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313-235-4000
(Registrant’s telephone number, including area code)

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 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 x No o

At July 31, 2002, 167,466,850 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
Quarter Ended June 30, 2002

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DTE Energy Company
Management’s Discussion and Analysis
of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Certain information presented herein includes forward-looking statements. 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. Factors that may impact forward-looking statements include, but are not limited to, interest rates, effects of new accounting pronouncements, access to the capital markets, the level of borrowings, weather, actual sales, changes in the cost of fuel and purchased power due to the suspension of the PSCR mechanism, changes in the cost of natural gas, the effects of competition and the implementation of electric and gas Customer Choice programs, the implementation of electric and gas utility restructuring in Michigan, the impact of changes in and interpretations of tax laws, environmental and nuclear requirements, the impact of FERC and MPSC proceedings and regulations, the timing of the accretive effects of DTE Energy’s merger with MCN Energy, and the contributions to earnings by non-regulated businesses.

RESULTS OF OPERATIONS

DTE Energy reported earnings of $68 million or $.42 per diluted share for the 2002 second quarter, compared to losses of $87 million or $.60 per diluted share for the 2001 second quarter. For the 2002 six-month period, net income was $268 million or $1.66 per diluted share, compared to $51 million or .36 per diluted share for the same period in 2001. The comparability of earnings was affected by merger and restructuring charges and goodwill amortization associated with the MCN Energy merger that reduced after-tax earnings for the 2001 second quarter by $168 million or $1.15 per diluted share and the 2001 six-month period by $169 million or $1.17 per diluted share. Excluding merger and restructuring charges and goodwill amortization, earnings decreased $13 million in the 2002 second quarter and increased by $48 million in the 2002 six-month period as compared to the corresponding 2001 periods. Both periods were affected by increased contributions from the Energy Resources — Regulated segment and the Energy Gas business unit, and reduced earnings from the Wholesale Marketing & Trading segment and Corporate & Other. The issuance of 29 million shares in conjunction with the May 2001 MCN Energy merger, net of 10.5 million shares repurchased in 2001, also impacted the earnings per share comparison.

New reporting alignment - Beginning in 2002, DTE Energy realigned its internal and external financial reporting structure into three strategic business units (Energy Resources, Energy Distribution and Energy Gas) that have both regulated and non-regulated operations. This structure is how management sets strategic goals, allocates resources and evaluates performance. The realignment resulted in the following nine reportable segments:

Energy Resources

•

Regulated operations include the power generation services of Detroit Edison, the Company’s electric utility. Electricity is generated from Detroit Edison’s numerous fossil plants or its nuclear plant and sold throughout Southeastern Michigan to residential, commercial, industrial and wholesale customers.

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•

Non-regulated

	•		Energy Services is comprised of various businesses that develop and manage energy-related assets and services. Such projects include coke production, synfuels production, independent power plants, on-site energy projects and cogeneration facilities. The economic viability of synfuels projects is tied to their generation of alternate fuels tax credits.
	•		Wholesale Marketing & Trading consists of the electric and gas marketing and trading operations of DTE Energy Trading Company and the natural gas marketing and trading operations of DTE Enterprises, which was acquired as part of the MCN Energy merger. Wholesale Marketing & Trading enters into forwards, futures, swaps and option contracts as part of its trading strategy. Wholesale Marketing & Trading focuses on physical power marketing and structured transactions, as well as the enhancement of returns from its power plant, pipeline and storage assets.
	•		Other non-regulated operations consist of businesses involved in coal services and landfill gas recovery along with an independent generating unit.

Energy Distribution

•		Regulated operations include the electric distribution services of Detroit Edison, and the electric transmission services of the International Transmission Company (ITC). Energy Distribution distributes electricity generated by Energy Resources and alternative electric suppliers to Detroit Edison’s 2.1 million residential, commercial and industrial customers. The transmission assets of ITC are operated by the Midwest Independent System Operator, a regional transmission operator.
•		Non-regulated operations primarily consist of DTE Energy Technologies, businesses that market and distribute a broad portfolio of distributed generation products, provide application engineering, and monitor and manage system operations.

Energy Gas

•		Regulated operations include gas distribution services primarily provided by MichCon, the Company’s gas utility that purchases, stores and distributes natural gas throughout Michigan to 1.2 million residential, commercial and industrial customers.
•		Non-regulated operations include the exploration and production of gas and the gathering, processing and storing of gas. Certain pipeline and storage assets are used to support the Wholesale Marketing & Trading segment.

Corporate & Other includes administrative and general expenses, and interest costs of DTE Energy corporate that have not been allocated to the regulated and non-regulated businesses. Corporate & Other also includes various other non-regulated operations, including investments in new emerging energy technologies.

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The following tables and related discussion depicts the operations of each of these segments.

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Energy Resources

Regulated earnings increased $45 million and $40 million during the 2002 second quarter and six-month period reflecting higher gross margins due to lower fuel and purchased power costs, partially offset by a decrease in operating revenue. Fuel and purchased power costs reflect favorable energy market prices and an increase in unrealized mark to market gains. The operating revenues decrease was attributable to the impact of a 5% legislatively mandated, securitization based, rate reduction for commercial and industrial customers that began in April 2001. The higher gross margins were partially offset by increased operations and maintenance expenses for health care and pension costs. Depreciation and amortization expense decreased reflecting the extension of the amortization period from seven years to 15 years for certain regulatory assets that were securitized in 2001.

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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)		The average purchased power amounts include hedging activities.

Non-regulated earnings decreased $33 million and $17 million for the 2002 second quarter and six-month period, respectively, reflecting the operations of the Wholesale Marketing & Trading segment. In the 2001 second quarter, this segment had substantial mark to market gains, largely on gas supply contracts. In late 2001, these gas contracts were hedged, reducing future earnings volatility due to swings in gas prices.

Outlook - Regulatory changes have resulted and will continue to result in increased competition in the electric generation business. Effective January 1, 2002, the electric Customer Choice Program was expanded whereby all electric customers can choose to purchase their electricity from suppliers other than their local utility. Detroit Edison expects to lose 5% to 8% of its retail sales as a result of customers choosing to participate in the electric Choice Program during 2002. To the extent Detroit Edison experiences net stranded costs as a result of customers switching to an alternative electric supplier, Michigan legislation provides for the recovery of such stranded costs. Detroit Edison disagrees with the MPSC’s methodology for determining and recovering net stranded costs and has asked for rehearing, clarification and substantial changes on certain aspects of the applicable order. In May 2002, the MPSC denied Detroit Edison’s request for rehearing and clarification on certain aspects of the order. In June 2002, Detroit Edison filed an appeal of the MPSC order at the Michigan Court of Appeals. See Note 4.

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Energy Distribution

Regulated earnings declined $3 million and $15 million during the 2002 second quarter and six-month period, respectively, due primarily to increased operation and maintenance expenses. The increased operation and maintenance expenses are attributable to higher health care and pension costs, heat-related maintenance costs on the distribution system and costs associated with restoring power to customers who lost service during two storms in the 2002 six-month period. Operating revenues increased due primarily to higher residential sales due to warm June weather.

Non-regulated results declined $1 million and $2 million during the 2002 second quarter and six-month period, respectively, due primarily to expenses associated with the establishment of new sales offices in the distributed generation business.

Outlook - Regulated electric system deliveries are expected to increase in 2002 due to the economic recovery and continue to grow modestly in 2003. Operating results will vary as a result of various external factors such as weather, changes in economic conditions and the severity and frequency of storms. As a result of the continued restructuring of the electric industry, DTE Energy is currently negotiating the sale of ITC. Any divestiture will be independently evaluated to maximize shareholder value.

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Energy Gas

Regulated had a loss of $1 million for the 2002 second quarter and had earnings of $53 million for the 2002 six-month period compared to income of $1 million in both the 2001 comparable periods, reflecting primarily the operations of MichCon, DTE Energy’s natural gas utility. MichCon was acquired in conjunction with the MCN Energy merger in May 2001, and was part of DTE Energy’s operations for only one month in the 2001 second quarter and six-month period. Due to the seasonal nature of the gas utility business, MichCon’s earnings in the second quarter of each year are typically negligible.

Non-regulated earnings were $8 million and $14 million for the 2002 second quarter and six-month period, respectively, compared to earnings of $1 million in both the 2001 comparable periods, reflecting the operations of the gas exploration and production business, and pipeline and processing activities.

Outlook - In December 2001, the MPSC issued an order that continues the Gas Customer Choice Program on a permanent and expanding basis. Beginning April 1, 2002, up to 40% of customers can elect to purchase gas from suppliers other than MichCon. Beginning in April 2003, up to 60% of customers could participate and beginning April 2004, all 1.2 million of MichCon’s gas customers could choose to participate. As of June 2002, approximately 127,000 customers are participating in the gas Customer Choice program. Since MichCon continues to transport and deliver the gas to the participating customers’ premises at prices comparable to the non-gas sales prices, customers switching to other suppliers have no impact on MichCon’s margins.

Weather is the most significant factor that will effect Energy Gas’ sales and therefore its earnings.

Corporate & Other

The net loss attributable to Corporate & Other increased $26 million and $23 million for the 2002 second quarter and six-month period, respectively, due to unfavorable effective income tax rate adjustments and

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higher interest costs. The income tax provisions of the segments are determined on a stand alone basis. Corporate & Other records necessary adjustments in order that the consolidated income tax expense during the quarter reflects the estimated calendar year 2002 effective rate. Interest expense increased due to the debt assumed in the MCN Energy merger.

CAPITAL RESOURCES AND LIQUIDITY

Operating Activities

Net cash from operating activities decreased $19 million during the 2002 six-month period as compared to the same 2001 period. The decline reflects a $21 million increase in working capital and other assets and liabilities, partially offset by an increase of $2 million in net income, after adjusting for depreciation, depletion and amortization and $223 million in non-cash merger and restructuring charges in the 2001 six-month period. Partially offsetting this decline was the incremental contribution of Enterprises’ operating cash inflows in 2002, tempered somewhat by the impact of the recently implemented gas cost recovery mechanism (GCR). Cash flow was negatively impacted by the under-recovery of gas costs totaling $38 million, as part of the GCR mechanism implemented in January 2002, where MichCon is allowed to recover its actual gas costs from gas customers. Over the balance of 2002 this amount is expected to reverse with a small remaining under-recovery balance by year-end that will be trued-up as part of 2002’s GCR reconciliation process.

Higher working capital levels reflect increased accounts receivables of $148 million, largely the result of the impact of the economy on collections and the under-recovery of gas costs. Management expects lower receivables outstanding by year end. Increased electric sales due to warm June weather also contributed to the higher receivable balance. In addition, lower accounts payable levels represent the internal focus on managing external payments and taking greater advantage of purchase discounts.

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Investing Activities

Net cash used for investing activities decreased $1.22 billion during the 2002 six-month period as compared to the same 2001 period. The decrease is primarily due to the acquisition of MCN Energy in the 2001 six-month period.

Financing Activities

Net cash from financing activities decreased $1.67 billion during the 2002 six-month period as compared to the same 2001 period. The decrease is primarily due to the issuance of $1.75 billion of securitization bonds in March 2001 and the issuance of $1.35 billion of long-term debt to finance the cash consideration portion of the acquisition of MCN Energy.

In April 2002, DTE Energy issued $200 million of 6.65% senior notes due 2009. The proceeds were used to retire MCN Energy Enterprises Remarketed Securities, which had an aggregate principal amount of $100 million, and to reduce short-term borrowings.

In June 2002, DTE Energy issued 6.9 million equity security units at $25 per unit. An equity security unit consists of a stock purchase contract and a senior note of DTE Energy. DTE Energy used the net proceeds of $166.9 million from this issuance for general corporate purposes, including the repayment of short-term borrowings.

In June 2002, DTE Energy also issued 6.325 million shares of common stock at $43.25 per share, grossing $273.6 million. Net proceeds from the common stock offering were approximately $265 million and are recorded in the accompanying consolidated statement of shareholders’ equity.

ENVIRONMENTAL MATTERS

EPA ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution will impact the Company. Detroit Edison has spent approximately $348 million through June 2002 and estimates that it will incur an additional $400 to $500 million of future capital expenditures over the next three years to comply.

NEW ACCOUNTING PRONOUNCEMENTS

During 2001, the Financial Accounting Standards Board (FASB) issued new accounting pronouncements concerning business combinations, goodwill and other intangible assets, asset retirement obligations and impairment or disposal of long-lived assets. See Note 9 for a discussion of the Company’s evaluation of the adoption of these new accounting pronouncements.

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FAIR VALUE OF CONTRACTS

The following table reflects the maturity and sources of the net fair value gain (loss) of contracts at June 30, 2002: