings to review the proposed SECA charges. The charges are being collected subject to refund. Hearings on this matter are scheduled to conclude in late 2006. Under the MPSC's November 2004 final rate order, transmission expenses are recoverable through the PSCR mechanism.

Therefore, SECA charges, if ultimately imposed, should not have a financial impact to Detroit Edison.Gas Rate Case On April 28, 2005, the MPSC issued an order for final rate relief.The MPSC determined that the base rate increase granted to MichCon should be $61 million annually effective April 29, 2005.This amount is an increase of $26 million over the $35 million in interim rate relief approved in September 2004. The rate increase was based on a 50% debt and 50% equity capital structure and an 11% rate of return on common equity.The MPSC adopted MichCon's proposed tracking mechanism for uncollectible accounts receivable.

Each year, MichCon will file an application comparing its actual uncollectible expense to its designated revenue recovery of approximately

$37 million. Ninety percent of the difference will be refunded or surcharged after an annual reconciliation proceeding before the MPSC. The MPSC also 59 approved the deferral of the non-capitalized portion of the negative pension expense. MichCon will record a regulatory liability for any negative pension costs as determined under generally accepted accounting principles.

Included as part of the base rate increase, the order provided for $25 million in rates to recover safety and training costs. There is a one-way tracking mechanism that provides for refunding the portion of the $25 million not expended on an annual basis.The MPSC order reduced MichCon's depreciation rates, and the related revenue requirement associated with depreciation expense by $14.5 million and is designed to have no impact on net income.The MPSC did not allow the recovery of approximately

$25 million of merger interest costs allocated to MichCon that were incurred by DNE Energy as a result of the acquisition of MCN Energy.The MPSC order also resulted in the disallowance of computer system and equipment costs and adjustments to environmental regulatory assets and liabilities.

The MPSC disallowed recovery of ninety percent of the costs of a computer billing system that was in place prior to DTE Energy's acquisition of MCN Energy in 2001.As a result of the order, MichCon recognized an impairment of this asset of approximately

$42 million in the first quarter of 2005.This impairment had a minimal impact on DTE Energy because a valuation allowance was established for this asset at the time of the MCN acquisition in 2001. The MPSC disallowed approximately

$6 million of certain computer equipment and related depreciation and the recovery of certain internal labor and legal costs related to remediation of MGP sites of approximately

$6 million. The MPSC ordered an additional

$5 million charge due to a change in the allocation of historical MGP sites insurance proceeds.Gas Industry Restructuring In December 2001, the MPSC approved MichCon's application for a voluntary, expanded permanent gas Customer Choice program, which replaced the experimental program that expired in March 2002. The number of customers eligible to participate in the gas Customer Choice program increased over a three-year period.Effective April 2004, all of MichCon's approximately

1.3 million

customers could elect to participate in the Customer Choice program, thereby purchasing their gas from suppliers other than MichCon. The MPSC also approved the use of deferred accounting for the recovery of implementation costs of the gas Customer Choice program.Gas Cost Recovery Proceedings 2002 Plan Year- In December 2001, the MPSC issued an order that permitted MichCon to implement GCR factors up to $3.62 per Mcf for January 2002 billings and up to $4.38 per Mcf for the remainder of 2002.3The order also allowed MichCon to recognize a regulatory asset representing the difference between the $4.38 factor and the$3.62 factor for volumes that were unbilled at December 31, 2001.The regulatory asset was subject to the 2002 GCR reconciliation process. In March 2003, the MPSC issued an order in MichCon's 2002 GCR plan case. MichCon's decision during 2001 to utilize storage gas resulted in a gas inventory decrement for the 2001 calendar year. For this reason, the MPSC ordered MichCon to reduce its gas cost recovery expenses by $26.5 million for purposes of calculating the 2002 GCR factor. We recorded a $26.5 million reserve in 2003 to reflect the impact of this order.MichCon's 2002 GCR reconciliation case was filed with the MPSC in February 2003. The Staff and various intervening parties in this proceeding sought to have the MPSC disallow an additional

$26 million, representing unbilled revenues at December 2001. One party also proposed the disallowance of half of an $8 million payment made to settle Enron bankruptcy issues. The other parties to the case recommended that the Enron bankruptcy settlement be addressed in the 2003 GCR reconciliation case. In April 2005, the MPSC issued an order in the 2002 GCR reconciliation case affirming the order in the 2002 GCR plan case disallowing

$26.5 million related to the use of storage gas in 2001. The April 2005 order also disallowed the additional

$26 million representing unbilled revenues at December 2001. We recorded the impact of the disallowance in the first quarter of 2005. The MPSC agreed that the $8 million related to the Enron issue be addressed in the 2003 GCR reconciliation case.2003 Plan Year- MichCon's 2003 GCR reconciliation case was filed with the MPSC in February 2004. In May 2005, the MPSC issued an order in the 2003 GCR reconciliation case approving recovery of the $8 million related to the Enron bankruptcy settlement.

2004 Plan Year- In September 2003, MichCon filed its 2004 GCR plan case proposing a maximum GCR factor of $5.36 per Mcf.MichCon agreed to switch from a calendar year to an operational year as a condition of its settlement in the 2003 GCR plan case.The operational GCR year runs from April to March of the following year. To accomplish the switch, the 2004 GCR plan reflected a 15-month transitional period, January 2004 through March 2005.Under this transition proposal, MichCon filed two reconciliations pertaining to the transition period; one in June 2004 addressing January through March 2004, one filed in June 2005 addressing the remaining April 2004 through March 2005 period and consoli-dating the two for purposes of the case. The June 2005 filing supported the $46 million under-recovery with interest MichCon had accrued for the period ending March 31, 2005. MichCon does not expect a final order before the third quarter of 2006.2005-2006 Plan Year- In December 2004, MichCon filed its 2005-2006 GCR plan case proposing a maximum GCR factor of $7.99 per Mcf. The plan includes quarterly contingent GCR factors. These contingent factors allow MichCon to increase the maximum GCR factor to compensate for increases in gas market prices, thereby reducing the possibility of a GCR under-recovery.

In April 2005, the MPSC issued an order recognizing that Michigan law allows MichCon to self-implement its quarterly contingent factors.MichCon self-implemented quarterly contingent GCR factors of$8.54 per Mcf in July 2005 and $10.09 per Mcf in October 2005.In response to market price increases in the fall of 2005, MichCon filed a petition to reopen the record in the case during September 2005. MichCon proposed a revised maximum GCR factor of $13.10 per Mcf and a revised contingent factor matrix. In its order issued October 6, 2005, the MPSC reopened the record in the case.60 On October 28, 2005, the MPSC approved an increase in the GCR factor to a cap of $11.3851 per Mcf for the period November 2005 through March 2006.2006-2007 Plan Year- In December 2005, MichCon filed its 2006-2007 GCR plan case proposing a maximum GCR Factor of $12.15 per Mcf. The plan includes quarterly contingent GCR factors.These contingent factors allow MichCon to increase the maximum GCR factor to compensate for increases in market prices, thereby reducing the possibility of a GCR under-recovery.

Detroit Edison maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2's unavailability due to an insured event. These policies have a 12-week waiting period and provide an aggregate

$490 million of coverage over a three-year period.Detroit Edison has $500 million in primary coverage and $2.25 billion of excess coverage for stabilization, decontamination, debris removal, repair and/or replacement of property and decommissioning.

The combined coverage limit for total property damage is $2.75 billion.Minimum Pension Liability In December 2002, we recorded an additional minimum pension liability as required under SFAS No. 87, with offsetting amounts to an intangible asset and other comprehensive income. During 2003, the MPSC Staff provided an opinion that the MPSC's traditional rate setting process allowed for the recovery of pension costs as measured by SFAS No. 87. Based on the MPSC Staff opinion, management believes that it will be allowed to recover in rates the minimum pension liability associated with its utility operations and as such the amount was reclassified to a regulatory asset.At December 31, 2005 and 2004, we have recorded a regulatory asset of approximately

$544 million ($354 million net of tax) and$605 million ($393 million net of tax), respectively.

See Note 14.Other We are unable to predict the outcome of the regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.Note 5 -Nuclear Operations For multiple terrorism losses caused by acts of terrorism not covered under the Terrorism Risk Insurance Extension Act of 2005 (TRIA)occurring within one year after the first loss from terrorism, the NEIL policies would make available to all insured entities up to$3.2 billion, plus any amounts recovered from reinsurance, government indemnity, or other sources to cover losses.Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to approximately

$30 million per event if the loss associated with any one event at any nuclear plant in the United States should exceed the accumulated funds available to NEIL.Public Liability Insurance As required by federal law, Detroit Edison maintains

$300 million of public liability insurance for a nuclear incident.

For liabilities arising from a terrorist act outside the scope of TRIA, the policy is subject to one industry aggregate limit of $300 million. Further, under the Price-Anderson Amendments Act of 2005, deferred premium charges up to $101 million could be levied against each licensed nuclear facility, but not more than $15 million per year per facility.

Thus, deferred premium charges could be levied against all owners of licensed nuclear facilities in the event of a nuclear incident at any of these facilities.

General Fermi 2, our nuclear generating plant, began commercial operation in 1988. Fermi 2 has a design electrical rating (net) of 1,150 megawatts.

This plant represents approximately 10% of Detroit Edison's summer net rated capability.

The net book balance of the Fermi 2 plant was written off at December 31, 1998, and an equivalent regulatory asset was established.

In 2001, the Fermi 2 regulatory asset was securitized.

See Note 4. Detroit Edison also owns Fermi 1, a nuclear plant that was shut down in 1972 and is currently being decommissioned.

The NRC has jurisdiction over the licensing and operation of Fermi 2 and the decommissioning of Fermi 1.Property Insurance Detroit Edison maintains several different types of property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. The Nuclear Electric Insurance Limited (NEIL) is the primary supplier of the insurance polices.Decommissioning Detroit Edison has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses.This obligation is reflected as an asset retirement obligation, which is classified as a noncurrent regulatory liability.

Based on the actual or anticipated extended life of the nuclear plant, decommissioning expenditures for Fermi 2 are expected to be incurred primarily during the period 2025 through 2041. It is estimated that the cost of decommissioning Fermi 2, when its license expires in 2025, will be $1.1 billion in 2005 dollars and$3.4 billion in 2025 dollars, using a 6% inflation rate. In 2001, Detroit Edison began the decommissioning of Fermi 1, with the goal of removing the radioactive material and terminating the Fermi 1 license. The decommissioning of Fermi 1 is expected to be complete by 2010.Detroit Edison currently recovers funds for decommissioning and the disposal of low-level radioactive waste through a revenue surcharge.

The amounts recovered from customers are deposited in the restricted external trust accounts to fund decommissioning.

61 (in Millions) 2005 2004 2003 Revenue $ 40 $ 38 $ 36 Net unrealized investment gains -17 62 Note 6 -Jointly Owned Utility Plant Detroit Edison has joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage.Ownership information of the two utility plants as of December 31, 2005 was as follows: The nuclear decommissioning cost will be funded by investments held in trust funds that have been established for each nuclear station. Nuclear decommissioning trust funds are as follows: Belle River Ludington Hydroelectric Pumped Storage (in Millions)

As of December 31 2005 2004 Fermi 2 $ 501 $ 546 Fermil1 18 18 Low level radioactive waste 27 26 Total S 646 $ 590 At December 31, 2005, investments in the external trust consisted of approximately 49% in publicly traded equity securities, 44% in fixed debt instruments and 7% in cash equivalents.

The NRC has jurisdiction over the decommissioning of nuclear power plants and requires decommissioning funding based upon a formula. The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the decommissioning of Fermi 2.Rates approved by the MPSC provide for the recovery of decom-missioning costs of Fermi 2. Detroit Edison is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates. We believe the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning using the NRC formula. The decommissioning assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission the nuclear facilities.

We expect the regulatory liabilities to be reduced to zero at the conclusion of the decommissioning activities.

If amounts remain in the trust funds for these units following the completion of the decommissioning activities, those amounts will be returned to the ratepayers.

Nuclear Fuel Disposal Costs In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison has a contract with the U.S. Department of Energy (DOE) for the future storage and disposal of spent nuclear fuel from Fermi 2. Detroit Edison is obligated to pay the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated and sold. The fee is a component of nuclear fuel expense. Delays have occurred in the DOE's program for the acceptance and disposal of spent nuclear fuel at a permanent repository.

Until the DOE is able to fulfill its obligation under the contract, Detroit Edison is responsible for the spent nuclear fuel storage. Detroit Edison estimates that existing storage capacity will be sufficient until 2007. We plan expansion of our spent fuel storage capacity that will meet our requirements through 2010. Detroit Edison is a party in the litigation against the DOE for both past and future costs associated with the DOE's failure to accept spent nuclear fuel under the timetable set forth in the Federal Nuclear Waste Policy Act of 1982.In-service date 1984-1985 1973 Total plant capacity 1,026 MW 1,872 MW Ownership interest

• 49 %Investment (in Millions)

$ 1,571 $ 167 Accumulated depreciation (in Millions)

$ 778 $ 92*DetroitEdison's ownership interestis 63% in Unit No. 1,81% of thefacilities applicableto Belle River used jointly by the Belle River and St Clair Power Plants and 75% in common facilies used at Unit No. 2.Belle River The Michigan Public Power Agency (MPPA) has an ownership interest in Belle River Unit No. 1 and other related facilities.

The MPPA is entitled to 1 9% of the total capacity and energy of the plant and is responsible for the same percentage of the plant's operation, maintenance and capital improvement costs.Ludington Hydroelectric Pumped Storage Consumers Energy Company has an ownership interest in the Ludington Hydroelectric Pumped Storage Plant. Consumers Energy is entitled to 51 % of the total capacity and energy of the plant and is responsible for the same percentage of the plant's operation, maintenance and capital improvement costs.Note 7 -IncomeTaxes We file a consolidated federal income tax return.Total income tax expense (benefit) varied from the statutory federal income tax rate for the following reasons: (Dollars in Millions) 2005 2004 2003 Income before income taxes and minority interest S 497 $ 423 $ 287 Less minority interest (281) (212) (91)Income from continuing operations before tax S 778 $ 635 $ 378 Income tax expense at 35% statutory rate $ 272 $ 222 $ 132 Production tax credits (55) (38) (241)Investment tax credits (8) (8) (8)Depreciation (4) (4) (4)Employee Stock Ownership Plan dividends (5) (5) (5)Medicare part D exempt income (7) (5) -Other, net 9 12 10 Income tax expense (benefit)from continuing operations

$ 202 $ 174 $ (116)Effective federal income tax rate 25.9 % 27.4 % (30.7)%62 The minority interest allocation reflects the adjustment to earnings to allocate partnership losses to third party owners. The tax impact of partnership earnings and losses are attributable to the partners instead of the partnerships.

The minority interest allocation is therefore removed in computing income taxes associated with continuing operations.

Components of income tax expense (benefit) were as follows: (in Millions) 2005 2004 Property $ (1.234) $ (1,193)Securitized regulatory assets (723) (1778)Alternative minimum tax credit carryforward 484 483 Merger basis differences 115 125 Pension and benefits 15 (56)Net operating loss 56 71 Other 148 317$ (1,139) $ (1,031)Deferred income tax liabilities

$ (2635) $ (2,527)Deferred income tax assets 1,496 1,496$ (1,139) $ (1,031)(in Millions) 2005 2004 2003 Continuing Operations Current federal and other income tax expense $ 57 $ 40 $ 21 Deferred federal income tax expense (benefit) 145 134 (137)202 174 (116)Discontinued operations (13) (13) 54 Cumulative Effect of Accounting Changes (2) -(15)Total S 187 $ 161 (77)Production tax credits are provided for qualified fuels produced and sold by a taxpayer to an unrelated party during the taxable year.Production tax credits earned but not utilized totaled $484 million and are carried forward indefinitely as alternative minimum tax credits. The majority of the production tax credits earned, including all of those from our synfuel projects, were generated from projects that have received a private letter ruling (PLR) from the Internal Revenue Service (IRS). These PLRs provide assurance as to the appropriateness of using these credits to offset taxable income, however, these tax credits are subject to IRS audit and adjustment.

We have a net operating loss carry-forward of $160 million that expires in years 2019 through 2020. We do not believe that a valuation allowance is required, as we expect to utilize the loss carry-forward prior to its expiration.

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the financial statements.

Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities.

Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences.

Deferred tax assets (liabilities) were comprised of the following at December 31: The above table excludes deferred tax liabilities associated with unamortized investment tax credits which are shown separately on the consolidated statement of financial position.During 2005, the IRS completed and closed its audits of our federal income tax returns for the years 1998 through 2001. The IRS is currently conducting audits of our federal income tax returns for the years 2002 and 2003. The Company accrues tax and interest related to tax uncertainties that arise due to actual or potential disagreements with governmental agencies about the tax treatment of specific items. At December 31, 2005, the Company had accrued approximately

$38 million for such uncertainties.

We believe that our accrued tax liabilities are adequate for all years.Note 8 -Common Stock and Earnings Per Share Common Stock In August 2005, we successfully remarketed the senior notes comprising part of our Equity Security Units that were issued in June 2002. We also settled the stock purchase contract component of the Equity Security Units by issuing 3.7 million shares of common stock to holders of these units in August 2005 at an issue price of$46.79. The issue price was calculated by using the average closing price per share of our common stock during a 20 trading-day period ending August 11, 2005.In March 2004, we issued 4,344,492 shares of DTE Energy common stock, valued at $170 million. The common stock was contributed to a defined benefit retirement plan.Under the DTE Energy Company Long-Term Incentive Plan, we grant non-vested stock awards to key employees, primarily management.

At the time of grant, we record the fair value of the non-vested awards as unearned compensation, which is reflected as a reduction in common stock. The number of non-vested stock awards is included in the number of common shares outstanding; however, for purposes of computing basic earnings per share, non-vested stock awards are excluded.Shareholders' Rights Agreement We have a Shareholders' Rights Agreement designed to maximize shareholder value should DTE Energy be acquired.

Under certain 63 triggering events, each right entitles the holder to purchase from DTE Energy one one-hundredth of a share of Series A Junior Participating Preferred Stock of DTE Energy at a price of $90, subject to adjustment as provided for in the Shareholders' Rights Agreement.

The rights expire in October 2007.Earnings per Share We report both basic and diluted earnings per share. Basic earnings per share is computed by dividing income from continuing operations by the weighted average number of common shares outstanding during the period. Diluted earnings per share assumes the issuance of potentially dilutive common shares outstanding during the period and the repurchase of common shares that would have occurred with proceeds from the assumed issuance.

Diluted earnings per share assume the exercise of stock options, vesting of non-vested stock awards, and the issuance of performance share awards. A reconciliation of both calculations is presented in the following table: (in Millions)

-2005 (1) 2004 DTE Energy Debt Unsecured 6.7% due 2006 to 2033 $ 1,696 $ 1,945 Detroit Edison Taxable Debt Principally Secured 5.8% due 2010 to 2037 2,030 1,672 Detroit Edison Tax Exempt Revenue Bonds (2)5.3%due2008to2032 1,145 1,145 MichCon Taxable Debt Principally Secured 6.2% due 2006 to 2033 785 785 Quarterly Income Debt Securities (QUIDS) -385 Other Long-Tern Debt Including Non-Recourse Debt 155 151 5,811 6,083 Less amount due within one year (577) (410)$ 5234 $ 5,673 Securitization Bonds $ 1,400 $ 1,496 Less amount due within one year (105) (96)S 1,295 $ 1,400 Equity-Linked Securities' S 175 $ 178 Trust Preferred

-Linked Securities 7.8% due 2032 $ 186 $ 186 7.5% due 2044: 103 103$ 289$ 289 Ill Weighted average interest rates as of December 31,2005 (2) Detroit Edison Tax Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds Debt Issuances In 2005, we issued the following long-term debt: (in Millions)(in Millions, except pershare amounts) 2005 2004 2003 Basic Earnings per Share Income from continuing operations

$ 576.5 $ 460.5 $ 494.0 Average number of common shares outstanding 175.0 172.6 167.7 Income per share of common stock based on average number of shares outstanding S 3.29 $ 2.67 $ 2.95 Diluted Earnings per Share Income from continuing operabons S 576.5 $ 460.5 $ 494.0 Average number of common shares outstanding 175.0 172.6 167.7 Incremental shares from stock-based awards 1.1 .7 .6 Average number of dilutive shares outstanding 176.1 173.3 168.3 Income per share of common stock assuming issuance of incremental shares S 3.27 $ 266 $ 2.93 Options to purchase approximately two million shares of common stock in 2005, one million shares in 2004 and five million shares in 2003 were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares, thus making these options anti-dilutive.

Note 9 -Long-term Debt and Preferred Securities Month Interest Company Issued Type Rate Maturity Amount Detroit Edison February Senior Notes (1) 4.80% February 2015 $200 DetroitEdison February SeniorNotes(1) 5.45% February2035 200 Detroit Edison August Tax Exempt RevenueBonds(2) variable August2029 119 DTE PetCoke September Taxable Bonds variable January 2025 10 Detroit Edison September' Senior Notes 13) 5.19% October 2023 100 Detroit Edison October Senior Notes (4) 5.70% October 2037 250-' ' -' ' ' .Total Issuances S 879 (1) The proceeds from the issuance were used to redeem QUIDS of Detroit Edison (2\ The proceeds from the issuance were used to refinance Tax Exempt Revenue Bonds of Detroit Edison (3) The proceeds from the issuance were used to redeem Senior Notes of Detroit Edison (4) The proceeds from the issuance were used to repay shorttern borrowings of Detroit Edison We acquired $15 million in'various notes in connection with acquisitions during 2005.Long-Term Debt Our long-term debt outstanding and weighted average interest rates of debt outstanding at December 31 were: 64 Debt Retirements and Redemptions The following debt was retired, through optional redemption or payment at maturity, during 2005.(in Millions)Month Interest Company Retired Type Rate Maturity Amount Detroit Edison February Senior Notes 7.500% February 2005 S 76 Detroit Edison February Remarketed 7.000% August2034 100 Senior Notes Detroit Edison March QUIDS (1) 7.625% March 2026 185 Detroit Edison March QUIDS (1) 7.540% June 2028 100 Detroit Edison March QUIDS (1) 7.375% December2O28 100 Detroit Edison September Tax Exempt 6.400% September2O25 97 Revenue Bond 12)Detroit Edison September Tax Exempt 6.200% August 2025 22 Revenue Bond 12)DTE Energy September Senior Notes Variable June 2007 250 Detroit Edison October Senior Notes 131 5.050% October 2005 200 Total Retirement

$1,130 (1) The QUIDS were redeemed with the proceeds from issuance of Senior Notes by Detroit Edison (2) These Tax Exempt Revenue Bonds were redeemed with the proceeds from issuance of new Detroit Edison Tax Exempt Revenue Bonds 43) These Senior Notes were paid at maturity with the proceeds from the issuance of Senior Notes by Detroit Edison and short-term borrowings The following table shows the scheduled debt maturities, excluding any unamortized discount or premium on debt: (in Millions) 2011 and 2006 2007 2008 2009 2010 thereafter Total Amount to mature $682 $352 $457 $363 $681 $5,150 $7,685 component of its Equity Security Units by issuing common stock to holders of these units. The issue price determined by the average closing price per share of our common stock during a 20 trading-day period ending August 11, 2005 was $46.79 per share. Settlement of the purchase contracts resulted in DTE Energy issuing approximately

3.7 million

shares of common stock in exchange for approximately

$172 million.Trust Preferred-Linked Securities DTE Energy has interests in various unconsolidated trusts that were formed for the sole purpose of issuing preferred securities and lending the gross proceeds to us. The sole assets of the trusts are debt securities of DTE Energy with terms similar to those of the related preferred securities.

Payments we make are used by the trusts to make cash distributions on the preferred securities it has issued.We have the right to extend interest payment periods on the debt securities.

Should we exercise this right, we cannot declare or pay dividends on, or redeem, purchase or acquire, any of our capital stock during the deferral period.DTE Energy has issued certain guarantees with respect to payments on the preferred securities.

These guarantees, when taken together with our obligations under the debt securities and related indenture, provide full and unconditional guarantees of the trusts' obligations under the preferred securities.

Financing costs for these issuances were paid for and deferred by DTE Energy. These costs are being amortized using the straight-line method over the estimated lives of the related securities.

Remarketable Securities At December 31, 2004, $175 million of notes of Detroit Edison and MichCon were subject to periodic remarketings.

The $100 million scheduled to remarket in February 2005 was optionally redeemed by Detroit Edison, and we do not expect any remarketings to take place in 2006. We direct the remarketing agents to remarket these securities at the lowest interest rate necessary to produce a par bid. In the event that a remarketing fails, we would be required to purchase the securities.

Quarterly Income Debt Securities (QUIDS)Detroit Edison had three series of QUIDS outstanding at December 31, 2004. Detroit Edison redeemed all of its outstanding QUIDS on March 4, 2005.Equity-Linked Securities In June 2002, DTE Energy issued $173 million of 8.75% Equity Security Units, with each unit consisting of a stock purchase contract and a senior note of DTE Energy. In August 2005, DTE Energy successfully remarketed

$172 million aggregate principal amount of its 5.63%Senior Notes due August 16, 2007 that were originally issued as a component of the 8.75% Equity Security Units. Additionally, in August 2005, DTE Energy settled the stock purchase contract Cross Default Provisions Substantially all of the net utility properties of Detroit Edison and MichCon are subject to the lien of mortgages.

Should Detroit Edison or MichCon fail to timely pay their indebtedness under these mortgages, such failure may create cross defaults in the indebtedness of DTE Energy.Preferred and Preference Securities

-Authorized and Unissued As of December 31, 2005, the amount of authorized and unissued stock is as follows: Company Type of Stock Par Value Shares Authorized DTE Energy Preferred (1) None 5,000,000 Detroit Edison Preferred S 100 6,750,000 Detroit Edison Preference

$ 1 30,000,000 MichCon Preferred

$ 1 7,000,000 MichCon Preference S 1 4,000,000 (1) 1.5 million shares are reserved for issuance under the Shareholders Rights Agreement Note 10 -Short-term Credit Arrangements and Borrowings DTE Energy and its wholly-owned subsidiaries, Detroit Edison and MichCon, have entered into revolving credit facilities with similar 65 terms. The five-year credit facilities are with a syndicate of banks and may be used for general corporate borrowings, but are intended to provide liquidity support for each of the Companies' commercial paper programs.In October 2005, DTE Energy, Detroit Edison and MichCon entered into new five-year revolving credit agreements with an aggregate capacity of $925 million. Simultaneously, we amended our existing$975 million, five-year revolving credit facilities to provide for the substitution of some of the participating lenders, as well as modifications to pricing, conditions to borrowing, covenants, events of default and other miscellaneous provisions to conform to the terms of the new agreements.

The aggregate availability under these combined facilities is $1.9 billion as shown in the following table: Detroit Edison has a $200 million short-term financing agreement secured by customer accounts receivable.

This agreement contains certain covenants related to the delinquency of accounts receivable.

Detroit Edison is currently in compliance with these covenants.

We had no balances outstanding under this financing agreement at December 31, 2005 and 2004.The weighted average interest rates for short-term borrowings were 4.4% and 2.4% at December 31, 2005 and 2004, respectively.

Note 11 -Capital and Operating Leases Lessee -We lease various assets under capital and operating leases, including coal cars, a gas storage field, office buildings, a warehouse, computers, vehicles and other equipment.

The lease arrangements expire at various dates through 2029.Future minimum lease payments under non-cancelable leases at December 31, 2005 were: (in Millions)

DTE Energy Detroit Edison MichCon Total Five-year unsecured revolving facility, datedOctober2005

$ 675 $ 69 $ 181 $ 925 Five-year unsecured revolving facility, dated October2004 525 206 244 975 Aggregate availability S 1200 S 275 S 425 S 1,900 Capital Operating Leases Borrowings under the facilities are available at prevailing short-term interest rates. The agreements require each of the companies to maintain a debt to total capitalization ratio of no more than .65 to 1.Should either Detroit Edison or MichCon have delinquent debt obligations of at least $50 million to any creditor, such delinquency will be considered a default under DTE Energy's credit agreements.

DTE Energy, Detroit Edison and MichCon are currently in compliance with these financial covenants.

As of December 31, 2005, we had outstanding commercial paper of $841 million. In addition, we had approximately

$284 million of letters of credit outstanding against these facilities at December 31, 2005.(in Millions)

Leases 2006 $ 16 2007 13 2008 15 2009 15 2010 13 Thereafter 52 Total minimum lease payments 124 Less imputed interest (26)Presentvalue of net minimum lease payments 98 Less current portion (11)Non-current portion $ 87 63 51 42 35 29 316$ 536 Rental expense for operating leases was $77 million in 2005, $75 million in 2004 and $73 million in 2003.In December 2005, DTE Energy entered into a new $150 million letter of credit and reimbursement agreement.

The reimbursement agreement has a one-year term with a variable interest rate.Provisions for an automatic one-year extension and conversion to a two-year term loan are available as long as certain conditions are met. We had approximately

$80 million of letters of credit outstanding against this agreement at December 31, 2005.In conjunction with maintaining certain exchange traded risk management positions, we may be required to post cash collateral with our clearing agent. We have entered into a Margin Loan Facility (Facility) with an affiliate of the clearing agent of up to$103 million as of December 31, 2005. We entered into this facility in lieu of posting cash. This facility was backed by a letter of credit issued by DTE Energy in the amount of $100 million. Any margin requirement in excess of the Facility is funded in cash by DTE Energy. The amount outstanding under the Facility is subject to an interest rate at a per annum rate of interest equal to the LIBOR rate, plus 0.75%, calculated daily. The amount outstanding under the Facility was $103 million and $23 million as of December 31, 2005 and 2004, respectively.

Lessor -MichCon leases a portion of its pipeline system to the Vector Pipeline Partnership through a capital lease contract that expires in 2020, with renewal options extending for five years.The components of the net investment in the capital lease at December 31, 2005, were as follows: (in Millions)2006 $ 9 2007 9 2008 9 2009 9 2010 9 Thereafter 89 Total minimum future lease receipts 134 Residual value of leased pipeline 40 Less unearned income (93)Net investment in capital lease 81 Less current portion (1)$ 80 66 Note 12 -Financial and Other Derivative Instruments We comply with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138 and SFAS No. 149. Listed below are important SFAS No. 133 requirements:

• Derivative instruments must be recognized as assets or liabilities and measured at fair value, unless they meet the normal purchases and sales exemption.

• Accounting for changes in fair value depends on the purpose of the derivative instrument and whether it is designated as a hedge and qualifies for hedge accounting.

• Special accounting is allowed for a derivative instrument qualifying as a hedge and designated as a hedge for the variability of cash flow associated with a forecasted transaction.

Gain or loss associated with the effective portion of the hedge is recorded in other comprehensive income. The ineffective portion is recorded to earnings.

Amounts recorded in other comprehensive income will be reclassified to net income when the forecasted transaction affects earnings.

If a cash flow hedge is discontinued because it is likely the forecasted transaction will not occur, net gains or losses are immediately recorded to earnings.* Special accounting is allowed for derivative instruments that qualifying as a hedge and designated as a hedge of the changes in fair value of an existing asset, liability or firm commitment.

Gain or loss on the hedging instrument is recorded into earnings.An offsetting loss or gain on the underlying asset, liability or firm commitment is also recorded to earnings.Our primary market risk exposure is associated with commodity prices, credit, interest rates and foreign currency.

We have risk management policies to monitor and decrease market risks.We use derivative instruments to manage some of the exposure.Except for the activities of the Fuel Transportation and Marketing segment, we do not hold or issue derivative instruments for trading purposes.

The fair value of all derivatives is shown as "assets or liabilities from risk management and trading activities" in the consolidated statement of financial position.Commodity Price Risk Utility Operations Detroit Edison -Detroit Edison generates, purchases, distributes and sells electricity.

Detroit Edison uses forward energy, capacity, and futures contracts to manage changes in the price of electricity and fuel. These derivatives are designated as cash flow hedges or meet the normal purchases and sales exemption and are therefore accounted for under the accrual method. There were no commodity price risk cash flow hedges for utility operations at December 31, 2005.MichCon -MichCon purchases, stores, transmits and distributes and sells natural gas. MichCon has fixed-priced contracts for portions of its expected gas supply requirements through 2008. These gas supply and firm transportation contracts are designated and qualify for the normal purchases and sales exemption and are therefore accounted for under the accrual method.Commodity price risk associated with our utilities is limited due to the PSCR and GCR mechanisms.

See Note 1.Non-Utility Operations Fuel Transportation and Marketing

-DTE Energy Trading markets and trades wholesale electricity and natural gas physical products, trades financial instruments, and provides risk management services utilizing energy commodity derivative instruments.

Forwards, futures, options and swap agreements are used to manage exposure to the risk of market price and volume fluctuations on its operations.

These derivatives are accounted for by recording changes in fair value to earnings, usually as adjustments to operating revenues or fuel, purchased power and gas expense. This fair value accounting better aligns financial reporting with the way the business is managed and its performance measured.Fuel Transportation and Marketing experiences earnings volatility as a result of its gas inventory and other non-derivative assets that do not qualify for fair value accounting under accounting principles generally accepted in the U.S. Although the risks associated with these asset positions are substantially offset, requirements to fair value the underlying derivatives result in unrealized gains and losses being recorded to earnings that eventually reverse upon settlement.

Power and Industrial Projects -The Coal-Based Fuels and Landfill Gas Recovery businesses generate production tax credits. We have sold interests in all nine of our synthetic fuel production plants.Proceeds from the sales are contingent upon production levels, the production qualifying for production tax credits, and the value of such credits. Production tax credits are subject to phase out if domestic crude oil prices reach certain levels. See Note 13.To manage our exposure in 2006 and 2007 to the risk of an increase in oil prices that could reduce or eliminate synfuel sales proceeds, we entered into a series of derivative contracts covering a specified number of barrels of oil. The derivative contracts involve purchased and written call options that provide for net cash settlement at expiration based on the full years' 2006 and 2007 average New York Mercantile Exchange (NYMEX) trading prices for light, sweet crude oil in relation to the strike prices of each option. If the average NYMEX prices of oil in 2006 and 2007 are less than approximately

$58, and $60, per barrel, respectively, the derivatives will yield no payment. If the average NYMEX prices of oil exceed approximately

$58, and $60, per barrel, respectively, the derivatives will yield a payment equal to the excess of the average NYMEX price over these initial strike prices, multiplied by the number of barrels covered, up to a maximum price of approximately

$73, and $71 per barrel, respectively.

The agreements do not qualify for hedge accounting.

Consequently, changes in the fair value of the options are recorded currently in earnings.

For all synfuel hedge contracts, including 2005 hedges, we recorded total pretax mark to market gains of $48 million in 2005. The fair value changes are recorded as adjustments to the gain from selling interests in synfuel facilities and therefore included in the 'Asset gains and losses, net" line item in the consolidated statement of operations.

Unconventional Gas Production

-Our Unconventional Gas business is engaged in natural gas exploration, development and production.

67 We use derivative contracts to manage changes in the price of natural gas. These derivatives are designated as cash flow hedges and are primarily legacy transactions.

Amounts recorded in other comprehensive loss will be reclassified to earnings as the related production affects earnings through 2013. In 2005, $35 million of after-tax losses were reclassified to earnings.Credit Risk Our utility and non-utility businesses are exposed to credit risk if customers or counterparties do not comply with their contractual obligations.

We maintain credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers' and counterparties' financial condition, credit rating, collateral requirements or other credit enhancements such as letters of credit or guarantees.

We generally use standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty.

Interest Rate Risk We use interest rate swaps, treasury locks and other derivatives to hedge the risk associated with interest rate market volatility.

In 2004 and 2000, we entered into a series of interest rate derivatives to limit our sensitivity to market interest rate risk associated with the issuance of long-term debt. Such instruments were designated as cash flow hedges. We subsequently issued long-term debt and terminated these hedges at a cost that is included in other comprehensive loss. Amounts recorded in other comprehensive loss will be reclassified to interest expense as the related interest affects earnings through 2030. In 2006, we estimate reclassifying

$4 million of losses to earnings.Foreign Currency Risk DTE Energy Trading has foreign currency forward contracts to hedge fixed Canadian dollar commitments existing under power purchase and sale contracts and gas transportation contracts.

We entered into these contracts to mitigate any price volatility with respect to fluctuations of the Canadian dollar relative to the U.S.dollar. Certain of these contracts were designated as cash flow hedges with changes in fair value recorded to other comprehensive income. Amounts recorded to other comprehensive income are classified to operating revenues or fuel, purchased power and gas expense when the related hedged item affects earnings.Fair Value of Other Financial Instruments The fair value of financial instruments is determined by using various market data and other valuation techniques.

The table below shows the fair value relative to the carrying value for long-tenm debt securities.

The carrying value of certain other financial instruments, such as notes payable, customer deposits and notes receivable approximate fair value and are not shown.2005 2004 FairValue CariyingValue FairValue CarryingValue Long-Term Debt S7.9 billion S 7.7 billion $8.5 billion $ 8.0 billion Note 13 -Commitments and Contingencies Synthetic Fuel Operations We partially own nine synthetic fuel production facilities.

Synfuel facilities chemically change coal, including waste and marginal coal, into a synthetic fuel as determined under applicable IRS rules. Production tax credits are provided for the production and sale of solid synthetic fuels produced from coal. To qualify for the production tax credits, the synthetic fuel must meet three primary conditions:

(1) there must be a significant chemical change in the coal feedstock, (2) the product must be sold to an unaffiliated entity, and (3) the production facility must have been placed in service before July 1, 1998. In addition to meeting the qualifying conditions for years through 2005, a taxpayer must have sufficient taxable income to earn the production tax credits.To reduce U.S. dependence on imported oil, the Internal Revenue Code provides production tax credits as an incentive for taxpayers to produce fuels from alternative sources. This incentive is not deemed necessary if the price of oil increases and provides a natural market for these fuels. As such, the tax credit in a given year is reduced if the Reference Price of oil within that year exceeds a threshold price. The Reference Price of a barrel of oil is an estimate of the annual average wellhead price per barrel for domestic crude oil. During 2005 the monthly average wellhead price per barrel of oil for the year was approximately

$6 lower than the NYMEX price for light, sweet crude oil. The threshold price at which the credit begins to be reduced was set in 1980 and is adjusted annually for inflation.

For 2006, we estimate the threshold price at which the tax credit would begin to be reduced is $53 per barrel and would be completely phased out if the Reference Price reached $67 per barrel. As of February 28, 2006, the realized and unrealized NYMEX daily closing price of a barrel of oil was $65.08, equating to an estimated Reference Price of $59, which is within the phase-out range. We cannot predict with any accuracy the future price of a barrel of oil. If, however, the Reference Price remained at this level throughout the remainder of 2006, we would experience a partial phase out of production tax credits.Numerous events have increased domestic crude oil prices, including terrorism, storm-related supply disruptions and worldwide demand.If the credit is reduced or eliminated in future years, our financial statements may be negatively impacted.

We continue to evaluate the current volatility in oil prices and alternatives available to mitigate our exposure to oil prices. To manage our exposure to oil prices in 2006 and 2007, we entered into oil-related derivative contracts for a portion of our exposure.

See Note 12.Through December 31, 2005 we have generated and recorded approximately

$557 million in synfuel tax credits.Environmental Electric Utility Air- Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. In March 2005, EPA issued additional emission 68 reduction regulations relating to ozone, fine particulate, regional haze and mercury air pollution.

The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions.

To comply with these requirements, Detroit Edison has spent approximately

$644 million through 2005. We estimate Detroit Edison future capital expenditures at up to $218 million in 2006 and up to $2.2 billion of additional capital expenditures through 2018 to satisfy both the existing and proposed new control requirements.

Under the June 2000 Michigan restructuring legislation, beginning January 1, 2004, annual return of and on this capital expenditure could be deferred in ratemaking, until December 31, 2005, the expiration of the rate cap period.Water- Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities.

Based on the results of the studies to be conducted over the next several years, Detroit Edison may be required to install additional control technologies to reduce the impacts of the intakes. It is estimated that we will incur up to$50 million over the next four to six years in additional capital expenditures for Detroit Edison.Contaminated Sites -Detroit Edison conducted remedial investigations at contaminated sites, including two former MGP sites, the area surrounding an ash landfill and several underground and above-ground storage tank locations.

The findings of these investigations indicated that the estimated cost to remediate these sites is approximately

$13 million which was accrued in 2005 and is expected to be incurred over the next several years.Gas Utility Contaminated Sites -Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. Gas Utility owns, or previously owned, 15 such former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, we are also in the process of cleaning up other contaminated sites.Cleanup activities associated with these sites will be conducted over the next several years.In 1993, a cost deferral and rate recovery mechanism was approved by the MPSC for investigation and remediation costs incurred at former MGP sites in excess of this reserve. Gas Utility employed outside consultants to evaluate remediation alternatives for these sites, to assist in estimating its potential liabilities and to review its archived insurance policies.

As a result of these studies, Gas Utility accrued an additional liability and a corresponding regulatory asset of $35 million during 1995. During 2005, we spent approximately

$4 million investigating and remediating these former MGP sites.In December 2005, we retained multiple environmental consultants to estimate the projected cost to remediate each MGP site. We accrued an additional

$9 million in remediation liabilities associated with two of our MGP sites, to increase the reserve balance to $35 million at December 31, 2005.Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company's financial position and cash flows. However, we anticipate the cost deferral and rate recovery mechanism approved by the MPSC will prevent environmental costs from having a material adverse impact on our results of operations.

Other Our non-utility affiliates are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants.

We are in the process of installing new environmental equipment at our coke battery facilities in Michigan.We expect the projects to be completed within two years at a cost of approximately

$25 million. Our other non-utility affiliates are substantially in compliance with all environmental requirements.

Guarantees In certain circumstances we enter into contractual guarantees.

We may guarantee another entity's obligation in the event it fails to perform. We may provide guarantees in certain indemnification agreements.

Finally, we may provide indirect guarantees for the indebtedness of others. Below are the details of specific material guarantees we currently provide. Our other guarantees are not individually material and total approximately

$36 million at December 31, 2005.Sale of Interests in Synfuel Facilities We have provided certain guarantees and indemnities in conjunction with the sales of interests in our synfuel facilities.

The guarantees cover general commercial, environmental, oil price and tax-related exposure and will survive until 90 days after expiration of all applicable statute of limitations, or indefinitely, depending on the nature of the guarantee.

We estimate that our maximum liability under these guarantees at December 31, 2005 is $1.8 billion.Parent Company Guarantee of Subsidiary Obligations We have issued guarantees for the benefit of various non-utility subsidiary transactions.

In the event that DTE Energy's credit rating is downgraded below investment grade, certain of these guarantees would require us to post cash or letters of credit valued at approximately

$536 million at December 31, 2005. This estimated amount fluctuates based upon commodity prices (primarily power and gas) and the provisions and maturities of the underlying agreements.

Personal Property Taxes Detroit Edison, MichCon and other Michigan utilities have asserted that Michigan's valuation tables result in the substantial overvaluation of utility personal property.

Valuation tables established by the Michigan State Tax Commission (STC) are used to determine the taxable value of personal property based on the property's age. In November 1999, the STC approved new valuation tables that more accurately recognize the value of a utility's personal property.

The new tables became effective in 2000 and are currently used to calculate property tax expense. However, several local taxing jurisdictions have taken legal action attempting to prevent the STC from implementing the new valuation tables and have continued to prepare assessments based on the superseded tables. The legal actions regarding the appropriateness of the new tables were before the Michigan Tax 69 Tribunal (MTT) which, in April 2002, issued a decision essentially affirming the validity of the STC's new tables. In June 2002, petitioners in the case filed an appeal of the MTT's decision with the Michigan Court of Appeals. In January 2004, the Michigan Court of Appeals upheld the validity of the new tables. With no further appeal by the petitioners available, the MTT began to schedule utility personal property valuation cases for Prehearing General Calls. After a period of abeyance the MTT issued a scheduling order in a significant number of Detroit Edison and MichCon appeals that set litigation calendars for these cases extending into mid-2006.

After an extended period of settlement discussions, a Memorandum of Understanding has been reached with six principals in the litigation and the Michigan Department of Treasury that is expected to lead to settlement of all outstanding property tax disputes on a global basis.On December 8, 2005 executed Stipulations for Consent Judgment, Consent Judgments, and Schedules to Consent Judgment were filed with the MTT on behalf of Detroit Edison, MichCon and a significant number of the largest jurisdictions, in terms of tax dollars, involved in the litigation.

The filing of these documents fulfilled the requirements of the global settlement agreement and resolves a number of claims by the litigants against each other including both property and non-property issues. The global settlement agreement results in an pre-tax economic benefit to DTE Energy of $43 million that includes the release of a litigation reserve.Other Commitments Detroit Edison has an Energy Purchase Agreement to purchase steam and electricity from the Greater Detroit Resource Recovery Authority (GDRRA). Under the Agreement, Detroit Edison will purchase steam through 2008 and electricity through June 2024.In 1996, a special charge to income was recorded that included a reserve for steam purchase commitments in excess of replacement costs from 1997 through 2008. The reserve for steam purchase commitments is being amortized to fuel, purchased power and gas expense with non-cash accretion expense being recorded through 2008. We purchased

$42 million of steam and electricity in 2005 and 2004 and $39 million in 2003. We estimate steam and electric purchase commitments through 2024 will not exceed $427 million.As discussed in Note 3, in January 2003, we sold the steam heating business of Detroit Edison to Thermal Ventures II, LP. Due to terms of the sale, Detroit Edison remains contractually obligated to buy steam from GDRRA until 2008 and recorded an additional liability of $20 million for future commitments.

Also, we have guaranteed bank loans that Thermal Ventures II, LP may use for capital improvements to the steam heating system.a result of FERC Order 637. The fair value amounts were being amortized to income over the life of the related agreements, representing a net liability of approximately

$75 million as of December 31, 2003. As a result of the contract modification and termination, we recorded an adjustment to the net liability increasing 2004 earnings by $48 million, net of taxes.As of December 31, 2005, we were party to numerous long-term purchase commitments relating to a variety of goods and services required for our business.

These agreements primarily consist of fuel supply commitments and energy trading contracts.

We estimate that these commitments will be approximately

$6.7 billion through 2051. We also estimate that 2006 base level capital expenditures will be $1.2 billion. We have made certain commitments in connection with expected capital expenditures.

Bankruptcies We purchase and sell electricity, gas, coal, coke and other energy products from and to numerous companies operating in the steel, automotive, energy, retail and other industries.

Certain of our customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. We regularly review contingent matters relating to these customers and our purchase and sale contracts and we record provisions for amounts considered at risk of probable loss. We believe our previously accrued amounts are adequate for probable losses. The final resolution of these matters is not expected to have a material effect on our financial statements.

Other We are involved in certain legal, regulatory, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business.

These proceedings include certain contract disputes, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings.

We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or financial statements in the period they are resolved.See Notes 4 and 5 for a discussion of contingencies related to Regulatory Matters and Nuclear Operations.

Note 14 -Retirement Benefits and Trusteed Assets In 2004, we modified our future purchase commitments under a transportation agreement with an interstate pipeline company and terminated a related long-term gas exchange (storage) agreement.

Under the gas exchange agreement, we received gas from the customer during the summer injection period and redelivered the gas during the winter heating season. The agreements were at rates that were not reflective of current market conditions and had been fair valued under accounting principles generally accepted in the U.S. In 2002, the fair value of the transportation agreement was frozen when it no longer met the definition of a derivative as Measurement Date In the fourth quarter of 2004, we changed the date for actuarial measurement of our obligations for benefit programs from December 31 to November 30. We believe the one-month change of the measurement date is a preferable change as it allows time for management to plan and execute its review of the completeness and accuracy of its benefit programs results and to fully reflect the impact on its financial results. The change did not have a material effect on retained earnings as of January 1, 2004, and income 70 I I i from continuing operations, net income and related per share amounts for any interim period in 2004. Accordingly, all amounts reported in the following tables for balances as of December 31, 2005 and December 31, 2004 are based on measurement dates of November 30, 2005 and November 30, 2004, respectively.

Amounts reported in tables for the year ended December 31, 2005 are based on a measurement date of November 30, 2004. Amounts reported in tables for the year ended December 31, 2004 are based on a measurement date of December 31, 2003. Amounts reported in tables for the year ended December 31, 2003 are based on a measurement date of December 31, 2002.Qualified and Nonqualified Pension Plan Benefits We have defined benefit retirement plans for eligible represented and nonrepresented employees.

The plans are noncontributory, cover substantially all employees and provide retirement benefits based on the employees' years of benefit service, average final compensation and age at retirement.

Certain represented and nonrepresented employees are covered under cash balance benefits based on annual employer contributions and interest credits. Our policy is to fund pension costs by contributing the minimum amount required by the Employee Retirement Income Security Act and additional amounts when we deem appropriate.

We do not anticipate making a contribution to our qualified pension plans in 2006.We also maintain supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees.

These plans provide for benefits that supplement those provided by DTE Energy's other retirement plans.Net pension cost includes the following components: (in Millions)

Qualified Pension Plans Nonqualified Pension Plans 2005 2004 2003 2005 2004 2003 Service Cost $64 $ 58 $ 48 $ 2 $ 2 $ 2 Interest Cost 169 168 164 3 3 4 Expected Return on Plan Assets (218) (216) (211) ---Amortization of Net loss 67 63 38 1 1 1 Prior service cost 8 8 8 ---Net Pension Cost $ 90 $ 81 $ 47 $ 6 $ 6 $ 7 The following table reconciles the obligations, assets and funded status of the plans as well as the amounts recognized as prepaid pension cost or pension liability in the consolidated statement of financial position at December 31: Qualified Pension Plans Nonqualified Pension Plans (in Millions) 2005 2004 2005 2004 Accumulated Benefit Obligation-End of Period S 2741 $ 2,689 $ 61 $ 54 Projected Benefit Obligation-Beginning of Period $ Z899 $ 2,745 $ 56 $ 59 Service Cost 64 58 2 2 Interest Cost 169 168 3 3 Actuarial Loss (Gain) 49 76 10 (4)Benefits Paid (168) (149) (4) (4)Plan Amendments

-I --Projected Benefit Obligation-End of Period $ 3,013 $ 2,899 S 67 $ 56 Plan Assets at Fair Value-Beginning of Period $ 2,565 $ 2,348 $ -$ -Actual Return on Plan Assets 220 196 --Company Contributions

-170 4 4 Benefits Paid (168) (149) (4) (4)Plan Assets at Fair Value-End of Period $ 2,617 $ 2,565 $ .-$ -Funded Status of the Plans $ (396) $ (334) $ (67) $ (56)Unrecognized Net loss 1,023 1,043 23 15 Prior service cost 27 34 2 1 Net Amount Recognized at Measurement Date 654 743 (42) (40)December Adjustments

--1 1 Net Amount Recognized-End of Period $ 654 $ 743 $ (41) $ (39)Amount Recorded as Prepaid pension assets $ 186 $ 184 $ -$ -Accrued pension liability (224) (212) (60) (53)Regulatory asset 532 594 12 11 Accumulated other comprehensive loss 129 139 5 2 Intangible asset 31 38 2 1 S 654 $ 743 $ (41) $ (39)71 Assumptions used in determining the projected benefit obligation and net pension costs are listed below: 2005 2004 2003 Projected Benefit Obligation Discount rate 5.90% 6.00% 6.25%Annual increase in future compensation levels 4.0 % 4.0 % 4.0%Net Pension Costs Discount rate 6.00 % 6.25 % 6.75%Annual increase in future compensation levels 4.0 % 4.0 % 4.0%Expected long-term rate of return on Plan assets 9.0% 9.0 % 9.0%market value of the underlying investments.

Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.Our plans' weighted-average asset allocations by asset category at December 31 were as follows: 2005 2004 Equity Securities 68% 69%Debt Securities 27 26 Other 5 5 100% 100%At December 31, 2005, the benefits related to our qualified and nonqualified plans expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows: Our plans' weighted-average asset target allocations by asset category at December 31, 2005 were as follows: Equity Securities 65%Debt Securities 28 Other 7 100%(in Millions)2006 $ 174 2007 177 2008 183 2009 188 2010 193 2011 -2015 1,046 Total $ 1,961 We employ a consistent formal process in determining the long-term rate of return for various asset classes. We evaluate input from our consultants, including their review of historic financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income and other assets, consistent with the widely accepted capital market princi-ple that asset classes with higher volatility generate a greater return over the long-term.

Current market factors such as inflation, interest rates, asset class risks and asset class returns are evaluat-ed and considered before long-term capital market assumptions are determined.

The long-term portfolio return is also established employing a consistent formal process, with due consideration of diversification, active investment management and rebalancing.

Peer data is reviewed to check for reasonableness.

We employ a total return investment approach whereby a mix of equities, fixed income and other investments are used to maximize the long-term return of plan assets consistent with prudent levels of risk. The intent of this strategy is to minimize plan expenses over the long-term.

Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations.

The investment portfolio contains a diversified blend of equity, fixed income and other investments.

Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, growth and value investment styles, and large and small market capitalizations.

Other assets such as private equity and absolute return funds are used judiciously to enhance long-term returns while improving portfolio diversification.

Derivatives may be used to gain market exposure in an efficient and timely manner, however, derivatives may not be used to leverage the portfolio beyond the In December 2002, we recognized an additional minimum pension liability as required under SFAS No. 87, Employers'Accounting for Pensions.

An additional pension liability may be required when the accumulated benefit obligation of the plan exceeds the fair value of plan assets. Under SFAS No. 87, we recorded an additional minimum pension liability, an intangible asset and other comprehensive loss.In 2003, we reclassified

$572 million of other comprehensive loss related to Detroit Edison's minimum pension liability to a regulatory asset after the MPSC Staff provided an opinion that the MPSC's traditional rate setting process allowed for the recovery of pension costs as measured by SEAS No. 87. The additional minimum pension liability, regulatory asset, intangible asset and other comprehensive loss are adjusted in December of each year based on the plans'funded status.We also sponsor defined contribution retirement savings plans.Participation in one of these plans is available to substantially all represented and nonrepresented employees.

We match employee contributions up to certain predefined limits based upon eligible compensation, the employee's contribution rate and, in some cases, years of credited service. The cost of these plans was $29 million in 2005, $28 million in 2004 and $26 million in 2003.Other Postretirement Benefits We provide certain postretirement health care and life insurance benefits for employees who are eligible for these benefits.

Our policy is to fund certain trusts to meet our postretiremnent benefit obligations.

Separate qualified Voluntary Employees Beneficiary Association (VEBA) trusts exist for represented and nonrepresented employees.

At the discretion of management, we may make up to a $120 million contribution to our VEBA trusts in 2006.72 Net postretirement cost includes the following components: (in Millions) 2005 2004 2003 Service Cost $ 55 $ 41 $ 37 Interest Cost 105 92 87 Expected Return on Plan Assets (70) (56) (47)Amortization of Net loss 60 43 31 Prior service cost (2) (3) (3)Net transition obligation 7 8 13 Net Postretirement Cost $ 155 $ 125 $ 118 in health care cost trend rates would have increased the total service cost and interest cost components of benefit costs by $32 million and increased the accumulated benefit obligation by $244 million at December 31, 2005. A one-percentage-point decrease in the health care cost trend rates would have decreased the total service and interest cost components of benefit costs by $20 million and would have decreased the accumulated benefit obligation by $203 million at December 31, 2005.At December 31, 2005, the benefits expected to be paid, including prescription drug benefits, in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows: The following table reconciles the obligations, assets and funded status of the plans including amounts recorded as accrued postretirement cost in the consolidated statement of financial position at December 31: (in Millions)2006 $ 111 2007 116 2008 120 2009 125 2010 128 2011 -2015 670 Total $ 1,270 (in Millions) 2005 2004 Accumulated Postretirement Benefit Obligation-Beginning of Period $ 1,793 $ 1,582 Service Cost 55 41 Interest Cost 105 92 Actuarial Loss 136 146 Plan Amendments (10) 7 Benefits Paid (88) (75)Accumulated Postretirement Benefit Obligation-End of Period S 1,991 $ 1,793 Plan Assets at Fair Value-Beginning of Period $ 679 $ 586 Actual Return on Plan Assets 61 53 Company Contributions 40 40 Benefits Paid (67) -Plan Assets at Fair Value-End of Period $ 713 $ 679 Funded Status of the Plans $ (1278) $ (1,114)Unrecognized Net loss 896 811 Prior service cost (12) (8)Nettransition obligation 46 58 Accrued Postretirement Liability at Measurement Date (348) (253)December Adjustments (58) (20)Accrued Postretirement Liability-End of Period S (406) $ (273)The process used in determining the long-term rate of return for assets and the investment approach for our other postretirement benefits plans is similar to those previously described for our qualified pension plans.Our plans' weighted-average asset allocations by asset category at December 31 were as follows: 2005 2004 Equity Securities 68 % 68%Debt Securities 28 28 Other 4 4 100% 100%Our plans' weighted-average asset target allocations by asset category at December 31, 2005 were as follows: Equity Securities Debt Securities Other 65%28 7 100%Assumptions used in determining the projected benefit obligation and net benefit costs are listed below: (in Millions) 2005 2004 2003 Projected Benefit Obligation Discount rate 5.90 % 6.00% 6.25%Net Benefit Costs Discount rate 6.00 % 6.25 % 6.75%Expected long-term rate of return on Plan assets 9.0 % 9.0 % 9.0 %In December 2003, the Medicare Act was signed into law which provides for a non-taxable federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least "actuarially equivalent" to the benefit established by law. As discussed in Note 2, we adopted FSP No. 106-2 in 2004, which provides guidance on the accounting for the Medicare Act. As a result of the adoption, our accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service was reduced by approximately

$95 million at January 1, 2004 and was accounted for as an actuarial gain. The effects of the subsidy reduced net periodic postretirement benefit costs by $20 million in 2005 and $16 million in 2004.At December 31, 2005, the gross amount of federal subsidies expected to be received in each of the next five years and in the aggregate for the five fiscal years thereafter was as follows: Benefit costs were calculated assuming health care cost trend rates beginning at 9% for 2006 and decreasing to 5% in 2011 and thereafter for persons under age 65 and decreasing from 8% to 5% for persons age 65 and over. A one-percentage-point increase 73 (in Millions)2006 $ 6 2007 4 2008 5 2009 6 2010 5 2011 -2015 35 Total $ 61 The number, weighted average exercise price and weighted average remaining contractual life of options outstanding were as follows: Range of Exercise Prices$ 27.62 -$ 38.04$ 38.60 -$ 42.44$ 42.60 -$ 44.54$44.56 -$ 48.00 Number of Options 423,473 3,728,512 482,110 1,602,248 6,236,343 Weighted Average Exercise Price$ 31.34$ 40.64$ 42.65$45.09$41.31 Weighted Average Remaining Contractual Life 3.97 years 6.76 years 5.35 years 7.47 years 6.64 years Grantor Trust MichCon maintains a Grantor Trust that invests in life insurance contracts and income securities.

Employees and retirees have no right, title or interest in the assets of the Grantor Trust, and MichCon can revoke the trust subject to providing the MPSC with prior notification.

We account for our investment at fair value with unrealized gains and losses recorded to earnings.Note 15 -Stock-based Compensation The DTE Energy Stock Incentive Plan permits the grant of incentive stock options, non-qualifying stock options, stock awards, performance shares and performance units. A maximum of 18 million shares of common stock may be issued under the plan. Participants in the plan include our employees and members of our Board of Directors.

As of December 31, 2005, no performance units have been granted under the plan.Options Options are exercisable according to the terms of the individual stock option award agreements and expire 10 years after the date of the grant. The option exercise price equals the fair value of the stock on the date that the option was granted. Stock option activity was as follows: Weighted Number Average of Exercise Options Price Outstanding at December 31, 2002 (2,285,323 exercisable) 5,480,595

$ 39.87 Granted 1,654,879

$ 40.56 Exercised (329,528)

$ 35.88 Canceled (152,824)

$ 42.67 Outstanding at December 31, 2003 (3,506,038 exercisable) 6,653,122

$ 40.18 Granted 1,300,900

$ 39.41 Exercised (891,353)

$ 34.94 Canceled (356,000)

$ 43.06 Outstanding at December 31,2004 (3,939,939 exercisable) 6,706,669

$ 40.57 Granted 955,899 $ 44.79 Exercised (1,291,645)

$ 39.92 Canceled (134,580)

S 42.33 Outstanding at December 31,2005 (4,029,444 exercisable at a weighted average exercise price of $40.88) 6,236,343

$ 41.31 We account for option awards under APB Opinion 25. Accordingly, no compensation expense has been recorded for options granted.As required by SFAS No. 123, we have determined the fair value for these options at the date of grant using a Black-Scholes based option pricing model and the following assumptions:

2005 2004 2003 Risk-free interest rate 3.93% 3.55% 2.93%Dividend yield 4.60 % 5.23% 4.97%Expected volatility 19.56 % 20.00% 20.89%Expected life 6 years 6 years 6 years Fair value per option S 5.89 $ 4.46 $ 4.78 Stock Awards Stock awards granted under the plan are restricted for varying periods, which are generally for three years. Participants have all rights of a shareholder with respect to a stock award, including the right to receive dividends and vote the shares. Prior to vesting in stock awards, the participant: (i) may not sell, transfer, pledge, exchange or otherwise dispose of shares; (ii) shall not retain custody of the share certificates; and (iii) will deliver to us a stock power with respect to each stock award.The stock awards are recorded at cost that approximates fair value on the date of grant. We account for stock awards as unearned compensation, which is recorded as a reduction to common stock.The cost is amortized to compensation expense over the vesting period. Stock award activity for the years ended December 31 was: 2005 2004 2003 Restricted common shares awarded 288,360 209,650 102,060 Weighted average market price of shares awarded S 44.95 $ 39.95 $ 41.39 Compensation cost charged against income (in thousands)

S 7,747 $ 5,616 $ 6,366 Performance Share Awards Performance shares awarded under the plan are for a specified number of shares of common stock that entitles the holder to receive a cash payment, shares of common stock or a combination thereof. The final value of the award is determined by the achievement of certain performance objectives.

The awards vest 74 at the end of a specified period, usually three years. We account for performance share awards by accruing compensation expense over the vesting period based on: (i) the number of shares expected to be paid which is based on the probable achievement of performance objectives; and (ii) the fair value of the shares. For 2005, 2004 and 2003, we recorded compensation expense totaling $5 million, $6 million and $6 million, respectively.

During the vesting period, the recipient of a performance share award has no shareholder rights. However, recipients will be paid an amount equal to the dividend equivalent on such shares.Performance share awards are nontransferable and are subject to risk of forfeiture.

As of December 31, 2005, there were 803,071 performance share awards outstanding.

tax benefit of production tax credits and net operating losses. The subsidiaries record income tax payable to or receivable from DTE Energy resulting from the inclusion of its taxable income or loss in DTE Energy's consolidated tax return.Inter-segment billing for goods and services exchanged between segments is based upon tariffed or market-based prices of the provider and primarily consists of power sales, gas sales and coal transportation services in the following segments: (in Millions) 2005 2004 2003 Electric Utility S 207 $ 218 S 69 Unconventional Gas Production 154 121 114 Fuel Transportation and Marketing 268 253 66 S 629 $ 592 S 249 Note 16 -Segment And Related Information We operate our businesses through three strategic business units, Electric Utility, Gas Utility and Non-Utility Operations.

The balance of our business consists of Corporate

& Other. Based on this structure, we set strategic goals, allocate resources and evaluate performance.

This results in the following reportable segments: Electric Utility* Consists of Detroit Edison, the company's electric utility whose operations include the power generation and electric distribution facilities that service approximately

2.2 million

residential, commercial and industrial customers throughout southeastern Michigan.Gas Utility* Consists of the gas distribution services provided by MichCon, a gas utility that purchases, stores and distributes natural gas throughout Michigan to approximately

1.3 million

residential, commercial and industrial customers and Citizens Gas Fuel Company, a gas utility that distributes natural gas in Adrian, Michigan.Non-utility Operations

• Power and Industrial Projects, primarily consisting of synfuel projects, on-site energy services, steel-related projects, power generation with services, and waste coal recovery operations;

• Unconventional Gas Production, primarily consisting of natural gas exploration, development and production; and* Fuel Transportation and Marketing, primarily consisting of energy marketing and trading operations, coal transportation and marketing, and gas pipelines, processing and storage.Corporate

& Other, primarily consisting of corporate support functions and certain energy related investments.

The income tax provisions or benefits of DTE Energy's subsidiaries are determined on an individual company basis and recognize the 75 Financial data of the business segments follows: (in Millions)

Depr eciation, Operating Depletion

&Interest Interest Income Net Total Capital 2005 Revenue Amortization Income Expense Taxes Income Assets Goodwill Expenditures Electric Utility $ 4,462 $ 640 $ (3) $ 267 $ 149 $ 277 S 13,112 $ 1,207 $ 722 Gas Utility 2,138 95 (10) 58 (2) 37 3,101 772 128 Non-utility Operations:

Power and Industrial Projects 1,356 107 (41) 21 89 308 2,117 41 31 Unconventional Gas Production 74 20 -8 1 4 434 8 144 Fuel Transportation and Marketing 1,684 7 (6) 21 (1) 2 2,207 29 36 3,114 134 (47) 50 89 314 4,758 78 211 Corporate

& Other 10 -(40) 187 (34) (52) 2,358 -4 Reconciliation and Eliminations (702) -43 (43) -----Total from Continuing Operations S 9,022 $ 869 $ (57) $ 519 $ 202 576 23,329 2,057 1,065 Discontinued Operations (Note 3) (36) 6 --Cumulative Effect of Accounting Change (Note 2) (3) ---Total $ 537 $23,335 $ 2,057 $ 1,065 (in Millions)

Depreciation, Operating Depletion

& Interest Interest Income Net Total Capital 2004 Revenue Amortization Income Expense Taxes Income Assets Goodwill Expenditures Electric Utility $ 3,568 $ 523 $ -$ 280 $ 64 $ 150 $ 12,708 $ 1,202 $ 702 Gas Utility 1,682 103 (9) 58 (9) 20 2,816 772 113 Non-utility Operations:

Power and Industrial Projects 1,100 89 (43) 35 42 179 1,841 41 24 Unconventional Gas Production 71 18 -10 3 6 301 8 38 Fuel Transportation and Marketing 1,254 6 (4) 8 64 118 1,280 28 24 2,425 113 (47) 53 109 303 3,422 77 86 Corporate

& Other 17 3 (48) 174 10 (12) 2,284 -2 Reconciliation and Eliminations (621) -49 (49)Total from Continuing Operations

$ 7,071 $ 742 $ (55) $ 516 $ 174 461 21,230 2,051 903 Discontinued Operations (Note 3) 130) 67 16 1 Total $ 431 $21,297 S 2,067 $ 904 (in Millions)

Depreciation, Operating Depletion

& Interest Interest Income Net Total Capital 2003 Revenue Amortization Income Expense Taxes Income Assets Goodwill Expenditures Electric Utility $ 3,695 $ 473 $ (7) S 284 $ 145 $ 252 $ 12,502 S 1,202 $ 580 Gas Utility 1,498 101 (10) 58 -29 2,719 776 99 Non-utility Operations:

Power and Industrial Projects 938 90 (16) 21 (271) 197 1,690 41 26 Unconventional Gas Production 70 17 -7 5 12 282 8 28 Fuel Transportation and Marketing 1,061 4 (3) 6 41 69 1,089 28 13 2,069 Corporate

& Other 16 Reconciliation and Eliminations (273)Total from Continuing Operations S 7,005 Discontinued Operations (Note 3)Cumulative Effect of Accounting Change (Note 2)Total ill S 685 (19)(33)32$ (37)34 201 (32)$ 545 (225)(36)S 1116)278 (65)494 54 (271 3,061 2,400 20,682 71$ 20,753 77 2,055 12 S 2,067 67 4 750 1 751$ {37)$ 521$--76 Note 17 -Supplementary Quarterly Financial Information (Unaudited)

Quarterly earnings per share may not total for the years, since quarterly computations are based on weighted average common shares outstanding during each quarter. Dtech was reported as a discontinued operation beginning in the third quarter 2005, resulting in the adjustment of prior quarterly results. See Note 3.(in Millions, except per share amounts)First Second Third Fourth 2005 Quarter Quarter Quarter Quarter Year Operating Revenues S 2309 $ 1,941 $ 2,060 $ 2,712 $ 9,022 Operating Income $ 224 $ 90 S 51 S 581 $ 946 Net Income iLoss)From continuing operations S 126 $ 33 $ 29 $ 388 S 576 Discontnued operations (4) (4) (25) (3) (36)Cumulative effect of accounting change --(3) (3)Total $ 122 $ 29 $ 4 S 382 $ 537 Basic Earnings (Loss) per Share From continuing operations S .72 S .19 $ .17 $ 2.19 $ 329 Discontinued operations

(.02) (.02) (.15) (.01) (20)Cumulative effect of accounting change ---(.02) (.02)Total S .70 S .17 S .02 S 2.16 $ 3.07 Diluted Earnings (Loss) per Share From continuing operations S .72 S .19 $ .17 S 2.18 $ 327 Discontinued operabons

(.02) (.02) (.15) (.02) (.20)Cumulative effect of accounting change ---(.02) (.02)Total $ .70 S .17 $ .02 S 2.14 $ 3.05 2004 Operating Revenues $ 2,082 $ 1,490 $ 1,586 $ 1,913 $ 7,071 Operating Income $ 372 $ 106 $ 177 $ 215 $ 870 Net Income (Loss)From continuing operations

$ 200 $ 43 $ 97 $ 121 $ 461 Discontinued operations (10) (8) (4) (8) (30)Total $ 190 $ 35 $ 93 $ 113 $ 431 Basic Earnings (Loss) per Share From continuing operations

$ 1.18 $ .25 $ .56 $ .69 $ 2.67 Discontinued operations

(.06) (.05) (.02) (.04) (.17)Total $ 1.12 $ .20 $ .54 $ .65 $ 2.50 Diluted Earnings (Loss) per Share From continuing operations

$ 1.17 $ .25 $ .56 $ .69 $ 2.66 Discontinued operations

(.06) (.05) (.02) (.04) (.17)Total $ 1.11 $ .20 $ .54 $ .65 $ 2.49 77 D,?,-t,-,=ITE Energy, Company--y;:;, -,;, , 1 La X oh=:R~ie (Dollars in Millions, Except Common Share Data) 2005 2004 2003 2002 Operating Revenues Utility $ 6,600 $ 5,250 $ 5,193 $ 5,423 Non-utility (1) 2,422 1,821 1,812 1,271 Total S 9,022 $ 7,071 $ 7,005 $ 6,694 Net Income Utility $ 314 $ 170 $ 281 $ 418 Non-utility (1) 262 291 213 181 576 461 494 599 Discontinued Operations (36) (30) 54 33 Cumulative Effect of Accounting Changes (3) -(27) -S 537 $ 431 S 521 $ 632 Diluted Earnings per Share Utility S 1.78 $ 0.98 $ 1.67 $ 2.53 Non-utility (1) 1.49 1.68 1.26 1.10 3.27 2.66 2.93 3.63 Discontinued Operations (0.20) (0.17) 0.32 0.20 Cumulative Effect of Accounting Changes (0.02) -(0.16)S 3.05 $ 2.49 $ 3.09 $ 3.83 Electric Utility Deliveries (Millions of kWh) 54,744 52,416 53,194 54,105 Electric Utility Customers at Year End (Thousands)

Z159 2,146 2,132 2,136 Gas Utility Deliveries (Bcf) (2) 757 854 909 837 Gas Utility Customers at Year End (Thousands)

(2) 1,270 1,258 1,249 1,267 Financial Position at Year End Net property (3) $ 10,830 $ 10,491- $ 10,324 S 10,542 Total assets (3) $ 23,335 $ 21,297 $ 20,753 $ 19,985 Long-term debt, including capital leases $ 7,080 $ 7,606 $ 7,669 S 7,803 Total shareholders' equity S 5,769 $ 5,548 $ 5,287 S 4,565 Common Share Data Dividends declared per share $ 2.06 $ 2.06 $ 2.06 $ 2.06 Average shares outstanding-diluted (millions) 176 173 168 165 Book value per share $ 32.44 $ 31.85 $ 31.36 S 27.26 Market price: High $ 48.31 $ 45.49 $ 49.50 $ 47.70 Low $ 41.39 $ 37.88 $ 34.00 S 33.05 Year end $ 43.19 $ 43.13 $ 39.40 $ 46.40 Miscellaneous Financial Data Cash flow from operations

$ 1,001 $ 995 $ 950 $ 996 Capital expenditures

$ 1,065 $ 904 $ 751 $ 984 Employees atyear end 11,410 11,207 11,099 11,095 (11 Includes Corporate

& Other and/or eliminations.

(21 Gas Utility data shown prior to May 2001 is presented for informational purposes only. The Gas Utility business was acquired on May 31, 2001.(31 In conjunction with adopting SFAS No. 143, we reclassified previously accrued asset removal costs related to our regulated operations, which had been previously netted against accumulated depreciation, to an asset removal cost liability forthe years 1999 through 200Z Amounts for years priorto 1999 are not available 78 F. DTE Energy Company-.,4,,.K I Review '-2001 2000 1999 1998 1997 1996 1995 f $ 4,659 S 4,129 $ 4,047 $ 3,902 $ 3,657 $ 3,642 $ 3,634 1,112 509 452 272 107 3 2$ 5,771 $ 4,638 $ 4,499 $ 4,174 $ 3,764 $ 3,645 $ 3,636$ 198 $ 427 $ 434 $ 412 $ 405 $ 312 $ 406 119 41 49 31 12 3) -317 468 483 443 417 309 406 r 12 ------3$ 332 $ 468 $ 483 $ 443 $ 417 $ 309 $ 406$ 1.29 $ 2.99 $ 3.00 $ 2.83 $ 2.79 $ 2.15 $ 2.80 0.77 0.28 0.33 0.22 0.09 (0.02) -2.06 3.27 3.33 3.05 2.88 2.13 2.80 0.08 ------0.02 ------$ 2.16 $ 3.27 $ 3.33 $ 3.05 $ 2.88 $ 2.13 $ 2.80 51,516 52,611 55,871 55,286 50,983 48,815 49,298 2,125 2,110 2,089 2,068 2,051 2,025 2,002 917 945 866 850 941 895 730 1,235 1,235 1,220 1,206 1,193 1,183 1,173$ 10,255 $ 8,081 $ 7,853 $ -$ -$ -$ -$ 19,587 $ 13,350 $ 13,021 $ -$ -$ -$ -$ 7,928 $ 4,039 $ 4,091 $ 4,323 $ 3,914 $ 3,894 $ 3,884$ 4,589 $ 4,009 $ 3,909 $ 3,698 $ 3,706 $ 3,588 $ 3,763$ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06 154 143 145 145 145 145 145 S 28.48 $ 28.14 $ 26.75 $ 25.49 $ 24.51 $ 23.69 $ 23.62$ 47.13 $ 41.25 $ 44.69 $ 49.25 $ 34.75 $ 37.25 $ 34.88$ 33.13 $ 28.44 $ 31.06 $ 33.50 $ 26.13 $ 27.63 $ 25.75$ 41.94 $ 38.94 $ 31.63 $ 43.06 $ 34.69 $ 32.38 $ 34.50$ 811 $ 1,015 $ 1,084 $ 834 $ 905 $ 1,079 $ 913 S 1,096 $ 749 $ 739 $ 589 $ 484 $ 531 $ 454 11,030 9,144 8,886 8,781 8,732 8,526 8340 79 Words Our Industry UsesI 4. -44I4-4. -,~. .T, -T'-- -~ ~ Z4- :' .# ~, --4 .-1 Cogeneratlon., r ~ ~~ Power C, ."st ~-, , ,- -~ - WA- .-- .industrial,1/4znrrieci l heain o' A;r thY--I-~~

coolin p~,~se ,j .- uhrts t ul ulrltdadC.~. -~~St 5 Purchased poweE expenses.~

I CI-. '4~-,~, ~~,7,,---~

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,- ,, , 1.Prbdiitibriacredit vary each year, as determIned , b~h Interna--. ~ '-.'. -~ ,~ , ~~~-~~ t' i.. ~- ,'--,,~ -, 1, ~ I 1 1.. ~1, , ~ .4 .'?' 4I I el enericityt nd gas.t-; 44-! P` -~~jii tinFudigLL.

.- , 44*,4 I -, -,~" .?,,%1 4. 4 -I 4 I I 4DI GCR is- nchns 'atoiedb h MPS- stt,"i.t:thh" I tme ' anis au oiz y-h'l 4 ,r,(HK h -s rd cioif The.~ -- ,,, Miciga PubIc ~ '-~-- Sevie -t * > ..4- 4 -4 comrissi-nre-ulates

-. --- -' Synthetic-Fuel- (Synfuel)

~', 4.4- .n PetroaleuommeCoke(PeatinCoke[

geneation ad oke pbdu'cti&Synfu

-~ .'~j 444-6 dand ,~,---,-Pet coke-- is a solid1byproduct of the oil~ -,p troductiongeerajtses pouctonta cedts-.4-4 44" --, --t , .~ -~ ~ ~.-4 '4 r4-4 for natural gasweandexfeielioil.-

7 7 -.- 1I form-tio-ns.

., ,"- -~ -1 ~I -,4 .~:4` 44- -4 s .4" -.-:~ : ,~~ -'~,'-- 44444- 44 I"'-- -'--'-.~- , ~ :!-~ 4 .-~ ,~~ :- 4 4 , ~t 444 44;,.-4 ~; , -` --.4 4 4 4~~..- -, -. 444~,,,:.~- " --~80 Tell us whatu wht-outhnkabut Please rate each of the following sections on a scale of 1 (poor) to 5 (excellent)-Overall design (layout, use of photos, size of print)-Editorial section (content, readability)-Financial section (content, readability)

Which section of the annual report will help you make an investment decision with DTE Energy?(check as many as apply)-Business segments-Financial highlights-Chairman's letter-Feature stories-Board and officer bios-Letter from chief financial officer-Management's discussion-Financial statements-Notes_I will not make any investment decisions based on information in this annual report.How much time did you spend looking through this annual report? (check one)-Less than 5 minutes _5-15 minutes_16-30 minutes -More than 30 minutes I would like to receive this annual report as a (check one):-Traditional annual report -editorial section plus full financial section -via mail-Traditional annual report -editorial section plus full financial section -via the Internet-Summary annual report -editorial section plus condensed financial section -via mail_10K only -via the Internet-10K wrap -Form 10K plus a condensed DTE Energy-editorial section -via mail-OtherA : Survey results will be available online at www.dteenergy.com in July 2006.O-I -I I I BUSINESS REPLY MAIL FIRST-CLASS MAIL PERMIT NO. 61 DETROIT Ml POSTAGE WILL BE PAID BYTHE ADDRESSEE ATTN WRITING RESOURCES 1571 WCB DTE ENERGY 2000 2ND AVE.DETROIT MI 48226-9886 NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES liii IIIIIIIhIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

the nfo n AboutDTE Ener 81 ! :as_.DTE Energy common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange (symbol DTE).The following table indicates the reported high and low sale prices on the New York Stock Exchange Composite Tape for OTE Energy common stock, and dividends paid per share for each quarterly period during the past two years: Dividends Paid Calendar Quarter High Low Per Share 2005 First $46.99 $ 42.40 $ 0.515 Second 48.31 44.40 0.515 Third 48.22 44.11 0.515 Fourth 46.65 41.39 0.515 2004 First $42.29 $ 37.92 $ 0.515 Second 41.58 37.88 0.515 Third 42.21 39.31 0.515 Fourth 45.49 41.44 0.515 As of Dec. 31, 2005,177,814,429 shares of the company's common stock were outstanding.

These shares were held by a total of 94,981 shareholders of record.Distribution of ownership of DTE Energy common stock as of Dec. 31, 2005: Type of Owner Owners Shares Joint Accounts 35,079 14,519,532 Individual 39,052 11,931,684 Individual Custodian 17,729 7,323,554 Trust Accounts 2,223 1,486,393 Banks & Nominees 45 142,011,279 Corporations

& Insurance Co's. 135 171,348 Institutions

& Foundations 42 42,049 Brokers/Security Dealers 48 30,799 Churches & Religious Orgs. 99 27,978 All Others 529 269,813 Total 94,981 177,814,429 State and Country Owners Shares Michigan 19,025 19,629,161 Florida 5,591 2,449,880 California 4,646 1,605,999 NewYork 3,680 143,218,934 Illinois 3,565 1,315,153 Ohio 2,958 987,468 44 Other States 55,123 8,493,200 Foreign Countries 393 114,634 Total 94,981 177,814,429 Independent Registered Public Accounting Firm Deloitte & Touche LLP 600 Renaissance Center, Suite 900 Detroit, Ml 48243-1704 Form 10-K We will provide, without charge to shareholders, copies of our Form 10-K filed with the Securities and Exchange Commission.

Written requests should be directed to: Sandra Kay Ennis Corporate Secretary DTE Energy, 2000 Second Ave.Detroit, Ml 48226-1279 dteenergy.com/investors Officer Certifications In 2005, our chief executive officer (CEO) submitted to the New York Stock Exchange (NYSE) the annual CEO certification regarding DTE Energys compliance with the NYSE's corporate governance listing standards, stating that he was not aware of any violation to the NYSE corporate governance listing standards.

Our CEO made his annual certification to the NYSE as of May 27, 2005. In addition, we have filed as exhibits to the Annual Report on Form 10-K with the Securities and Exchange Commission, the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of the company's public disclosures in the fiscal year-end 2005 reports.Transfer Agent and Registrar of Stock The Bank of New York Receive and Deliver Department, P.O. Box 11002 Church Street Station, New York, NY 10286 Telephone:

866.388.8558 stockbny.com Shareholder Inquiries and Other Information The Bank of New York, Shareholder Relations Department P.O. Box 11258, Church Street Station, New York, NY 10286 e-mail inquiries to: shareowners~bankofny.com DTE Energy shareholders of record can authorize the agent to deposit their dividend payments in a financial institution account of their choice on the payment date. In addition, shareholders of record can purchase DTE Energy common stock with their dividends through the Dividend Reinvestment

& Stock Purchase Plan. For more information about direct deposit and dividend reinvestment, visit the agent's Web site, stockbny.com or call 866.388.8558.

Shareholders of record can request information about receiving their future annual report and proxy materials over the Internet by marking the appropriate box on their proxy card as instructed.

By electing electronic delivery, you are stating that you currently have or expect to have access to the Internet.©2006 DTE Energy is the owner Printed by D T E DTE Energy Company, of the "Head/Corona" Sandy Alexander Inc all rights reserved.

logo. DTE Energy or Clifton, NJ its affiliates are the NYSE.owners of various other registered and X90G 4 unregistered trademarks.

Annual Meeting of Shareholders The 2006 Annual Meeting of DTE Energy Shareholders will be held Thursday, April 27, 2006, at 10 a.m. Detroit time in the DTE Energy Building, 660 Plaza Drive, Detroit, Ml.Corporate Address DTE Energy, 2000 Second Ave.Detroit, Ml 48226-1279 Telephone:

313.235.4000 dteenergy.com r) -'Fr '4 .j',I: 4 vi A