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UNITED STATES

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

For the Quarterly Period Ended September 30, 2003

Commission file number 1-11607

313-235-4000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

      Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act.

Yes þ     No o

      At September 30, 2003, 168,301,400 shares of DTE Energy’s Common Stock, substantially all held by non-affiliates, were outstanding.

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DTE ENERGY COMPANY

QUARTERLY REPORT ON FORM 10-Q

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DEFINITIONS

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FORWARD-LOOKING STATEMENTS

      Certain information presented herein includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. There are many factors that may impact forward-looking statements including, but not limited to, the following:

	•	the effects of weather and other natural phenomena on operations and sales to customers;
	•	economic climate and growth in the geographic areas where we do business;
	•	environmental issues, including changes in the climate, and regulations;
	•	nuclear regulations and risks associated with nuclear operations;
	•	ability to utilize Section 29 tax credits and sell interests in facilities producing such credits;
	•	implementation of Customer Choice programs;
	•	implementation of electric and gas utility restructuring in Michigan;
	•	employee relations and the impact of collective bargaining agreements;
	•	unplanned outages;
	•	capital market conditions and access to capital markets and other financing efforts that can be affected by credit agency ratings;
	•	the timing and extent of changes in interest rates;
	•	the level of borrowings;
	•	changes in the cost of fuel, purchased power and natural gas;
	•	effects of competition;
	•	impact of FERC and MPSC proceedings and regulations;
	•	contributions to earnings by non-regulated businesses;
	•	changes in federal or state tax laws and their interpretations, including the code, regulations, rulings, court proceedings and audits;
	•	ability to recover costs through rate increases;
	•	property insurance;
	•	the cost of protecting assets against or damage due to terrorism;
	•	changes in accounting standards and financial reporting regulations; and
	•	changes in federal or state laws and their interpretation with respect to regulation, energy policy and other related business issues.

      New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

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DTE ENERGY COMPANY

Results of Operations

      We had income of $176 million in the 2003 third quarter, or $1.04 per diluted share, compared to income of $161 million, or $.96 per diluted share, for the 2002 third quarter. For the nine-month period, our income was $292 million, or $1.73 per diluted share, compared to income of $429 million, or $2.62 per diluted share, for the same 2002 period. The comparability of earnings was impacted by the sale of our transmission business, International Transmission Company (ITC), and the adoption of two new accounting rules in the 2003 first quarter. Upon selling ITC in February 2003, we classified this business as a discontinued operation. Earnings from this discontinued operation decreased by $26 million in the 2003 third quarter, whereas earnings increased by $31 million in the 2003 nine-month period reflecting a $63 million net of tax gain recorded on the sale. As required by generally accepted accounting principles, on January 1, 2003 we adopted new accounting rules for asset retirement obligations and energy trading activities as discussed in Note 2. The cumulative effect of adopting these new accounting rules reduced earnings for the 2003 nine-month period by $27 million.

      Excluding discontinued operations and the cumulative effect of accounting changes, our income from continuing operations for the 2003 third quarter was $180 million or $1.06 per diluted share, compared to income of $139 million, or $.83 per diluted share, in the 2002 third quarter. For the 2003 nine-month period, we had income from continuing operations of $251 million, or $1.49 per diluted share, compared to income of $392 million, or $2.39 per diluted share, for the same 2002 period. The table below details several significant items impacting comparability, which increased earnings by $66 million, or $.39 per diluted share, and $19 million, or $.11 per diluted share, for the third quarter of 2003 and 2002, respectively. Significant items also impacted the 2003 and 2002 nine-month periods reducing earnings by $111 million, or $.66 per diluted share, and increasing earnings by $5 million, or $.03 per diluted share, respectively.

(1)	Costs associated with the August 2003 blackout (Note 4).
(2)	DTE Energy realized additional margins as a result of the change in accounting for energy trading activities (Note 2).

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(3)	The Detroit Edison steam heating business was sold in January 2003 (Note 3).
(4)	MichCon established a reserve for the potential disallowance of procured gas costs (Note 4).
(5)	DTE Energy used a portion of the proceeds from the ITC sale to fund the DTE Energy Foundation.
(6)	Quarterly tax adjustment to DTE Energy’s effective tax rate. Annual results are not affected.

      As discussed in DTE Energy’s 2002 Annual Report on Form 10-K, we operate our business through nine reportable segments. The following tables and related discussion depict the operations of each of these segments.

(1)	Includes Corporate & Other

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Energy Resources

      The power generation plants of Detroit Edison comprise our regulated power generation business. Detroit Edison’s numerous fossil plants, hydroelectric pumped storage plant and its nuclear plant generate electricity that is sold principally throughout Michigan and the Midwest to residential, commercial, industrial and wholesale customers.

      Power Generation earnings increased $7 million during the 2003 third quarter and decreased $39 million in the 2003 nine-month period compared to the 2002 periods. Results for both periods were affected by lower gross margins, varying operation and maintenance expenses and lower depreciation and amortization expense. The reduced gross margins were driven by decreased cooling demand due to mild weather, lost margins from customers choosing to purchase power from alternative suppliers under the electric Customer Choice program and lost margins from the August 2003 blackout. As a result of the electric Customer Choice program, Detroit Edison has lost 11% of retail sales during 2003 resulting in lost margins of approximately $70 million. To partially offset the impact of these lost margins, Detroit Edison recorded regulatory assets totaling $8 million in the 2003 third quarter and $30 million in the 2003 nine-month period representing stranded costs that we believe are recoverable under Michigan legislation. Gross margins benefited from lower fuel unit costs reflecting the use of a more favorable power supply mix. We increased the usage of lower-cost power from our generating plants and reduced our usage of higher-cost purchased power. Operation and maintenance expenses were affected by costs associated with the August 2003 blackout (Note 4), higher employee pension and health care benefit costs and expenses due to the timing of planned reliability and maintenance work done to improve the production and availability of the generation fleet. Operation and maintenance expenses benefited from our Company-wide initiative to reduce or defer costs and enhance operating performance. The DTE Operating System involves the rigorous disciplined application of tools and operating practices which have resulted in improvements in plant efficiency and technology systems, among other enhancements. The decrease in depreciation and amortization expense is attributable to the income effect of recording regulatory assets representing net stranded costs and the deferral of other costs recoverable under Public Act 141.

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

(1)	Represents fuel costs associated with power plants.
(2)	Includes hedging activities.

      Outlook — Detroit Edison lost 6% of retail sales in 2002 and estimates losing up to 13% of such sales in 2003 as a result of customers choosing to purchase power from alternative suppliers under the electric Customer Choice program. We estimate that we will lose between $80 million and $100 million of margins in 2003 under the Customer Choice program. Unrecovered generation-related fixed costs due to electric Customer Choice are considered stranded and are recoverable under Michigan legislation as determined by the MPSC. We estimate that we will record approximately $40 million of regulatory assets relating to these stranded costs in 2003. There are a number of variables and estimates that impact the level of recoverable stranded costs, including weather, sales mix and wholesale prices. As a result, our estimate of stranded costs could increase or decrease. The regulatory asset will be subject to review by the MPSC in future regulatory proceedings, and we cannot predict the outcome of this matter. See Note 4 — Regulatory Matters.

      The June 2000 Michigan legislation imposed a rate freeze for all classes of customers through 2003. In addition, the MPSC determined that adjusting rates for changes in fuel and purchased power through continuance of the Power Supply Cost Recovery (PSCR) clause would be inconsistent with the rate freeze, therefore the MPSC suspended the PSCR clause. It is unclear at this time whether the PSCR clause will remain suspended beyond 2003. Detroit Edison filed a rate case in June 2003 addressing this and other issues. We cannot predict the outcome of this matter. See Note 4 — Regulatory Matters.

      Future operating results are expected to vary as a result of factors such as regulatory proceedings, weather, changes in economic conditions and the level of customer participation in the electric Customer Choice program.

      Energy Services is comprised of Coal-Based Fuels, On-Site Energy Projects and Merchant Generation. Coal-Based Fuels operations include producing synthetic fuel from nine synfuel plants and producing coke from three coke battery plants. Both processes generate tax credits under Section 29 of the Internal Revenue Code. Synfuel-related Section 29 tax credits expire in 2007. Section 29 tax credits for two of our three coke batteries expired at the end of 2002, and the third expires in 2007. On-Site Energy Projects include pulverized coal injection, power generation, steam production, chilled water production, wastewater treatment and

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      Energy Services earnings decreased $22 million for the 2003 third quarter and increased $44 million in the 2003 nine-month period. The 2003 third quarter period decline is a result of decreased synfuel production. As discussed in Note 9, we reduced synthetic fuel production by approximately one-half in June 2003 to optimize the tax credits generated from our synfuel facilities. The 2003 third quarter also reflects decreased tolling revenue and the expiration of tax credits at two of our three coke battery facilities when compared to the same period in 2002. The 2003 nine-month period increase as compared to the prior year is a result of increased synfuel production and a $19 million net of tax gain from the settlement of a tolling agreement at one of our generating facilities, partially offset by a $10 million net of tax reserve that was established for receivables associated with a large customer that filed for bankruptcy. During 2002, four synfuel facilities became fully operational and interests in two facilities were sold. These two events resulted in significantly higher operating revenues and expenses in the first nine months of 2003 relative to the same period in 2002. Synfuel projects generate operating losses, which are more than offset by the resulting tax credits. The income tax benefit includes tax credits actually earned based on synfuel production and sales. The level of tax credits has been adjusted at the Corporate & Other segment in order that the DTE Energy consolidated income tax expense during the quarter reflects the estimated calendar year effective rate. See Notes 5 and 9 for further detail.

      Outlook — Energy Services’ strategy is to continue leveraging our extensive energy-related operating experience and project management capability to develop and grow the on-site energy and merchant generating businesses. We continue to explore growth opportunities that will not require significant initial capital investment. We are currently negotiating an on-site energy business arrangement with a major manufacturer in the Midwest.

      A significant portion of Energy Services’ earnings consist of synfuel-related Section 29 tax credits. The level of tax credits generated in future periods will be affected by fluctuations in estimated annual taxable earnings and the number of synfuel projects owned. We are aggressively pursuing opportunities to sell interests in some or all of our synfuel plants. See “Synthetic Fuel Operations” section that follows.

      There is a bill currently before the United States Congress that includes provisions extending or reinstating tax credits for various types of energy facilities and processes, including coke batteries, antrim shale gas, coal bed methane, refined coal and landfill gas. We are unable to predict the outcome of the legislative process, however, the passage of the current version of this legislation is expected to be favorable to the Company.

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      Energy Marketing & Trading consists of the electric and gas marketing and trading operations of DTE Energy Trading and CoEnergy. DTE Energy Trading focuses on physical power marketing and structured transactions, as well as the enhancement of returns from DTE Energy’s power plants. CoEnergy focuses on physical gas marketing and optimization of DTE Energy’s owned and contracted natural gas pipelines and storage assets. To this end, both companies enter into derivative financial instruments as part of their strategies, including forwards, futures, swaps and option contracts.

      Energy Marketing & Trading’s earnings increased $24 million in the 2003 third quarter from the comparable 2002 period, of which $20 million was attributable to CoEnergy and $4 million to DTE Energy Trading. Earnings for the 2003 nine-month period increased $40 million, of which $25 million was attributable to CoEnergy and $15 million to DTE Energy Trading. Increases at CoEnergy are primarily due to favorable mark-to-market earnings associated with storage and transport contracts, partially offset by the impact of inventory valuation adjustments made under a different basis of accounting as discussed below. Increases at DTE Energy Trading were due mainly to short-term origination activities and short-term physical trades, partially offset by reduced proprietary trading profits. Proprietary trading represents derivative activity transacted with the intent of capturing profits on forward price movements. CoEnergy earnings were also impacted by the effect of changing our accounting for gas inventory as discussed below.

      Through December 2002, our physical gas in storage was marked to the current spot price under fair value accounting rules. To comply with new accounting requirements resulting from the rescission of Emerging Issues Task Force (EITF) Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities,” we changed to the average cost method for our gas inventories, effective January 2003. As a result of discontinuing the application of the fair value method to our gas inventories and the effect of the rescission of EITF 98-10 on our energy contracts, we recorded a cumulative effect of accounting change that reduced earnings in January 2003 (Note 2). The impact of the cumulative effect accounting charge was offset in operating results as a significant portion of the revalued gas inventory was sold in the 2003 first quarter, thereby increasing gross margins.

      Outlook — Energy Marketing & Trading will seek to gradually expand its business 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 capitalize on opportunities for expansion of its market base.

      Significant portions of the Energy Marketing & Trading portfolio are economically hedged, and include financial instruments, gas inventory, as well as owned and contracted natural gas pipelines and storage assets. These financial instruments are deemed derivatives whereas the gas inventory, pipelines and storage assets are not considered derivatives for accounting purposes. As a result, Energy Marketing & Trading will experience earnings volatility as derivatives are marked to market without revaluing the underlying non-derivative contracts and assets.

      A significant portion of the earnings volatility in this segment is associated with the natural gas storage cycle, which runs from June to March. Injections of gas into inventory takes place in the summer and gas is withdrawn in the winter. DTE Energy’s policy is to hedge the price risk of all purchases for storage with sales in the “over the counter” and futures markets, eliminating the price risk for the storage business. As previously discussed, current accounting rules do allow for the marking to market of forward sales, but do not allow for the marking to market of the related gas inventory. This results in gains and losses which are recognized in different interim periods, but even out by the end of the storage cycle.

      We have formed a subsidiary, DTE PepTec Inc. that will utilize proprietary technology to produce high quality coal products from fine coal slurries that are typically discarded from coal mining operations. The technology has the additional benefit of improving the environment by allowing us to restore the land in

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Energy Distribution

      Power Distribution is comprised of the electric distribution services of Detroit Edison. Power Distribution distributes electricity generated by Energy Resources and alternative electric suppliers to Detroit Edison’s 2.1 million customers.

      Power Distribution earnings decreased $16 million during the 2003 third quarter and $82 million in the 2003 nine-month period. Both periods experienced reduced electric deliveries and operating revenues due to milder weather and the impact of a slower economy on manufacturing and commercial customers operations. Restoration costs associated with an April 2003 catastrophic ice storm, resulting in more than 400,000 customers losing power, and a July 2003 windstorm, affecting over 190,000 customers, also contributed to the decline in earnings in the 2003 nine-month period. The operation and maintenance expense comparison in the current quarter was also impacted by heat-related maintenance costs incurred in the 2002 third quarter due to prolonged periods of above normal temperatures and the related stress placed on the distribution system. Operation and maintenance expenses for both periods were also affected by higher employee pension and health care benefit costs and costs associated with customer service process improvements. Operation and maintenance expenses benefited from our Company-wide initiative to reduce or defer costs and enhance operating performance. The DTE Operating System involves the rigorous disciplined application of tools and operating practices which have resulted in inventory reductions and improvements in technology systems, among other enhancements. Results for the 2003 nine-month period also reflect a net of tax loss of $14 million on the sale of our unprofitable steam heating business (Note 3).

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      Outlook — Operating results are expected to vary as a result of external factors such as weather, changes in economic conditions and the severity and frequency of storms. Economic conditions and prior billing issues have resulted in an increase in past due receivables. We believe our allowance for doubtful accounts is based on reasonable estimates; however, failure to make continued progress in collecting our past due receivables would unfavorably affect operating results. As previously mentioned, Detroit Edison filed a rate case in June 2003 to address future operating costs and other issues.

     Non-Regulated

      Non-regulated Energy Distribution operations consist primarily of DTE Energy Technologies which markets and distributes a portfolio of distributed generation products, provides application engineering, and monitors and manages generation system operations.

      Non-regulated losses decreased $1 million in the 2003 third quarter and increased $1 million in the 2003 nine-month period from the comparable 2002 periods.

      Outlook — Although revenues from our technology related businesses are increasing, they are below our expectations. Accordingly, we have taken actions to reduce our expenses and streamline our operations, including exiting from some non-strategic business lines and activities.

      DTE Energy Technologies expects to continue the expansion of its product portfolios and support capabilities in North America and the development of marketing relationships in other parts of the world. This year’s severe storms in North America and blackouts in the United States, Italy and England, which resulted in the loss of electrical service to commercial, industrial and residential customers, have increased awareness and interest in our product portfolio, especially our on-site energy systems that keep customers’ power on when power from the grid is not available. In 2003 and 2004, we plan to launch additional new products which have been under development and are critical to our plan to increase revenues and generate operating profits in late 2004.

Energy Gas

     Gas Distribution

      Gas Distribution operations include gas distribution services primarily provided by MichCon, our gas utility which purchases, stores and distributes natural gas to 1.2 million residential, commercial and industrial customers located throughout Michigan.

      Gas Distribution’s loss increased $22 million during the 2003 third quarter and net income declined $25 million for the 2003 nine-month period. Earnings reflect higher operation and maintenance expenses and a $26.5 million reserve recorded in the first quarter of 2003 for the potential disallowance in gas costs pursuant to a March 2003 MPSC order in MichCon’s 2002 GCR plan case (Note 4). The increases in operation and maintenance expenses were due to higher employee pension and health care benefit costs, increased costs

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      Outlook — In December 2001, the MPSC issued an order that continues the gas Customer Choice program on a permanent and expanding basis beginning with the conclusion of the three-year temporary program in March 2002. Beginning in April 2003, up to approximately 60% of customers could participate and beginning April 2004, all 1.2 million of MichCon’s gas customers may choose to participate. Since MichCon continues to transport and deliver the gas to the participating customer premises at prices comparable to margins earned on gas sales, customers switching to other suppliers have little impact on MichCon’s earnings. As of September 2003, approximately 124,000 customers were participating in the gas Customer Choice program, compared with approximately 190,000 customers at December 31, 2002.

      As a result of the continued increase in operating costs, MichCon filed a rate case in September 2003 to address future operating costs and other issues. See Note 4 — Regulatory Matters.

      Operating results are expected to vary as a result of external factors such as regulatory proceedings, weather and changes in economic conditions. Economic conditions and prior billing issues have resulted in an increase in past due receivables. We believe our allowance for doubtful accounts is based on reasonable estimates; however, failure to make continued progress in collecting our past due receivables would unfavorably affect operating results.

     Non-Regulated

      Non-regulated operations include the gas and oil production business, and the gas Pipelines & Processing business. Our production business produces gas from proven reserves owned in northern Michigan and sells the gas to the Energy Marketing & Trading segment. Pipelines & Processing has a partnership interest in an interstate transmission pipeline, seven carbon dioxide processing facilities and a natural gas storage field, as well as contract rights to another natural gas storage field. The assets of these businesses are well integrated with other DTE Energy regulated and non-regulated entities.

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      Non-regulated earnings increased $6 million during both the 2003 third quarter and the nine-month periods as compared to the same 2002 periods. The earnings improvement primarily reflects the gain from the sale of our 16% pipeline interest in the Portland Natural Gas Transmission System.

      Outlook — We expect to further develop our gas production properties in northern Michigan and our pipelines, processing and storage assets to support other DTE Energy businesses. Additionally, we expect to continue exploring opportunities in the coal bed methane gas production business to leverage our production, coal and low cost operating capabilities.

      In October 2003, we acquired an additional 15% interest in the Vector Pipeline LP bringing our total ownership interest to 40%. The purchase of the additional interest in the Vector Pipeline complements our existing gas distribution and storage facilities in Michigan.

Corporate & Other

      Corporate & Other earnings increased $65 million for the 2003 third quarter and losses increased $83 million in the 2003 nine-month period due primarily to effective income tax rate adjustments. Corporate & Other records necessary adjustments in order that the consolidated income tax expense during the quarter reflects the estimated calendar year effective rate. The higher adjustments were necessary because our estimated annual pre-tax income and ability to utilize synfuel-related Section 29 tax credits generated differed from earlier estimates. Due to the suspension of the issuance of private letter rulings (PLRs) by the Internal Revenue Service (IRS), we reduced planned synthetic fuel production for the second half of the year. The suspension and reduced production have resulted in a higher anticipated effective tax rate for the year. The quarterly effective tax rate adjustment does not impact total year earnings (Notes 5 and 8). The 2003 nine-month period was also affected by a $15 million cash contribution to the DTE Energy Foundation that was funded with proceeds received from the sale of ITC (Note 3).

Capital Resources and Liquidity

Operating Activities

      Net cash from operating activities decreased $274 million during the nine months of 2003 as compared to the same 2002 period. The decrease reflects a decline of $88 million in net income, after adjusting for non-cash items (depreciation, depletion, amortization, and deferred taxes). Working capital and other requirements include seasonal increases in fuel and gas inventories and a $222 million cash contribution to Detroit Edison’s pension plan.

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      Economic conditions and prior billing issues have resulted in an increase in past due receivables. We are focusing our collection efforts; however, failure to make continued progress in collecting our past due receivables would unfavorably affect operating cash flows.

Investing Activities

      Net cash relating to investing activities improved $875 million in the nine months of 2003 as compared to the same 2002 period primarily due to the sale of ITC and interest in synfuel projects and lower contractually designated funds for debt service. Non-regulated plant expenditures also decreased in 2003, reflecting expenditures associated with the funding of the synfuel business in 2002.

Financing Activities

      Net cash used for financing activities increased $488 million during the nine months of 2003 as compared to the same 2002 period due to higher redemptions of long-term debt and lower proceeds from issuances of common stock.

      In February 2003, MichCon issued $200 million of 5.7% senior notes due in March 2033. The proceeds were used for debt redemption and general corporate purposes.

      In April 2003, DTE Energy issued $400 million of 6 3/8% senior notes due in April 2033. In conjunction with this issuance, DTE Energy exchanged $100 million principal amount of existing DTE Enterprises Inc. debt due April 2008. The proceeds were used for debt redemptions and general corporate purposes.

      In June 2003, DTE Energy redeemed $100 million principal amount of 6.17% Remarketed Notes due in 2038.

      In August 2003, Detroit Edison issued $49 million of 5.5% tax exempt bonds due in 2030. The proceeds were used to redeem $49 million of 6.55% tax-exempt bonds due 2024.

      Credit Rating Review — Various credit rating agencies are currently reviewing our credit rating. A change in our rating could restrict our ability to access capital markets at attractive rates and increase our borrowing costs. However, we cannot predict the outcome of such review.

Synthetic Fuel Operations

      We operate nine synthetic fuel production facilities, seven of which are wholly owned. Synfuel facilities chemically change coal, including waste and marginal coal, into a synthetic fuel as determined under applicable IRS rules. Section 29 of the Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal. To qualify for the Section 29 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 May 2003, the IRS suspended the issuance of PLRs relating to synthetic fuel projects pending their review of issues concerning chemical change which is the basis for earning Section 29 tax credits. On October 29, 2003, the IRS announced that it has concluded its assessment of the chemical change process involved in synfuel production and resumed issuances of rulings. The IRS determined that the test procedures and results used by taxpayers are scientifically valid if the procedures are applied in a consistent and unbiased manner. In addition to meeting the qualifying conditions, a taxpayer must have sufficient taxable income to earn the Section 29 credits. We have begun implementing a series of initiatives, including selling interests in our synfuel projects and monetizing in-the-money gas swap derivative contracts, which we expect to improve cash flow as well as our ability to fully utilize the $225 million in estimated tax credits to be generated in 2003. We will closely monitor taxable income through the remainder of 2003 and assess synfuel production levels accordingly. See Note 9 for a further discussion of synthetic fuel matters.

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Electric Customer Choice Program

      The electric Customer Choice program as originally structured in Michigan anticipated an eventual transition to a totally competitive environment where customers would be charged market-based rates for their electricity. Various developments in the energy industry have caused the deregulation of electric generation to proceed at a much slower rate. As a result, Detroit Edison’s rates continue to be regulated by the MPSC. This continued regulation has hindered Detroit Edison’s ability to retain customers that are choosing alternative suppliers under the electric Customer Choice program. Detroit Edison’s results have been unfavorably impacted by the lack of recovery of lost margins and other costs associated with the electric Customer Choice program. To date, the MPSC has not fully implemented various provisions of Michigan’s restructuring legislation. Specifically, the MPSC:

	•	has not finalized all the components for calculating net stranded costs;
	•	has created a process whereby net stranded costs would be recovered two years after the net stranded costs were actually incurred;
	•	has not authorized Detroit Edison to recover any Customer Choice program implementation costs; and,
	•	has created incentives to encourage participation in electric Customer Choice.

      In addition, the MPSC has historically maintained regulated rates for certain groups of customers that exceed those customers’ cost of service. This has resulted in high levels of participation by these customers in the Customer Choice program. As a result of these factors, retail choice penetration continues to rise beyond original estimates.

      In December 2002, the MPSC initiated a collaborative process to address the issue of stranded costs. Detroit Edison actively participated in the collaborative process. However, this process failed to produce any agreement regarding net stranded cost recovery.

      Detroit Edison addressed the issue of stranded costs in its June 2003 rate filing and is also pursuing a legislative solution to address this issue. The continued delay in the timely and full recovery of stranded costs unfavorably impacts operating results. See Note 4 for a further discussion of the electric Customer Choice program.

Blackout Costs

      On August 14, 2003, failures in the regional power transmission grid caused nine of Detroit Edison’s power plants to trip offline, which left virtually all of its 2.1 million customers without power. On October 24, 2003, Detroit Edison filed an application with the MPSC requesting approval to defer the blackout costs until ratemaking treatment of the costs can be determined. See Note 4 for further discussion of the blackout costs filing.

Environmental Matters

      The Environmental Protection Agency (EPA) ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution will continue to impact us. Detroit Edison spent approximately $512 million through September 2003 and estimates that it will incur approximately $300 to $400 million of future capital expenditures over the next five to eight years to comply with the existing air quality standards. Recovery of costs to be incurred through December 2004 is included in our June 2003 electric rate case. In addition, we maintain the option to securitize these costs after the completion of this rate case.

      The EPA has initiated enforcement actions against several major electric utilities citing violations of the Clean Air Act, asserting that older, coal-fired power plants have been modified in ways that would then require them to comply with the more restrictive “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

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      We cannot predict the future impact of this issue upon Detroit Edison.

New Accounting Pronouncements

      See Note 2 — New Accounting Pronouncements for discussion of new accounting pronouncements.

Fair Value of Contracts

      The following disclosures are voluntary and have been developed through efforts of the Committee of Chief Risk Officers, a working group of chief risk officers from companies active in both physical and financial energy trading and marketing. We believe the disclosures provide enhanced transparency of the activities and position of our Energy Trading & Marketing segment.

      The following tables provide details on changes in our mark-to-market (MTM) net asset or (liability) position during 2003.