##### 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 September 30, 2005
 Commission file number 1-7310
  MICHIGAN CONSOLIDATED GAS COMPANY
  Michigan
    
    
    
    38-0478040(State or other jurisdiction of
    
    
    
    (I.R.S. Employerincorporation or organization)
    
    
    
    Identification No.)2000 2nd Avenue, Detroit, Michigan
(Address of principal executive offices)
    
    
    
    48226-1279
(Zip Code)
 313-235-4000
   Yes þ            No o
  Yes o            No þ
  Yes o            No þ




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##### Table of Contents



Michigan Consolidated Gas Company
 Quarterly Report on Form 10-Q
 Quarter Ended September 30, 2005
  
 Table of Contents
 PageNumberDEFINITIONS
    
    
    1FORWARD-LOOKING STATEMENTS
    
    
    2PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statement of Operations
    
    
    7Consolidated Statement of Financial Position
    
    
    8Consolidated Statement of Cash Flows
    
    
    10Consolidated Statement of Retained Earnings and Comprehensive Income
    
    
    11Notes to Consolidated Financial Statements
    
    
    12Report of Independent Registered Public Accounting Firm
    
    
    19Item 2. Managements Narrative Analysis of the Results of Operations
    
    
    3Item 4. Controls and Procedures
    
    
    6PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURE
    
    
    21Awareness Letter of Deloitte & Touche LLPChief Executive Officer Section 302 CertificationChief Financial Officer Section 302 CertificationChief Executive Officer Section 906 Form 10-Q CertificationChief Financial Officer Section 906 Form 10-Q Certification




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##### Table of Contents



Definitions
 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 Detroit Edison, 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., 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.MichCon
    
    Michigan Consolidated Gas Company, an
indirect, wholly-owned natural gas
distribution and intrastate transmission
subsidiary of Enterprises.MPSC
    
    Michigan Public Service Commission.SFAS
    
    Statement of Financial Accounting Standards.Units of Measurement:Bcf
    
    Billion cubic feet of gas.Mcf
    
    Thousand cubic feet of gas.
 1




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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 and regulations, and the cost of remediation and compliance associated therewith;
    
    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 borrowing;
    
    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 federal, state and local tax laws or 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 accounting standards and financial reporting regulations;
    
    changes in federal or state laws or their interpretation with respect to regulation, energy policy and other business
issues;
    
    uncollectible accounts receivable; 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




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Managements Narrative Analysis of the Results of Operations
  OVERVIEW
  Gas cost recovery order
 Gas final rate order
     3




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##### Table of Contents



RESULTS OF OPERATIONS
 Quarter
    
    
    Nine MonthsIncrease
(Decrease) in Income Statement Components Compared to Prior Year(in Millions)Operating revenues
    
    $
    51
    
    
    $
    160Cost of gas
    
    
    36
    
    
    
    145Gross margin
    
    
    15
    
    
    
    15Operation and maintenance
    
    
    3
    
    
    
    13Depreciation, depletion and amortization
    
    
    (5
    )
    
    
    (8
    )Taxes other than income
    
    
    (3
    )
    
    
    (2
    )Asset (gains) and losses, net
    
    
    
    
    
    
    50Other (income) and deductions
    
    
    (1
    )
    
    
    (1
    )Income tax provision
    
    
    (191
    )
    
    
    (153
    )Net income
    
    $
    212
    
    
    $
    116
 Gross margins
    4




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Quarter
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Gas Markets (in Millions)Gas sales
    
    $
    147
    
    
    $
    107
    
    
    $
    1,105
    
    
    $
    963End user transportation
    
    
    24
    
    
    
    20
    
    
    
    97
    
    
    
    88171
    
    
    
    127
    
    
    
    1,202
    
    
    
    1,051Intermediate transportation
    
    
    14
    
    
    
    11
    
    
    
    40
    
    
    
    38Other
    
    
    21
    
    
    
    17
    
    
    
    59
    
    
    
    52$
    206
    
    
    $
    155
    
    
    $
    1,301
    
    
    $
    1,141Gas Markets (in Bcf)Gas sales
    
    
    10
    
    
    
    12
    
    
    
    114
    
    
    
    117End user transportation
    
    
    34
    
    
    
    27
    
    
    
    116
    
    
    
    10744
    
    
    
    39
    
    
    
    230
    
    
    
    224Intermediate transportation
    
    
    95
    
    
    
    128
    
    
    
    313
    
    
    
    431139
    
    
    
    167
    
    
    
    543
    
    
    
    655
 Operation and maintenance
 Asset gains and losses, net
 Income taxes
 Outlook
 5




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CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
 
 6




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MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(in Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Operating Revenues
    
    $
    206
    
    
    $
    155
    
    
    $
    1,301
    
    
    $
    1,141Operating ExpensesCost of gas
    
    
    100
    
    
    
    64
    
    
    
    858
    
    
    
    713Operation and maintenance
    
    
    93
    
    
    
    90
    
    
    
    308
    
    
    
    295Depreciation, depletion and amortization
    
    
    23
    
    
    
    28
    
    
    
    73
    
    
    
    81Taxes other than income
    
    
    9
    
    
    
    12
    
    
    
    35
    
    
    
    37Asset (gains) and losses, net (Note 3)
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    (2
    )225
    
    
    
    194
    
    
    
    1,322
    
    
    
    1,124Operating Income (Loss)
    
    
    (19
    )
    
    
    (39
    )
    
    
    (21
    )
    
    
    17Other (Income) and DeductionsInterest expense
    
    
    14
    
    
    
    14
    
    
    
    42
    
    
    
    41Interest income
    
    
    (3
    )
    
    
    (2
    )
    
    
    (8
    )
    
    
    (7
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    12
    
    
    
    34
    
    
    
    35Loss Before Income Taxes
    
    
    (30
    )
    
    
    (51
    )
    
    
    (55
    )
    
    
    (18
    )Income Tax Provision (Benefit)
    
    
    (189
    )
    
    
    2
    
    
    
    (151
    )
    
    
    2Net Income (Loss)
    
    $
    159
    
    
    $
    (53
    )
    
    $
    96
    
    
    $
    (20
    )
  7




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MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 September 30, 2005
    
    
    December 31,(in Millions)
    
    (Unaudited)
    
    
    2004ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1
    
    
    $
    Accounts receivableCustomer (less allowance for doubtful accounts of $80 and
$71, respectively)
    
    
    115
    
    
    
    184Accrued unbilled revenues
    
    
    32
    
    
    
    167Other
    
    
    75
    
    
    
    82Accrued gas cost recovery revenue
    
    
    21
    
    
    
    55InventoriesGas
    
    
    217
    
    
    
    89Material and supplies
    
    
    15
    
    
    
    15Gas customer choice deferred asset
    
    
    56
    
    
    
    56Other
    
    
    37
    
    
    
    21569
    
    
    
    669Property, Plant and Equipment
    
    
    3,204
    
    
    
    3,195Less accumulated depreciation, depletion and amortization
    
    
    (1,447
    )
    
    
    (1,409
    )1,757
    
    
    
    1,786Other AssetsOther investments
    
    
    90
    
    
    
    92Notes receivable
    
    
    80
    
    
    
    81Regulatory assets
    
    
    56
    
    
    
    64Prepaid benefit costs and due from affiliate
    
    
    391
    
    
    
    367Other
    
    
    12
    
    
    
    17629
    
    
    
    621Total Assets
    
    $
    2,955
    
    
    $
    3,076
  8




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MICHIGAN CONSOLIDATED GAS COMPANY
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 September 30, 2005
    
    
    December 31,(in Millions)
    
    (Unaudited)
    
    
    2004LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    193
    
    
    $
    149Dividends payable
    
    
    13
    
    
    
    13Short-term borrowings
    
    
    171
    
    
    
    242Current portion of long-term debt, including capital leases
    
    
    40
    
    
    
    Federal income, property and other taxes payable
    
    
    20
    
    
    
    38Regulatory liabilities
    
    
    
    
    
    
    28Other
    
    
    70
    
    
    
    72507
    
    
    
    542Other LiabilitiesDeferred income taxes
    
    
    58
    
    
    
    184Regulatory liabilities
    
    
    571
    
    
    
    564Unamortized investment tax credit
    
    
    17
    
    
    
    18Accrued postretirement benefit costs
    
    
    131
    
    
    
    118Accrued environmental costs
    
    
    19
    
    
    
    17Other
    
    
    58
    
    
    
    57854
    
    
    
    958Long-Term debt, including capital lease obligations
    
    
    745
    
    
    
    785Contingencies (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
    
    
    408
    
    
    
    350Accumulated other comprehensive loss
    
    
    (1
    )
    
    
    (1
    )849
    
    
    
    791Total Liabilities and Shareholders Equity
    
    $
    2,955
    
    
    $
    3,076
  9




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MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Nine Months EndedSeptember 302005
    
    
    2004(in Millions)Operating ActivitiesNet income (loss)
    
    $
    96
    
    
    $
    (20
    )Adjustments to reconcile net income (loss) to net cash
from operating activities:Depreciation, depletion and amortization
    
    
    73
    
    
    
    81Deferred income taxes and investment tax credit, net
    
    
    (140
    )
    
    
    22Asset (gains) and losses, net
    
    
    48
    
    
    
    (2
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    76
    
    
    
    90Accrued unbilled revenues
    
    
    135
    
    
    
    90Inventories
    
    
    (128
    )
    
    
    (65
    )Property taxes assessed applicable to future periods
    
    
    (11
    )
    
    
    (10
    )Postretirement obligation
    
    
    13
    
    
    
    11Prepaid benefit costs and due from affiliate
    
    
    (24
    )
    
    
    (26
    )Accrued gas cost recovery
    
    
    6
    
    
    
    (52
    )Accounts payable
    
    
    44
    
    
    
    14Federal income, property and other taxes payable
    
    
    (18
    )
    
    
    (18
    )Other assets
    
    
    18
    
    
    
    20Other liabilities
    
    
    5
    
    
    
    (5
    )Net cash from operating activities
    
    
    193
    
    
    
    130Investing ActivitiesCapital expenditures
    
    
    (84
    )
    
    
    (72
    )Proceeds from sale of assets
    
    
    
    
    
    
    5Other
    
    
    1
    
    
    
    1Net cash used for investing activities
    
    
    (83
    )
    
    
    (66
    )Financing ActivitiesRedemption of long-term debt
    
    
    
    
    
    
    (3
    )Short-term borrowings, net
    
    
    (71
    )
    
    
    (23
    )Dividends paid
    
    
    (38
    )
    
    
    (38
    )Net cash used for financing activities
    
    
    (109
    )
    
    
    (64
    )Net Increase in Cash and Cash Equivalents
    
    
    1
    
    
    
    Cash and Cash Equivalents at Beginning of Period
    
    
    
    
    
    
    1Cash and Cash Equivalents at End of Period
    
    $
    1
    
    
    $
    1Supplementary Cash Flow InformationInterest paid (excluding interest capitalized)
    
    $
    45
    
    
    $
    46Income taxes paid
    
    
    
    
    
    
    
  10




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MICHIGAN CONSOLIDATED GAS COMPANY
 
 CONSOLIDATED STATEMENT OF RETAINED EARNINGS
 AND COMPREHENSIVE INCOME (UNAUDITED)
 Nine Months EndedSeptember 302005
    
    
    2004(in Millions)Balance  beginning of period
    
    $
    350
    
    
    $
    381Net income (loss)
    
    
    96
    
    
    
    (20
    )Common stock dividends declared
    
    
    (38
    )
    
    
    (38
    )Balance  end of period
    
    $
    408
    
    
    $
    323
  (in Millions)
    

2005
    
    
    2004Net income (loss)
    
    $
    96
    
    
    $
    (20
    )Other comprehensive loss, net of tax:Net unrealized losses on derivatives:Losses arising during the period, net of
taxes of $- and $(1), respectively
    
    
    
    
    
    
    (1
    )
    
    
    
    (1
    )Comprehensive income (loss)
    
    $
    96
    
    
    $
    (21
    )
  11




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Michigan Consolidated Gas Company
 
 Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  GENERAL
     Asset Retirement Obligations
 Accounting for Asset Retirement Obligations, Accounting for the Effects of Certain Types of Regulation
  (in Millions)Asset retirement obligations at January 1, 2005
    
    $
    5Accretion
    
    
    Liabilities settled
    
    
    Asset retirement obligations at September 30, 2005
    
    $
    5
 Retirement Benefits and Trusteed Assets
  12




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Other Postretirement(in Millions)
    
    Pension Benefits
    
    
    BenefitsThree Months Ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service Cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    2Interest Cost
    
    
    4
    
    
    
    4
    
    
    
    6
    
    
    
    6Expected Return on Plan Assets
    
    
    (7
    )
    
    
    (7
    )
    
    
    (3
    )
    
    
    (3
    )Amortization ofNet loss
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    1Prior service cost
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Net transition liability
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Net Periodic Benefit Cost (Credit)
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    10
    
    
    $
    8
 Other Postretirement(in Millions)
    
    Pension Benefits
    
    
    BenefitsNine Months Ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service Cost
    
    $
    4
    
    
    $
    4
    
    
    $
    9
    
    
    $
    6Interest Cost
    
    
    11
    
    
    
    11
    
    
    
    18
    
    
    
    17Expected Return on Plan Assets
    
    
    (21
    )
    
    
    (21
    )
    
    
    (9
    )
    
    
    (8
    )Amortization ofNet loss
    
    
    1
    
    
    
    
    
    
    
    5
    
    
    
    2Prior service cost
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    Net transition liability
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    6Net Periodic Benefit Cost (Credit)
    
    $
    (4
    )
    
    $
    (5
    )
    
    $
    29
    
    
    $
    23
 NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Conditional Asset Retirement Obligations
 Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB Statement No. 143.
 13




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NOTE 3  REGULATORY MATTERS
 Emergency Rules for Gas Bills
  Gas Rate Case
 MPSC Final Rate Order
      14




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Gas Cost Recovery Proceedings
 2002 Plan Year
  2003 Plan Year
 2004 Plan Year 
 2005-2006 Plan Year 
  15




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Other
  NOTE 4  SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
   NOTE 5  CONTINGENCIES
 Environmental Matters
 Contaminated Sites
   16




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Personal Property Taxes
  Other Commitments
  Bankruptcies
  17




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Other
   18




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















19



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OTHER INFORMATION


LEGAL PROCEEDINGS









EXHIBITS


ExhibitNumber
    
    Description  15-11
    
    Awareness Letter of Deloitte & Touche LLP31-19
    
    Chief Executive Officer Section 302 Form 10-Q Certification31-20
    
    Chief Financial Officer Section 302 Form 10-Q Certification
  10-17
    
    Form of Five-Year Credit Agreement, dated as of October 17, 2005, by and among
Michigan Consolidated Gas Company, the lenders party thereto, JPMorgan Chase
Bank, N.A., as Administrative Agent, and Barclays Bank PLC and Citibank, N.A.
as
Co-Syndication Agents (Exhibit 10.1 to Form 8-K dated October 17, 2005).10-18
    
    Form of Second Amended and Restated Five-Year Credit Agreement, dated as of
October 17, 2005, by and among Michigan Consolidated Gas Company, the lenders
party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and
Barclays Bank PLC and Citibank, N.A. as Co-Syndication Agents (Exhibit 10.2
to Form 8-K dated October 17, 2005).
  32-19
    
    Chief Executive Officer Section 906 Form 10-Q Certification32-20
    
    Chief Financial Officer Section 906 Form 10-Q Certification
 20




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##### Table of Contents



Signature
  MICHIGAN CONSOLIDATED
GAS COMPANYDate: November 8, 2005
    
    /s/ DANIEL G. BRUDZYNSKIDaniel G. BrudzynskiChief Accounting Officer,Vice President and Controller
 21




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EXHIBIT INDEX
 ExhibitNumber
    
    Description15-11
    
    Awareness Letter of Deloitte & Touche LLP31-19
    
    Chief Executive Officer Section 302 Form 10-Q Certification31-20
    
    Chief Financial Officer Section 302 Form 10-Q Certification32-19
    
    Chief Executive Officer Section 906 Form 10-Q Certification32-20
    
    Chief Financial Officer Section 906 Form 10-Q Certification