##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period ended June 30, 2006
 Commission file number 1-7310
 The registrant meets the conditions set forth in General Instructions H (1) (a) and (b) of Form
10-Q and is, therefore, filing this Form with the reduced disclosure format.
 MICHIGAN CONSOLIDATED GAS COMPANY
  Michigan
    
    
    
    38-0478040(State or other jurisdiction of
    
    
    
    (I.R.S. Employerincorporation or organization)
    
    
    
    Identification No.)2000 2ndAvenue, Detroit, Michigan
    
    
    
    48226-1279(Address of principal executive offices)
    
    
    
    (Zip Code)
 313-235-4000
  Yes þ No o
  Large accelerated filer o Accelerated filer o Non-accelerated filer þ
  Yes o No þ




---



##### 



Michigan Consolidated Gas Company
 Quarterly Report on Form 10-Q  Quarter Ended June 30, 2006
 Table of Contents
 PageNumberDEFINITIONS
    
    
    1FORWARD-LOOKING STATEMENTS
    
    
    2PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statement of Operations
    
    
    6Consolidated Statement of Financial Position
    
    
    7Consolidated Statement of Cash Flows
    
    
    9Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income
    
    
    10Notes to Consolidated Financial Statements
    
    
    11Item 2. Managements Narrative Analysis of Results of Operations
    
    
    3Item 4. Controls and Procedures
    
    
    5PART
II  OTHER INFORMATIONItem 1.
Legal Proceedings
    
    
    17Item 6.
Exhibits
    
    
    17SIGNATURE
    
    
    18Chief Executive Officer Section 302Chief Financial Officer Section 302Chief Executive Officer Section 906Chief Financial Officer Section 906




---



##### Table of Contents



Definitions
 Company or MichCon
    
    Michigan Consolidated Gas Company, an
indirect, wholly-owned natural gas
distribution and intrastate transmission
subsidiary of Enterprises.Customer Choice
    
    Statewide initiatives giving customers in
Michigan the option to choose alternative
suppliers for gas.DTE Energy
    
    DTE Energy Company, directly or indirectly,
the parent of The Detroit Edison Company,
MichCon and numerous non-utility subsidiaries.End User Transportation
    
    A gas delivery service historically provided
to large-volume commercial and industrial
customers who purchase natural gas directly
from producers or brokerage companies. Under
MichCons Customer Choice Program that began
in 1999, this service is also provided to
residential customers and small-volume
commercial and industrial customers.Enterprises
    
    DTE Enterprises Inc., a wholly owned
subsidiary of DTE Energy and indirectly the
parent of MichCon.Gas storage
    
    For MichCon, the process of injecting,
storing, and withdrawing natural gas from a
depleted underground natural gas field.GCR
    
    A gas cost recovery mechanism authorized by
the MPSC, permitting MichCon to pass the cost
of natural gas to its customers.Intermediate Transportation
    
    A gas delivery service provided to producers,
brokers and other gas companies that own the
natural gas, but are not the ultimate
consumers.MPSC
    
    Michigan Public Service CommissionSFAS
    
    Statement of Financial Accounting StandardsUnits of Measurement:Bcf
    
    Billion cubic feet of gasMcf
    
    Thousand cubic feet of gas
 1




---



##### Table of Contents



Forward-Looking Statements
  
    
    the effects of weather and other natural phenomena on operations and sales to customers,
and purchases from suppliers;
    
    economic climate and population growth or decline in the geographic areas where we do
business;
    
    environmental issues, laws, regulations, and the cost of remediation and compliance;
    
    implementation of the gas Customer Choice program;
    
    impact of gas utility restructuring in Michigan, including legislative amendments;
    
    employee relations and the impact of collective bargaining agreements;
    
    access to capital markets and capital market conditions and the results of other
financing efforts which can be affected by credit agency ratings;
    
    the timing and extent of changes in interest rates;
    
    the level of borrowings;
    
    changes in the cost and availability of natural gas;
    
    effects of competition;
    
    impact of regulation by the MPSC and other applicable governmental proceedings and
regulations;
    
    changes in and application of federal, state and local tax laws and their
interpretations, including the Internal Revenue Code, regulations, rulings, court
proceedings and audits;
    
    the ability to recover costs through rate increases;
    
    the availability, cost, coverage and terms of insurance;
    
    the cost of protecting assets against, or damage due to, terrorism;
    
    changes in and application of accounting standards and financial reporting regulations;
    
    changes in federal or state laws and their interpretation with respect to regulation,
energy policy and other business issues;
    
    uncollectible accounts receivable;
    
    litigation and related appeals; and
    
    changes in the economic and financial viability of our suppliers and customers, and the
continued ability of such parties to perform their obligations to the Company.
  2




---



##### Table of Contents



Managements Narrative Analysis of Results of Operations
   Factors impacting income:
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 30Increase (Decrease) in Income Statement Components
Compared to Prior Year(in Millions)Operating revenues
    
    $
    (32
    )
    
    $
    (3
    )Cost of gas
    
    
    (43
    )
    
    
    (46
    )Gross margin
    
    
    11
    
    
    
    43Operation and maintenance
    
    
    14
    
    
    
    14Depreciation and amortization
    
    
    
    
    
    
    (3
    )Taxes other than income
    
    
    
    
    
    
    2Asset (gains) and losses, net
    
    
    3
    
    
    
    (45
    )Other (income) and deductions
    
    
    1
    
    
    
    2Income tax provision
    
    
    (44
    )
    
    
    (27
    )Net income (loss)
    
    $
    37
    
    
    $
    100
 Gross margins
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Gas Markets (in Millions)Gas sales
    
    $
    163
    
    
    $
    202
    
    
    $
    944
    
    
    $
    958End user transportation
    
    
    27
    
    
    
    28
    
    
    
    72
    
    
    
    73190
    
    
    
    230
    
    
    
    1,016
    
    
    
    1,031Intermediate transportation
    
    
    13
    
    
    
    11
    
    
    
    29
    
    
    
    26Other
    
    
    26
    
    
    
    20
    
    
    
    47
    
    
    
    38$
    229
    
    
    $
    261
    
    
    $
    1,092
    
    
    $
    1,095
 3




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Gas Markets (in Bcf)Gas sales
    
    
    17
    
    
    
    22
    
    
    
    82
    
    
    
    104End user transportation
    
    
    27
    
    
    
    33
    
    
    
    71
    
    
    
    8244
    
    
    
    55
    
    
    
    153
    
    
    
    186Intermediate transportation
    
    
    125
    
    
    
    84
    
    
    
    289
    
    
    
    218169
    
    
    
    139
    
    
    
    442
    
    
    
    404
 Operation and maintenance
 Asset (gains) and losses, net
 Income taxes
 Outlook
  4




---



##### Table of Contents



CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
 
 5




---



##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 30(in Millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Operating Revenues
    
    $
    229
    
    
    $
    261
    
    
    $
    1,092
    
    
    $
    1,095Operating ExpensesCost of gas
    
    
    88
    
    
    
    131
    
    
    
    712
    
    
    
    758Operation and maintenance
    
    
    110
    
    
    
    96
    
    
    
    229
    
    
    
    215Depreciation and amortization
    
    
    24
    
    
    
    24
    
    
    
    47
    
    
    
    50Taxes other than income
    
    
    13
    
    
    
    13
    
    
    
    28
    
    
    
    26Asset (gains) and losses, net
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    48238
    
    
    
    264
    
    
    
    1,019
    
    
    
    1,097Operating Income (Loss)
    
    
    (9
    )
    
    
    (3
    )
    
    
    73
    
    
    
    (2
    )Other (Income) and DeductionsInterest expense
    
    
    15
    
    
    
    13
    
    
    
    32
    
    
    
    28Interest income
    
    
    (2
    )
    
    
    (3
    )
    
    
    (4
    )
    
    
    (5
    )Other income
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )
    
    
    (2
    )Other expenses
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    211
    
    
    
    10
    
    
    
    25
    
    
    
    23Income (Loss) Before Income Taxes
    
    
    (20
    )
    
    
    (13
    )
    
    
    48
    
    
    
    (25
    )Income Tax Provision (Benefit)
    
    
    (7
    )
    
    
    37
    
    
    
    11
    
    
    
    38Net Income (Loss)
    
    $
    (13
    )
    
    $
    (50
    )
    
    $
    37
    
    
    $
    (63
    )
  6




---



##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 (Unaudited)June 30
    
    
    December 31(in Millions)
    
    2006
    
    
    2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1
    
    
    $
    7Accounts receivableCustomer (less allowance for doubtful accounts of $105 and $78, respectively)
    
    
    273
    
    
    
    552Other
    
    
    64
    
    
    
    79Accrued gas cost recovery revenue
    
    
    
    
    
    
    42InventoriesGas
    
    
    102
    
    
    
    119Material and supplies
    
    
    16
    
    
    
    16Gas customer choice deferred asset
    
    
    50
    
    
    
    65Other
    
    
    20
    
    
    
    30526
    
    
    
    910Investments
    
    
    92
    
    
    
    90PropertyProperty, plant and equipment
    
    
    3,294
    
    
    
    3,252Less accumulated depreciation
    
    
    (1,506
    )
    
    
    (1,468
    )1,788
    
    
    
    1,784Other AssetsRegulatory assets
    
    
    98
    
    
    
    65Notes receivable
    
    
    79
    
    
    
    80Prepaid benefit costs and due from affiliate
    
    
    413
    
    
    
    399Other
    
    
    13
    
    
    
    15603
    
    
    
    559Total Assets
    
    $
    3,009
    
    
    $
    3,343
  7




---



##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 (Unaudited)June 30
    
    
    December 31(in Millions)
    
    2006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    125
    
    
    $
    246Dividends payable
    
    
    13
    
    
    
    13Short-term borrowings
    
    
    127
    
    
    
    439Current portion of long-term debt, including capital leases
    
    
    30
    
    
    
    40Federal income, property and other taxes payable
    
    
    37
    
    
    
    24Regulatory liabilities
    
    
    72
    
    
    
    Gas inventory equalization (Note 1)
    
    
    52
    
    
    
    Other
    
    
    65
    
    
    
    70521
    
    
    
    832Other LiabilitiesDeferred income taxes
    
    
    185
    
    
    
    191Regulatory liabilities
    
    
    500
    
    
    
    490Accrued postretirement benefit costs
    
    
    136
    
    
    
    144Other
    
    
    186
    
    
    
    1871,007
    
    
    
    1,012Long-Term debt, (net of current portion)
    
    
    715
    
    
    
    745Contingencies
(Notes 3 and 5)Shareholders EquityCommon stock, $1 par value, 15,100,000 shares authorized,
10,300,000 shares issued and outstanding
    
    
    10
    
    
    
    10Additional paid in capital
    
    
    432
    
    
    
    432Retained earnings
    
    
    325
    
    
    
    313Accumulated other comprehensive loss
    
    
    (1
    )
    
    
    (1
    )766
    
    
    
    754Total Liabilities and Shareholders Equity
    
    $
    3,009
    
    
    $
    3,343
  8




---



##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Six Months EndedJune 30(in Millions)
    
    2006
    
    
    2005Operating ActivitiesNet income (loss)
    
    $
    37
    
    
    $
    (63
    )Adjustments to reconcile net income (loss) to net cash
from operating activities:Depreciation and amortization
    
    
    47
    
    
    
    50Deferred income taxes and investment tax credit, net
    
    
    (18
    )
    
    
    23Asset (gains) and losses, net
    
    
    3
    
    
    
    48Changes in assets and liabilities:Accounts receivable, net
    
    
    294
    
    
    
    144Inventories
    
    
    17
    
    
    
    31Postretirement obligation
    
    
    (8
    )
    
    
    8Property taxes assessed applicable to future periods
    
    
    2
    
    
    
    (2
    )Prepaid benefit costs and due from affiliate
    
    
    (14
    )
    
    
    (16
    )Accrued gas cost recovery
    
    
    115
    
    
    
    17Accounts payable
    
    
    (111
    )
    
    
    8Gas inventory equalization
    
    
    52
    
    
    
    116Federal income, property and other taxes payable
    
    
    13
    
    
    
    10Other assets
    
    
    2
    
    
    
    28Other liabilities
    
    
    2
    
    
    
    10Net cash from operating activities
    
    
    433
    
    
    
    412Investing ActivitiesPlant and equipment expenditures
    
    
    (62
    )
    
    
    (51
    )Notes receivable from affiliate
    
    
    1
    
    
    
    (99
    )Acquisitions, net of cash acquired
    
    
    (1
    )
    
    
    Other
    
    
    
    
    
    
    1Net cash used for investing activities
    
    
    (62
    )
    
    
    (149
    )Financing ActivitiesRedemption of long-term debt
    
    
    (40
    )
    
    
    Short-term borrowings, net
    
    
    (312
    )
    
    
    (237
    )Dividends on common stock
    
    
    (25
    )
    
    
    (25
    )Net cash used for financing activities
    
    
    (377
    )
    
    
    (262
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (6
    )
    
    
    1Cash and Cash Equivalents at Beginning of Period
    
    
    7
    
    
    
    Cash and Cash Equivalents at End of Period
    
    $
    1
    
    
    $
    1Supplementary Cash Flow InformationInterest paid (excluding interest capitalized)
    
    $
    33
    
    
    $
    28Income taxes paid
    
    
    
    
    
    
    
  9




---



##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 AND COMPREHENSIVE INCOME (UNAUDITED)
 AccumulatedAdditional
    
    
    
    
    
    Other(Dollars in Millions,
    
    Common Stock
    
    Paid in
    
    Retained
    
    ComprehensiveShares in Thousands)
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Income
    
    TotalBalance, December 31, 2005
    
    
    10,300
    
    
    $
    10
    
    
    $
    432
    
    
    $
    313
    
    
    $
    (1
    )
    
    $
    754Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    37Dividends declared on
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Balance, June 30, 2006
    
    
    10,300
    
    
    $
    10
    
    
    $
    432
    
    
    $
    325
    
    
    $
    (1
    )
    
    $
    766
  (in Millions)
    
    2006
    
    
    2005Net income (loss)
    
    $
    37
    
    
    $
    (63
    )Comprehensive income (loss)
    
    $
    37
    
    
    $
    (63
    )
  10




---



##### Table of Contents



Michigan Consolidated Gas Company
 
 Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  GENERAL
     Asset Retirement Obligations
 Accounting for
Asset Retirement Obligations Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143
 Accounting for the
Effects of Certain Types of Regulation.
  (in Millions)Asset retirement obligations at January 1, 2006
    
    $
    97Accretion
    
    
    4Asset retirement obligations at June 30, 2006
    
    $
    101
 Retirement Benefits and Trusteed Assets
  11




---



##### Table of Contents



Other Postretirement(in Millions)
    
    Pension Benefits
    
    
    BenefitsThree Months Ended June 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    3Interest Cost
    
    
    4
    
    
    
    3
    
    
    
    7
    
    
    
    6Expected Return on Plan Assets
    
    
    (8
    )
    
    
    (7
    )
    
    
    (3
    )
    
    
    (3
    )Amortization ofNet loss
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    1Prior service cost
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1Net transition liability
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net Periodic Benefit Cost (Credit)
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    11
    
    
    $
    9
 Other Postretirement(in Millions)
    
    Pension Benefits
    
    
    BenefitsSix Months Ended June 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    3
    
    
    $
    3
    
    
    $
    7
    
    
    $
    6Interest Cost
    
    
    8
    
    
    
    7
    
    
    
    13
    
    
    
    12Expected Return on Plan Assets
    
    
    (15
    )
    
    
    (14
    )
    
    
    (5
    )
    
    
    (6
    )Amortization ofNet loss
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    3Prior service cost
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Net transition liability
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3Net Periodic Benefit Cost (Credit)
    
    $
    (3
    )
    
    $
    (3
    )
    
    $
    23
    
    
    $
    19
  Gas in Inventory
  NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS
 Stock-Based Compensation
 Share-Based Payment,
 12




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
 Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109  Accounting for Income
Taxes.
 NOTE 3  REGULATORY MATTERS
 Regulatory Accounting Treatment for Performance Excellence Process
  Uncollectible Expense Tracker Mechanism and Report of Safety and Training-Related Expenditures
  Gas Cost Gas Cost Recovery Proceedings
 2004 Plan Year 
 13




---



##### Table of Contents



2005-2006 Plan Year 
 2006-2007 Plan Year
 Other
  NOTE 4  LONG -TERM DEBT
 Debt Retirements and Redemptions
  (in Millions)MonthCompany
    
    Retired
    
    
    Type

    
    Interest Rate

    
    Maturity
    
    
    AmountMichCon
    
    May
    
    First Mortgage Bonds
    
    
    7.15
    %
    
    May 2006
    
    $
    40Total Retirements
    
    
    
    
    
    $
    40
 14




---



##### Table of Contents



NOTE 5  CONTINGENCIES
 Environmental Matters
 Contaminated Sites 
   Personal Property Taxes
   15




---



##### Table of Contents



Income Taxes
  Other Commitments
  Bankruptcies
  Other
   16




---



##### Table of Contents



OTHER INFORMATION
 
 LEGAL PROCEEDINGS
   
 EXHIBITS
 ExhibitNumber
    

DescriptionFiled:31-25
    
    Chief Executive Officer Section 302 Form 10-Q Certification31-26
    
    Chief Financial Officer Section 302 Form 10-Q CertificationFurnished:32-25
    
    Chief Executive Officer Section 906 Form 10-Q Certification32-26
    
    Chief Financial Officer Section 906 Form 10-Q Certification
 17




---



##### Table of Contents



Signature
  MICHIGAN CONSOLIDATEDGAS COMPANYDate: August 8, 2006
    
    /s/ PETER B. OLEKSIAK

Peter B. OleksiakController
 18




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    

Description31-25
    
    Chief Executive Officer Section 302 Form 10-Q Certification31-26
    
    Chief Financial Officer Section 302 Form 10-Q Certification32-25
    
    Chief Executive Officer Section 906 Form 10-Q Certification32-26
    
    Chief Financial Officer Section 906 Form 10-Q Certification
 19