The Michigan Public Service Commission (MPSC) today issued an order granting $87,382,000 in rate relief to the Detroit Edison Company. This is in addition to the $248,430,000 that the Commission had previously granted in February. However, residential ratepayers will not see an increase because of rate caps that remain in effect until January 1, 2006. At that time, the typical residential customer will see a rate increase of $5.64 per month.

"Some 94 percent of the rate increase announced today covers five items," said MPSC Chair J. Peter Lark. "These include pension expenses, clean air costs, a low income fund, an increase in common equity, and inflation. Even with the rate increase announced today, costs for Detroit Edison's largest customers will be lower than they were in 1993.

"I am especially pleased that today's order makes permanent the Low Income and Energy Efficiency Fund. With temperatures going down and energy costs going up, the $40 million provided by the fund each year will assist the people who need it most."

"My fellow Commissioners and I believe that the order allows Detroit Edison to enhance Michigan's electric reliability and make prudent decisions about future electric demand. In addition, it solves the return-to-service issue in a fair manner to both the utility and those customers desiring to exercise their option of choice. It also guarantees that people who opt for the competitive market may return, for whatever reason, to the utility at regulated rates."

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Detroit Edison Rate Case
Page Two

"I am pleased that this order advances the Legislature's and the Commission's goals of promoting renewable energy," said Commissioner Robert Nelson. "We are establishing reasonable goals for Detroit Edison to include renewable energy generation in its portfolio."

"Today's order is the culmination of what the Commission has described as among the most complex cases ever considered," said Commissioner Laura Chappelle. "The case involved 18 parties, 235 exhibits and 15 volumes of transcripts totaling 3,239 pages. While the case is significant, this Commission has been mindful of balancing the needs of a financially healthy utility with that of the expectation of reasonable rates for both bundled and choice customers."

Today's order results from a request by Detroit Edison for a $582,837,000 rate increase. That application also included a determination of the utility's stranded costs, implementation of its PSCR clause, and other various accounting and regulatory matters.

For details on how today's order affects various customers, see the attached fact sheet.

The MPSC is an agency within the Department of Labor & Economic Growth.

Case No. U-13808

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PUBLIC SERVICE COMMISSION
CASE NO. U-13808
ORDER NOVEMBER 23, 2004

FACT SHEET

Detroit Edison's application in Case No. U-13808 involves three types of issues that would normally be found in separate cases: (1) a traditional rate case, (2) a power supply cost recovery (PSCR) case, and (3) a stranded cost case. The PSC order authorizes a total rate increase of approximately $336 million; of this $248 million was previously authorized by the interim order issued on February 20, 2004, and the remaining $88 million is authorized by the final order.

Make-up of the Revenue Deficiency: The vast majority of the revenue deficiency is made up of five elements, as shown in the following table.

Cost Item Revenue Deficiency Percentage
Pension/Retiree Health $129 million 38 %
Clean Air Costs $77 million 23 %
Low Income Fund $40 million 12 %
Common Equity $39 million 12 %
Inflation (O&M) $31 million 9 %
Other Items $20 million 6 %
Revenue Deficiency $336 million 100 %

(1) The Commission order requires a tracking mechanism to account for changes in pension expense, which is the largest single item making up the rate increase.

(2) The Clean Air Costs relate to requirements found in the Federal Clean Air Act to reduce the level of Nitrogen Oxides (NOX) emitted by power plants. Michigan law requires that these costs be passed on to customers.

(3) The Low Income Fund not only provides support for customers who need assistance with their electric bills, but also contributes to energy efficiency programs.

(4) The order increases the utility's common equity (the financing not covered by debt) from 40% to 46%.

(5) Finally, the order allows a 2% annual inflation for increases in operation and maintenance expenses.

Effect on Residential Customers: There will be no rate increase for residential customers as a result of the Commission order. Residential rates are capped until January 1, 2006. Today's order increases the basic residential rate, but requires an equal reduction in the power supply cost recovery charge. The net effect is no change in the total residential rate.
Effect on Commercial Customers: There will be no immediate rate increase for small commercial customers (those with a demand less than 15 kilowatts). Rates for these customers are capped until January 1, 2005. Larger commercial customers will see a surcharge of 10.25% to collect their proportionate share of the revenue deficiency and a reduction in the power supply costs of 0.309 cents per kwh. The net effect will be an average increase of approximately 3% from today's rates, although the actual percentage will vary by customer depending upon usage pattern. Customers smaller than 15 kilowatts will experience an increase of approximately 7% on January 1, 2005.

Effect on Industrial Customers: Industrial customers will experience the same percentage surcharge and same reduction in power supply costs that commercial customers experience. Because of different usage patterns, the average industrial customer will experience an increase of approximately 3% over today's rates.

Effect on Retail Open Access Customers: In addition to the 0.1 cent per kwh increase in distribution rates for all choice customers in the interim order, retail open access customers taking service at the secondary level will also have their distribution rates increased by approximately 0.1 cents per kwh. Choice customers will be billed a transition charge (to recover stranded costs) of 0.1 cents for primary customers and 0.3 cents for secondary customers. Stranded costs for the remainder of 2004 will be determined in a future case. The percentage increase on a retail open access customer's electric bill is not known since these customers purchase their power under individual contracts with alternative suppliers.

Return to Service: Retail open access customers who wish to return to full-service will be allowed to return after two years and are required to provide notice by December 1 of each year. Because of the limited time until the final order, retail open access customers will have to December 31 to choose their option this year.

Historical Rate Comparison: Rates for most customers after today's rate order will be slightly lower than they were in 1993, as shown on the attached chart (rates are in cents per kWh). This is because Detroit Edison has not had a rate case since 1993; and, moreover, effective in 2000, the company was statutorily required to reduce rates by 5%.

Customer 1993 Rates New Rates as of Jan. 1, 2005 Change
Residential 9.355 8.979 Down 4%
Commercial 9.986 10.076 Up 1%
Industrial 6.723 6.544 Down 2%

On January 1, 2006, residential customers will experience a 7% rate increase as a result of the rate cap expiring. On that date, the 4% reduction for residential customers shown on the table will become a 3% increase.

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The Detroit Edison Company
Case No. U-13808
Commission Order Fact Sheet

1. Revenue Deficiency - $335,812,000

2. Regulatory Asset Recovery Surcharge

-2005: $21,513,000
-2006: $57,992,000

3. Implementation Cost Recovery Surcharge
-2006: $25,917,000

4. Stranded Costs - $43,616,000 through February 20, 2004 (Interim Order date). Stranded costs for the remainder of 2004 will be determined in a future case.

5. Stranded Cost Recovery - 3 mills per kWh for secondary Choice customers, 1 mill per kWh for primary Choice customers, until all stranded costs have been recovered.

6. The Pension Equalization Mechanism is approved; variation in actual pension expense from rate case levels will be deferred for future refund or recovery from customers.

7. Rate of return on common equity - 11%.

8. Debt to Equity Ratio - 54% Debt, 46% Equity

9. Overall Rate of Return - 7.24%

10. Rate Design - Equal percentage increase to all customer classes, with an extra one mill charge per kWh to secondary service choice customers to prevent an increase in the differential between bundled sales rates and choice rates.

11. Return to Service provision - Choice customers will be allowed to return to bundled sales service after two years, provided that customers wishing to receive service during the summer must notify Edison of their intent by December 1 of the previous year.

12. The Transitional Primary Supply Rate tariff is approved.