##### Table of Contents





SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


|                                            |  |                               
|------------------------------------------- |  | ------------------------------
|                                           
|                                           
|                                           
|                                           
|For the fiscal year ended December 31, 2000 |  | Commission file number 1-10070

MCN ENERGY GROUP INC.



|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Michigan                                                        |  | 38-2820658                           
|                                                               
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|500 Griswold Street, Detroit, Michigan                          |  | 48226                                
|(Address of principal executive offices)                        |  | (Zip Code)                           

313-256-5500


(Registrants telephone number, including
area code)


Securities registered pursuant to Section 12(b) of the
Act:

|                                                  |  |                        
|------------------------------------------------- |  | -----------------------
|                                                  |  | Name of each Exchange  
|Title of each class                               |  | on which registered    
|                                                  |  |                        
|Common Stock, $.01 Par Value Per Share            |  | New York Stock Exchange
|9 3/8% Cumulative Preferred Securities, Series A* |  | New York Stock Exchange
|8 5/8% Trust Originated Preferred Securities**    |  | New York Stock Exchange
|8 5/8% Trust Preferred Securities***              |  | New York Stock Exchange
|                                                  |  |                        

|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Issued by MCN Michigan Limited Partnership. The payments of
	dividends and payments on liquidation or redemption are
	guaranteed by MCN Energy Group Inc.
|**  | Issued by MCN Financing I. The payments of dividends and
	payments on liquidation or redemption are guaranteed by MCN
	Energy Group Inc.                 
|*** | Issued by MCN Financing II. The payments of dividends and
	payments on liquidation or redemption are guaranteed by MCN
	Energy Group Inc.                

Securities registered pursuant to Section 12(g) of the
Act:None.

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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendments to this
Form 10-K.  (X)

The aggregate market value of MCN Energy Group Inc. Common
Stock, $.01 par value per share, held by non-affiliates as of
February 28, 2001 was $2.135 billion based on 90,185,793
outstanding shares and the closing price on that day (New York
Stock Exchange Composite Transactions).

Documents Incorporated by Reference:

None.






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##### Table of Contents



GLOSSARY



|                         |  |                                                                                                                                                                                                                                                                                                                                                        
|------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Antrim Gas               |  | Natural gas produced from shallow wells in the Devonian (Antrim)
	shale formations.                                                                                                                                                                                                                                                                    
|                        
|Capital Investments      |  | MCNs consolidated capital expenditures plus acquisitions
	and MCNs share of capital expenditures of joint ventures,
	less the minority partners share of consolidated capital
	expenditures.                                                                                                                                                        
|                        
|Citizens                 |  | Citizens Gas Fuel Company; a wholly owned natural gas
	distribution subsidiary of MCN in Adrian, Michigan.                                                                                                                                                                                                                                             
|                        
|Cogeneration             |  | The production of electricity and another form of energy,
	usually steam, from a single fuel source such as natural gas.                                                                                                                                                                                                                               
|                        
|Customer Choice Program  |  | A three-year program that began in April 1999 which allows
	a limited number of customers to purchase gas from suppliers
	other than MichCon.                                                                                                                                                                                                          
|                        
|Diversified Energy Group |  | MCNs Pipelines & Processing, Electric Power,
	Energy Marketing and Exploration & Production
	businesses.                                                                                                                                                                                                                                              
|                        
|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.
|                        
|FERC                     |  | Federal Energy Regulatory Commission; a federal agency that
	determines the interstate rates and regulations of interstate
	pipelines.                                                                                                                                                                                                                 
|                        
|Gas Gathering            |  | The process of collecting natural gas from gas wells and then
	transporting the gas through pipelines to processing plants or
	major pipelines.                                                                                                                                                                                                        
|                        
|Gas Processing           |  | For MCN, the removal of carbon dioxide and petroleum liquids
	from natural gas so it meets market quality standards.                                                                                                                                                                                                                                   
|                        
|Gas Sales Program        |  | A three-year program that began in January 1999 under which
	MichCons gas sales rate includes a gas commodity component
	that is fixed at $2.95 per Mcf.                                                                                                                                                                                              
|                        
|Gas Storage              |  | For MCN, the process of injecting, storing and withdrawing
	natural gas from a depleted underground natural gas field.                                                                                                                                                                                                                                 

i



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##### Table of Contents



GLOSSARY(CONTINUED)




|                            |  |                                                                                                                                                                                                                                                                                                      
|--------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GCR                         |  | Gas Cost Recovery; a process, in effect through 1998, by which
	MichCon, through annual gas cost proceedings before the Michigan
	Public Service Commission, was allowed to recover its reasonable
	and prudent cost of gas sold.                                                                    
|                           
|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.                                                                                                                                                        
|                           
|Methanol                    |  | A form of alcohol manufactured from various feedstocks,
	including natural gas, and used as a solvent, antifreeze and
	high octane fuel.                                                                                                                                                             
|                           
|MCN                         |  | MCN Energy Group Inc. and its subsidiaries.                                                                                                                                                                                                                                                          
|                           
|MCNEE                       |  | MCN Energy Enterprises Inc., a wholly owned subsidiary of MCN
	that is the holding company of MCNs Diversified Energy
	group subsidiaries.                                                                                                                                                          
|                           
|MichCon                     |  | Michigan Consolidated Gas Company; an indirect, wholly owned
	natural gas distribution and intrastate transmission subsidiary
	of MCN.                                                                                                                                                               
|                           
|MichCon Pipeline            |  | MichCon Pipeline Co., a wholly owned subsidiary of MichCon that
	engages in pipeline projects through its subsidiaries.                                                                                                                                                                              
|                           
|MPSC                        |  | Michigan Public Service Commission; a state agency that
	regulates, among other things, the intrastate aspects of the
	natural gas industry within Michigan.                                                                                                                                         
|                           
|Normal Weather              |  | The average annual degree days in MCNs Gas Distribution
	service area during a recent 30-year period.                                                                                                                                                                                               
|                           
|Regulatory Reform Plan      |  | The plan approved by the MPSC in April 1998 that provided
	for: (i) the Gas Sales Program, (ii) the Customer
	Choice Program and (iii) an income sharing provision that
	allows customers to share in profits when actual returns on
	equity from utility operations exceed predetermined thresholds.
|                           
|Spot Market                 |  | The buying and selling of natural gas on a short-term basis,
	typically month-to-month.                                                                                                                                                                                                              

ii



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##### Table of Contents



GLOSSARY(CONCLUDED)


Units of Measurement



|     |  |                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bcf  |  | Billion cubic feet of gas.                                                                                                                                                                                     
|    
|MBbl |  | Thousand barrels, which is a unit of measurement of oil and
	other petroleum liquids.                                                                                                                          
|    
|Mcf  |  | Thousand cubic feet of gas.                                                                                                                                                                                    
|    
|MMcf |  | Million cubic feet of gas.                                                                                                                                                                                     
|    
|MW   |  | Megawatts, or million watts of electricity.                                                                                                                                                                    
|    
|/d   |  | Added to various units of measurement to denote units per day.                                                                                                                                                 
|    
|/e   |  | Added to various units of measurement to facilitate comparison
	of the Btu content between natural gas, crude oil and
	condensate. It assumes a ratio of 6 Mcf of natural gas per
	barrel of oil or condensate.

iii



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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | ITEM 1. BUSINESS                                                                             
|                                                  | ITEM 2. PROPERTIES                                                                           
|                                                  | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                          
|                                                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                  | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                           
|                                                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                         
|                                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                  | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                                          
|                                                  | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K                     
|SIGNATURES                                       
|Executive Deferred Compensation Plan             
|Supplemental Savings Plan                        
|Nonemployee Directors' Compensation Plan         
|Severance Allowance Plan                         
|Guarantee Agreement                              
|Computation of Ratio of Earnings to Fixed Charges
|Computation of Ratio of Earnings to Fixed Charges
|Consent of Deloitte & Touche LLP                 
|Powers of Attorney                               



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TABLE OF CONTENTS

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|           |           |  |                                                                                        | PAGE  
|           |           |  |                                                                                        | NUMBER
|CONTENTS   |           |  |                                                                                        |       
|PART I     |           |  |                                                                                        |       
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|           | Item  1.  |  | Business                                                                               |        |  | 2   | 
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|           | Item  2.  |  | Properties                                                                             |        |  | 21  | 
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|           | Item  3.  |  | Legal Proceedings                                                                      |        |  | 23  | 
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|           | Item  4.  |  | Submission of Matters to a Vote of Security Holders                                    |        |  | 24  | 
|          
|          
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|PART II    |           |  |                                                                                        |       
|          
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|           | Item  5.  |  | Market for Registrants Common Equity and Related
	Stockholder Matters                 |        |  | 25  | 
|          
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|           | Item  6.  |  | Selected Financial Data                                                                |        |  | 26  | 
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|           | Item  7.  |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |        |  | 28  | 
|          
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|           | Item  7A. |  | Quantitative and Qualitative Disclosures About Market Risk                             |        |  | 58  | 
|          
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|           | Item  8.  |  | Financial Statements and Supplementary Data                                            |        |  | 59  | 
|          
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|           | Item  9.  |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |        |  | 120 | 
|          
|          
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|PART III   |           |  |                                                                                        |       
|          
|          
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|          
|           | Item  10. |  | Directors and Executive Officers of the Registrant                                     |        |  | 121 | 
|          
|          
|          
|          
|           | Item  11. |  | Executive Compensation                                                                 |        |  | 124 | 
|          
|          
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|          
|           | Item  12. |  | Security Ownership of Certain Beneficial Owners and Management                         |        |  | 129 | 
|          
|          
|          
|          
|           | Item  13. |  | Certain Relationships and Related Transactions                                         |        |  | 130 | 
|          
|          
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|          
|PART IV    |           |  |                                                                                        |       
|          
|          
|          
|          
|           | Item  14. |  | Exhibits, Financial Statement Schedule, and Reports on
	Form  8-K                      |        |  | 131 | 
|          
|          
|          
|          
|SIGNATURES |           |  | 136                                                                                    |       

iv



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FORWARD-LOOKING STATEMENTS

This Form 10-K 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. Factors that may
impact forward-looking statements include, but are not limited
to, the following: (i) the effects of weather and other
natural phenomena; (ii) increased competition from other
energy suppliers as well as alternative forms of energy;
(iii) the capital intensive nature of MCNs business;
(iv) economic climate and growth in the geographic areas in
which MCN does business; (v) the uncertainty of gas and oil
reserve estimates; (vi) the timing and extent of changes in
commodity prices for natural gas, natural gas liquids, methanol,
electricity and crude oil; (vii) the nature, availability
and projected profitability of potential projects and other
investments available to MCN; (viii) conditions of capital
markets and equity markets; (ix) the timing and results of
major transactions; (x) the effects of changes in
governmental policies and regulatory actions, including income
taxes, environmental compliance and authorized rates; and
(xi) the timing and completion of the pending merger.






PART I







ITEM 1. BUSINESS


MCN Energy Group Inc., a Michigan corporation organized in 1988,
is an integrated energy company with approximately $4.9 billion
in assets at December 31, 2000 and revenues of
approximately $2.8 billion in 2000. MCN is primarily involved in
natural gas production, gathering, processing, transmission,
storage and distribution, and energy marketing. On
December 31, 2000, MCN and its subsidiaries had 2,946
employees.

MCN reports its operating results through two major business
groups: Diversified Energy and Gas Distribution.

Diversified Energy, operating through MCN Energy
Enterprises Inc. (MCNEE), is a wholly owned subsidiary of MCN
and serves as a holding company for MCNs non-utility
businesses. MCNEE is comprised of the following segments:



|  |                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pipelines & Processinghas pipeline, gathering,
	processing and related facilities in major supply areas.                                                                                                                                                                                                                                       
| 
| | Electric Power holds joint venture interests in electric
	power generation facilities, most of which were sold in 2000.
	Electric Power also provides fuel management services and
	supplies gas to power generation facilities under long-term
	sales contracts.                                                                              
| 
| | Energy Marketingsells premium, reliable bundled energy
	services to large-volume customers and has rights to market-area
	storage capacity. Energy Marketing also sells gas to other gas
	marketers and brokerage companies. In 2000, Energy Marketing
	began trading activities to optimize the value of its gas
	storage capacity and assets.
| 
| | Exploration & Production(E&P) is engaged in
	natural gas and oil exploration, development and production in
	Michigan.                                                                                                                                                                                                                         

1



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


MCNEEs segments are further segregated between assets in
the Midwest-to-Northeast target region and assets outside the
region.

Gas Distributionconsists principally of MichCon, a
natural gas utility serving approximately 1.2 million customers
in more than 530 communities throughout Michigan. MichCon is
subject to the accounting requirements and rate regulation of
the Michigan Public Service Commission (MPSC) with respect to
the distribution and intrastate transportation of natural gas.
Gas Distribution also includes Citizens Gas Fuel Company
(Citizens) a small gas utility serving approximately 16,000
customers in Adrian, Michigan. Citizens rates are
regulated by the Adrian Gas Rate Commission.

PENDING MERGER

MCN and DTE Energy Company (DTE) signed a definitive merger
agreement dated October 4, 1999, which was amended on
February 28, 2001, under which DTE will acquire all
outstanding shares of MCN common stock. The boards of directors
of both companies approved the merger under the October 1999 and
the February 2001 merger agreements. In December 1999,
shareholders of both companies approved the merger under the
terms of the October 1999 merger agreement. The revised merger
agreement is subject to the approval of MCN shareholders. The
transaction is also subject to certain regulatory approvals.
Refer to Item 8. Financial Statements and
Supplementary Data, Note 2  Merger Agreement
with DTE Energy Company for additional information on the
proposed merger.

FINANCIAL AND OPERATING INFORMATION

MCNs earnings in 2000 were $108.9 million, or $1.22 per
diluted share, compared to a 1999 net loss of $18.9 million, or
$.22 per share. The comparability of earnings was affected by
the impact of several unusual items, merger costs and an
accounting change for start-up costs. Excluding the unusual
items, merger costs and accounting change, MCN had 2000 earnings
of $66.4 million, or $.75 per diluted share, compared to 1999
earnings of $104.9 million, or $1.26 per share. The earnings
decline reflects reduced contributions from Diversified
Energys operating segments, largely due to asset sales,
and lower earnings from MichCons Gas Sales Program. Also
affecting comparability was the implementation of mark-to-market
accounting for storage-related trading activities in 2000, in
combination with a change in accounting for inventory.

MCNs results in 1999, before unusual items, merger costs
and the accounting change for start-up costs, increased $20.6
million, or $.19 per share, from 1998 earnings of $84.3 million,
or $1.07 per share. The 1999 improvement reflects earnings from
MichCons Gas Sales Program and the effect of more
favorable weather, partially offset by reduced earnings from
asset sales. All per share comparisons were also affected by an
increase in the average number of shares outstanding due to the
issuance of 4,557,000 shares in 2000 and 5,865,000 shares in
1999.

2



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


The amount and percentage of revenue contributed by each MCN
segment follows:




Revenue by Segment(in Thousands)*

|                         |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|------------------------ |  | ---- | --------- | ---- |  | ---- | ----- | - |  | - | --------- |  |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                         |  |      |           |      |  |     
|                         |  | 2000 |           | 1999 |  | 1998
|                         |  |      |           |      |  |     
|                         |  |      |           |      |  |      |       |   |  |  
|                        
|                        
|                        
|                        
|Pipelines & Processing   |  | $    | 35,884    |      |  |      | 1.3   | % |  | $ | 24,792    |  |  |  | 1.0   | % |  | $ | 20,856    |  |  |  | 1.0   | %
|                        
|                        
|                        
|                        
|Electric Power           |  |      | 66,461    |      |  |      | 2.6   |   |  |   | 52,207    |  |  |  | 2.2   |   |  |   | 47,131    |  |  |  | 2.3   |  
|                        
|                        
|                        
|                        
|Energy Marketing         |  |      | 1,514,451 |      |  |      | 54.2  |   |  |   | 1,141,894 |  |  |  | 47.1  |   |  |   | 747,591   |  |  |  | 37.2  |  
|                        
|                        
|                        
|                        
|Exploration & Production |  |      | 12,030    |      |  |      | 0.4   |   |  |   | 43,370    |  |  |  | 1.8   |   |  |   | 150,504   |  |  |  | 7.5   |  
|                        
|                        
|                        
|                        
|Gas Distribution         |  |      | 1,162,281 |      |  |      | 41.5  |   |  |   | 1,161,990 |  |  |  | 47.9  |   |  |   | 1,045,139 |  |  |  | 52.0  |  
|                         |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|MCN Consolidated         |  | $    | 2,791,107 |      |  |      | 100.0 | % |  | $ | 2,424,253 |  |  |  | 100.0 | % |  | $ | 2,011,221 |  |  |  | 100.0 | %
|                         |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  




|  |                                   
|- | ----------------------------------
|* | Excludes intercompany transactions

MCNs investments in joint ventures contribute
significantly to earnings. These investments are accounted for
under the equity method and therefore do not impact revenues.
Following are key statistics for each of MCNs business
segments:




|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |         |      | 
|------------------------ | ----------------------------------------- | ------------------------------------------------ | ----- | ----- | ---- | ---- | ----- | ------- | ---- |  | ----- | ------- | ---- | 
|                         |                                           | 2000                                             |       | 1999  |      | 1998
|                         |                                           |                                                  |       |       |      |     
|Operating Statistics*    |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|Pipelines & Processing** |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                        
|                        
|                        
|                        
|                         | Methanol produced (million gallons)       |                                                  |       | 64.9  |      |      |       | 57.4    |      |  |       | 60.4    |     
|                        
|                        
|                        
|                        
|                         | Transportation (Bcf)                      |                                                  |       | 142.6 |      |      |       | 208.6   |      |  |       | 175.5   |     
|                        
|                        
|                        
|                        
|                         | Gas processed (Bcf):                      |                                                  |       |       |      |      |       |         |      |  |       |         |     
|                        
|                        
|                        
|                        
|                         |                                           | Carbon dioxide treatment                         |       |       | 53.9 |      |       |         | 51.8 |  |       |         | 48.9 | 
|                        
|                        
|                        
|                        
|                         |                                           | Natural gas liquids removal                      |       |       | 60.7 |      |       |         | 73.1 |  |       |         | 45.1 | 
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                         |                                           |                                                  | 114.6 |       |      |      | 124.9 |         |      |  | 94.0  |        
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|Electric Power**         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                        
|                        
|                        
|                        
|                         | Electricity sales (thousands of MW hours) |                                                  |       | 185.2 |      |      |       | 2,755.8 |      |  |       | 3,805.0 |     
|                        
|                        
|                        
|                        
|                         | Gas sales (Bcf)                           |                                                  |       | 20.3  |      |      |       | 19.0    |      |  |       | 18.6    |     
|Energy Marketing**       |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                        
|                        
|                        
|                        
|                         | Gas sales (Bcf)                           |                                                  |       | 451.0 |      |      |       | 585.7   |      |  |       | 454.7   |     
|                        
|                        
|                        
|                        
|                         | Exchange gas deliveries (Bcf)             |                                                  |       | 23.8  |      |      |       | 11.9    |      |  |       | 11.0    |     
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                         |                                           |                                                  | 474.8 |       |      |      | 597.6 |         |      |  | 465.7 |        
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|Exploration & Production |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                         | Gas and oil production (Bcf equivalent)   |                                                  |       |       |      |      |       |         |      |  |       |         |     
|                        
|                        
|                        
|                        
|                         |                                           | Michigan                                         |       |       | 25.7 |      |       |         | 27.3 |  |       |         | 28.0 | 
|                        
|                        
|                        
|                        
|                         |                                           | Western, Midcontinent/ Gulf Coast and Appalachia |       |       | 1.2  |      |       |         | 41.5 |  |       |         | 69.9 | 
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                         |                                           |                                                  | 26.9  |       |      |      | 68.8  |         |      |  | 97.9  |        
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|Gas Distribution         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                        
|                        
|                        
|                        
|                         | Gas sales (Bcf)                           |                                                  |       | 182.5 |      |      |       | 181.8   |      |  |       | 172.2   |     
|                        
|                        
|                        
|                        
|                         | End user transportation (Bcf)             |                                                  |       | 163.9 |      |      |       | 152.0   |      |  |       | 140.3   |     
|                        
|                        
|                        
|                        
|                         | Intermediate transportation (Bcf)         |                                                  |       | 598.9 |      |      |       | 531.9   |      |  |       | 537.5   |     
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        
|                         |                                           |                                                  | 945.3 |       |      |      | 865.7 |         |      |  | 850.0 |        
|                         |                                           |                                                  |       |       |      |      |       |         |      |  |       |        




|   |                                       
|-- | --------------------------------------
|*  | Includes intercompany transactions    
|** | Includes MCNs share of joint ventures

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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


For a detailed discussion of MCNs results of operation and
each segments operating and joint venture income refer to
Item 7. Managements Discussion &
Analysis (MD&A) of this report. Additional financial
information by segment is included in Item 8.
Financial Statements and Supplementary Data,
Note 18  Segment Information.

DIVERSIFIED ENERGY

PIPELINES & PROCESSING

Strategy and Competitive Environment

Pipelines & Processing focuses on opportunities in the
Midwest-to-Northeast region (target region) that supply natural
gas to meet growing demand. Much of the growth in the demand for
natural gas in the United States is expected within the
Mid-Atlantic and New England regions. These regions currently
lack the pipeline capacity and low-cost storage necessary to
deliver gas volumes to meet growing demand. As subsequently
discussed, Portland Natural Gas Transmission System (PNGTS),
Millennium Pipeline (Millennium) and Vector Pipeline (Vector)
are interstate pipeline projects that are intended to fill a
large portion of that need, and are complemented by MCNs
significant storage capacity. MCN also has interests in
non-regional joint ventures that it will manage and develop to
maintain their value. Any disposition of such investments will
be independently evaluated to maximize shareholder value.

Business Developments

Pipelines & Processing anticipates capital investments of
approximately $20 million in 2001. Approximately $143 million
was invested in 2000, which compares with $120 million invested
in 1999 and $333 million in 1998.

Below is a listing of projects MCN has invested in over the past
several years. The facilities are divided into three categories:
i) Regional Facilities, which represent assets
inside the target region; ii) Non-Regional
Facilities, which include assets outside the target region,
and; iii) Coal Fines Plants, four of which were sold
in 1999.

Regional Facilities:



Vector is a 348-mile, natural gas pipeline that was placed in
service in December 2000. The pipeline provides a new
transportation link for 730 MMcf/d of new supply coming into the
Chicago area to growing markets in eastern Canada and in the
Midwest and Northeast regions of the United States. The
construction of a second compressor station, expected to be
complete by November 2001, will increase the capacity to 1
Bcf per day (Bcf/d). Final construction cost is estimated to be
approximately $670 million. Pipelines & Processing holds a
25% interest in this project. MichCon

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ITEM 1. BUSINESS(CONTINUED)


leases a portion of its transmission system to the project,
thereby providing additional earnings to MCN while reducing
Vectors cost and environmental impact. Additionally,
Energy Marketing has contracted for 200 MMcf/d of
Vectors transportation capacity.

Pipelines & Processing has a 10.5% interest in Millennium, a
natural gas pipeline that will link up with Vector through the
Dawn, Ontario hub and run through New York State. This
442-mile, $750 million pipeline will carry up to
700 MMcf/d to markets on the Atlantic Seaboard. Millennium
remains the furthest advanced pipeline project for delivering
natural gas to New York City and is expected to receive
Federal Energy Regulatory Commission (FERC) approval in
2001.

In Michigan, Pipelines & Processings gas processing
plants have the capacity to process 202 MMcf/d, up from
195 MMcf/d in 1998. Pipelines & Processing now has
an average interest of 89% in seven such plants that extract
carbon dioxide (CO2) from Antrim gas production.

Non-Regional Facilities:



Also in the Midcontinent/ Gulf Coast region,
Pipelines & Processing holds a 40% interest in two
natural gas gathering ventures with American Central Gas
Companies, Inc. The Foss Lake Gathering System venture owns and
operates a 135-mile low-pressure system in the Anadarko Basin of
western Oklahoma. The system has delivery capacity of
75 MMcf/d and gas processing capacity of 60 MMcf/d.
MCNs share of deliveries and gas processed was
8.3 Bcf in 2000. The second venture, East Texas Gathering
system, is located in an area of significant drilling activity,
providing opportunity for rapid expansion. This system primarily
consists of 130 miles of gas gathering lines with delivery
capacity of about 200 MMcf/d and gas processing capacity of
100 MMcf/d. In 2000, MCNs share of deliveries and gas
processed was 27.1 Bcf and 11.4 Bcf, respectively.

Pipelines & Processing is a 50% partner in Copano Pipeline
Processing Group L.P. In mid-1998, Copano built a 15-mile
lateral on its Upper Gulf Coast system to connect new gas
production. Delivery capacity is 415 MMcf/d, while gas
processing capacity is 60 MMcf/d. In 2000, MCNs share
of deliveries and gas processed was 30.8 Bcf and
14.1 Bcf, respectively. The system now has 867 miles
of pipe.

At the DIGP systems onshore terminus in Alabama, the
Mobile Bay Processing Partnership (MBPP) constructed a
600 MMcf/d gas processing plant, which was placed in
service in the first quarter of 1999. Effective
October 1999, Pipelines & Processing sold a 14%
interest in the venture, bringing its ownership to 29%. Related
to but separate from this processing plant, Pipelines &
Processing holds a 4.8% interest in a newly constructed,
210-mile, 80,000 barrels per day (Bpd) liquids pipeline
that delivers natural gas liquids extracted by MBPP and other
plants to southern Louisiana markets.

Pipelines & Processing owns a 25% interest in Lyondell
Methanol Company, L.P., a limited partnership that owns a
248 million gallon-per-year methanol production plant in
Texas. Pipelines &

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ITEM 1. BUSINESS(CONTINUED)


Processing supplies a portion of the natural gas for the
methanol plant. MCNs share of methanol production in 2000
was 64.9 million gallons.

Pipelines & Processing formed the Crown Asphalt Distribution
joint venture with Crown Energy Corporation in 1998. Through
this joint venture, Pipelines & Processing has a 50%
interest in asphalt distribution operations, which complements
its interest in the MCN/ Crown Energy Asphalt Ridge Joint
Venture in which Pipelines & Processing holds an 80%
interest. The Asphalt Ridge project constructed a 100,000
ton-per-year high-grade asphalt manufacturing plant at a total
cost of $18 million. The plant is experiencing technical
difficulties in producing economical quantities of asphalt, and
MCN is working to resolve the issues.

During 1999, KCI Compression Company L.P. was formed to provide
a full range of natural gas compression services. MCN owns a 43%
interest in the partnership.

In 1998, MCN advanced approximately $18 million of a
$20 million commitment to develop a fertilizer project in
the United Arab Emirates. The advance was structured as an
interest-bearing loan with the option to convert the loan into
an equity investment in the project. The original advance was
due in September 1999. In March 2000, MCN advanced the
remaining $2 million of its original commitment and
restructured the entire $20 million advance plus accrued
interest by taking a promissory note of $23.3 million and
waiving its rights to convert the advance to equity. The note is
secured by the projects assets and was due in
September 2000. MCN is taking legal actions to collect the
receivable and believes that its lien on the project provides
reasonable security.

Pipelines & Processing sold its 35% interest in the Jonah
Gas Gathering System located in Wyoming during 2000. This system
has a capacity of 320 MMcf/d. MCNs share of
deliveries was 6.5 Bcf during 2000.

Pipelines & Processing has a partnership with Petro Source
Corporation to develop CO2 pipelines and marketing
projects in support of enhanced oil recovery projects. The
partnership constructed an 82-mile, 100 MMcf/d
CO2 pipeline in 1998 that connects four gas treating
plants to a distribution system servicing enhanced oil recovery
projects in the Permian Basin of west Texas.
Pipelines & Processing holds a 33% interest in this Val
Verde CO2 pipeline, which was placed in service
during the fourth quarter of 1998. MCNs share of
deliveries was 7.8 Bcf during 2000.

Pipelines & Processing owns a 33% interest in the 48-mile
Blue Dolphin Pipeline. The offshore gathering system has
capacity of 180 MMcf equivalent per day (MMcfe/d). During
1999, this venture acquired the 77-mile offshore Black Marlin
Pipeline located near Galveston, Texas that is capable of
transporting up to 160 MMcf/d of gas and 2,000 Bpd of
liquids. Black Marlin Pipeline was sold in early 2001.
MCNs share of deliveries was 13.3 Bcf during 2000.

The Cardinal States Pipeline, which gathers and transports
coalbed methane in Appalachia, constructed a second 30-mile
pipeline in 1998, doubling delivery capacity to 225 MMcf/d
to handle increasing production in the region. MCN sold its 50%
interest in this system in early 2000.

Coal Fines Plants:



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ITEM 1. BUSINESS(CONTINUED)


The economic viability of the venture was dependent on the
briquettes qualifying for synthetic-fuel tax credits and
MCNs ability to utilize or sell such credits. The plants
were required to be in service by June 30, 1998 in order to
qualify for the tax credits. Operating delays at the plants in
the 1998 third quarter significantly increased the possibility
that the Internal Revenue Service (IRS) would challenge the
projects eligibility for tax credits. In addition, there
was uncertainty as to whether MCN could utilize or sell the
credits. These factors led to MCNs decision in 1998 to
record an impairment loss, equal to the carrying value of the
plants, reflecting the likely inability to recover such costs.

MCN filed a request with the IRS seeking a factual determination
that its coal fines plants were in service on June 30,
1998. The IRS has concluded that the six coal fines plants met
the in-service deadline for purposes of claiming
synthetic fuel tax credits. In December 1999, MCN sold four
coal fines plants to DTE in an arms-length transaction that was
independent of the pending merger. The sales price will depend
on total production of the four plants. DTE made an initial
payment of $45 million, and this payment will be adjusted
up to $152 million or down to zero based on the results of
a 36-month production test period. These plants have been
relocated by DTE and one plant is currently operating. The
remaining two plants are being held pending the completion of
the merger with DTE.

ELECTRIC POWER

Strategy and Competitive Environment

The Electric Power unit supplies gas to power generation
facilities and operates through several joint ventures. In past
years, the Electric Power segment has invested in power
generation projects which offer the potential for multiple
sources of income, such as long-term gas sales and
transportation services, as well as return on the investment in
the facility itself. The majority of new power generation
facilities throughout North America are expected to be gas-fired
because of competitive and environmental considerations, as well
as the speed with which such facilities can be brought on line.
Demand for new gas-fired generation facilities in the Midwest
and along the East Coast has significantly increased. In
addition, U.S. electricity consumption has been growing at
over a 2% annual rate and is estimated by government and
industry sources to grow more than 30% by 2015. As part of its
strategic direction, MCN will manage and develop its
non-regional joint ventures to maintain their values. Any
disposition of such investments will be independently evaluated
to maximize shareholder value.

Business Developments

Electric Power does not anticipate any significant capital
investments in future periods. Approximately $27 million
was invested in 2000, compared to $130 million in 1999 and
$90 million in 1998.

Below is a listing of projects MCN has invested in over the past
several years. The facilities are divided into three categories:
i)Disposed Facilities, represents facilities that
were disposed of including those in connection with the pending
merger with DTE; ii)Regional Facilities, which

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ITEM 1. BUSINESS(CONTINUED)


represent assets inside the target region; and iii)Non-Regional Facilities, which are assets outside the target
region.

Disposed Facilities:



As part of the merger agreement with DTE, MCN agreed to sell its
interests in five power projects, four of which are
Qualifying Facilities as defined by the Public
Utility Regulatory Policies Act of 1978, as amended. This Act
limits the interest in a project that can be owned by electric
companies while maintaining the projects status as a
Qualifying Facility. In the first quarter of 2000,
MCN sold its interests in the Midland Cogeneration Venture
(MCV), a 1,370 megawatt (MW) gas-fired cogeneration
facility in Midland, Michigan, and the Carson Cogeneration
facility, a 42 MW gas-fired cogeneration plant in Carson,
California. Under the terms of the MCV sales agreement, if
MCNs merger with DTE is not completed, MCN may reacquire
its 23% interest in the project. During the second quarter of
2000, MCN sold its 50% interest in both the Ada Cogeneration
facility, a 30 MW natural gas-fueled cogeneration plant in
western Michigan, and the Michigan Power Project, a 123 MW
cogeneration plant in Ludington, Michigan. Additionally, MCN
sold it 95% interest in the Cobisa-Person facility, a venture
created to build, own and operate a 140 MW power plant in
Albuquerque, New Mexico in the second quarter of 2000.
Refer to Item 8. Financial Statements and
Supplementary Data, Note 2  Merger Agreement
with DTE Energy Company for additional information on the
pending merger.

Regional Facilities:



Non-Regional Facilities:



Electric Power holds an approximate 65% interest in Bhote Koshi
Power Company, a partnership that constructed a 36 MW
hydroelectric power plant in Nepal that began commercial
operations in 2001.

ENERGY MARKETING

Strategy and Competitive Environment

Energy Marketing provides value-added energy services and buys,
sells, transports and stores natural gas in the Midwest and
Eastern regions of the United States and eastern Canada. Energy
Marketing

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ITEM 1. BUSINESS(CONTINUED)


provides gas supply and management services to
(i) commercial and industrial customers and to
(ii) wholesale customers that include producers, local
distribution companies, electric generators, and other marketing
and trading companies. In addition, Energy Marketing provides
price risk management services to its customers through a
variety of financial instruments including exchange-traded
futures, as well as over-the-counter forwards, options, and swap
agreements related to natural gas.

Energy Marketings services generally entail the bundling
of gas supplies, nominations, risk management, transportation
and storage capacity to customers. The bundling of these
services provide reliable and flexible energy solutions to
customers. Energy Marketing is able to provide these services
because of its access to firm transportation and storage assets,
some of which are owned by affiliates. During 2000, Energy
Marketing had firm transportation capacity with various pipeline
systems totaling over 635 MMcf/d. In addition it had rights
to 71 Bcf of storage capacity inside the target region.

Energy Marketing is also responsible for managing Diversified
Energys exposure to commodity price risk and related
physical assets that support the business segments
marketing activities. These physical assets include oil and gas
production, pipeline transportation and storage capacity. Energy
marketing uses a risk-based approach that includes both
transactional and portfolio hedging strategies to minimize
commodity price risk.

During 2000, there has been a narrowing or reversal of seasonal
and geographical price differentials. Seasonal price
differentials allow Energy Marketing to profit from its ability
to purchase and store gas in the summer months and sell such gas
in winter months. Geographical price differentials allow Energy
Marketing to purchase lower priced gas in the Midcontinent/ Gulf
Coast region, and transport and sell such gas at higher prices
in the Midwest and Eastern regions. The lower price
differentials have reduced the value of Energy Marketings
storage and transportation assets. These assets are being
managed in order to optimize capacity utilization and maximize
their value.

Energy Marketing competes against numerous marketing and trading
companies. Given the level of energy consumed in the region, the
growing need for additional electric generation and the cost and
reliability challenges that customers face, Energy Marketing
anticipates that providing value-added energy services to power
generators will be a key area of growth.

Business Developments

MCN has interests in a marketing joint venture and has contract
rights for interstate transportation capacity and for long-term
storage. The discussion of each is divided into two categories;
i)Regional Activity, which includes investments,
transportation and storage contracts inside the target region
and; ii)Non-Regional Activity, which represents an
investment outside the target region.

Regional Activity:



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ITEM 1. BUSINESS(CONTINUED)


Energy Marketings activities support and are interrelated
with assets that are developed and owned by other MCN
affiliates. As such, Energy Marketing holds significant capacity
on the PNGTS and Vector pipelines as well as the proposed
Millennium pipeline. The Pipelines & Processing segment
holds ownership interests in each of these interstate pipelines.

The Washington 10 storage field is strategically located in
southeast Michigan, and has significantly increased the amount
of gas storage capacity available to Energy Marketing. The
project has converted a depleted gas reservoir to a 42 Bcf
storage facility. Initial gas injection occurred in the spring
of 1999, and the facility reached completion in July 1999.

Energy Marketing also has a 50% interest in the 10 Bcf
Washington 28 storage field located northeast of Detroit in
Macomb County. In total, Energy Marketing has rights to
71 Bcf of target region storage capacity in 2001. Energy
Marketing will use this storage in conjunction with its firm and
interruptible transportation capacity on various pipelines to
continue increasing its marketing presence in the target region.

Non-Regional Activity:



Other

Approximately 54% of Energy Marketings natural gas supply
in 2000 originated in the Midwest, 29% in the Midcontinent and
the remaining 17% in the Northeast United States and Canada.

EXPLORATION & PRODUCTION

Strategy and Competitive Environment

MCNs strategy for the E&P business is to aggressively
manage its Michigan oil and gas producing assets and to optimize
returns. MCN has accumulated one of the industrys largest
Antrim gas reserve bases, accounting for approximately 20% of
the total Michigan Antrim gas production. During 2000, MCN
participated in the drilling of 129 wells (110 net) in
the Antrim formation, bringing the total drilled to
1,435 wells (1,114 net). Even though the potential
natural gas recovery from the average Antrim well is less than
the recovery from wells drilled in other formations, wells
drilled in the Antrim shale formations have a high success rate
and low drilling costs, and are therefore considered relatively
low risk.

During early 2000, MCN assumed operator responsibilities of its
Michigan properties and has been successful in significantly
lowering the costs of producing reserves. E&P has rights to
64,987 acres (57,715 net) of undeveloped leases.
During 2001, E&P will continue to develop this acreage and
anticipates selling nearly all of its gas production to Energy
Marketing. In order to minimize the impact of fluctuating gas
prices on its operations, E&P manages price risk by
utilizing futures, options and swap contracts which is
coordinated by MCNs Energy Marketing segment.

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ITEM 1. BUSINESS(CONTINUED)


Business Developments

E&P had capital investments of approximately
$30 million in 2000, $100 million in 1999 and
$200 million in 1998 and anticipates spending approximately
$30 million in 2001.

Below is a listing of properties MCN has invested in over the
past several years. The facilities are divided into two
categories: i)Regional Properties, which represent
properties inside the target region; and ii)Sold
Properties, which are properties outside the target region.
E&P sold these non-regional properties in 1999.

Regional Properties:



Sold Properties:



Risk Management Strategy

MCN manages commodity price risk by utilizing futures, options
and swap contracts to more fully balance its portfolio of gas
and oil supply and sales agreements. MCNs Energy Marketing
business coordinates all of MCNs commodity related risk
management activities to ensure compliance with corporate
policies that are periodically reviewed by MCNs Board of
Directors.

GAS DISTRIBUTION

Gas Distribution serves approximately 1.2 million
residential, commercial and industrial customers in the Detroit,
Grand Rapids, Ann Arbor, Traverse City, Muskegon,
Marquette and Adrian metropolitan areas and in various other
communities throughout Michigan. The following services are
provided by Gas Distribution:



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gas Sales  Includes the sale and delivery of
	natural gas primarily to residential and small-volume commercial
	and industrial customers.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| | End User Transportation  A gas delivery
	service provided primarily to large-volume commercial and
	industrial customers. Additionally, the service is provided to
	residential customers, and small-volume commercial and
	industrial customers who have elected to participate in
	MichCons experimental three-year Customer Choice Program
	that began in April 1999. End user transportation customers
	purchase natural gas directly from producers or brokerage
	companies and utilize MichCons pipeline network to
	transport the gas to their facilities or homes.
| 
| | 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.
	Intermediate transportation customers utilize Gas
	Distributions gathering and high pressure transmission                                                                                                                                                                                                                                                                                      

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ITEM 1. BUSINESS(CONTINUED)




|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|  | system to transport the gas to storage fields, processing
	plants, pipeline interconnections or other locations.                        
| 
| | Other  Includes revenues from providing
	appliance maintenance, facility development, meter reading and
	other energy-related services.

The amount and percentage of revenue contributed from each of
these services follows:




Revenue by Service(in Thousands)

|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|--------------------------- |  | ---- | --------- | ---- |  | ---- | ----- | - |  | - | --------- |  |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                            |  |      |           |      |  |     
|                            |  | 2000 |           | 1999 |  | 1998
|                            |  |      |           |      |  |     
|                            |  |      |           |      |  |      |       |   |  |   |           | 
|                           
|                           
|                           
|                           
|Gas Sales                   |  | $    | 929,099   |      |  |      | 79.2  | % |  | $ | 924,580   |  |  |  | 79.0  | % |  | $ | 838,876   |  |  |  | 79.8  | %
|                           
|                           
|                           
|                           
|End User Transportation     |  |      | 117,415   |      |  |      | 10.0  |   |  |   | 103,879   |  |  |  | 8.9   |   |  |   | 82,275    |  |  |  | 7.8   |  
|                           
|                           
|                           
|                           
|Intermediate Transportation |  |      | 52,577    |      |  |      | 4.5   |   |  |   | 57,783    |  |  |  | 4.9   |   |  |   | 63,218    |  |  |  | 6.0   |  
|                           
|                           
|                           
|                           
|Other                       |  |      | 74,036    |      |  |      | 6.3   |   |  |   | 84,358    |  |  |  | 7.2   |   |  |   | 67,405    |  |  |  | 6.4   |  
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|                            |  |      | 1,173,127 |      |  |      | 100.0 | % |  |   | 1,170,600 |  |  |  | 100.0 | % |  |   | 1,051,774 |  |  |  | 100.0 | %
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|Less: Affiliated Sales      |  |      | 10,846    |      |  |      |       |   |  |   | 8,610     |  |  |  |       |   |  |   | 6,635     |  |  |  |       |  
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|                            |  | $    | 1,162,281 |      |  |      |       |   |  | $ | 1,161,990 |  |  |  |       |   |  | $ | 1,045,139 |  |  |  |       |  
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  




Gas Distribution expects to achieve modest revenue growth
through initiatives to expand its gas markets, its residential,
commercial and industrial customer base, as well as by
continuing to provide energy-related services that capitalize on
its expertise, capabilities and efficient systems.

GAS SALES

Strategy and Competitive Environment

Competition in the gas sales market comes primarily from
(i) other natural gas providers, and (ii) alternative
fuels such as electricity, propane and, to a lesser degree, oil
and wood.

Other natural gas providers  MichCon is
currently operating under its Regulatory Reform Plan, which
includes a comprehensive experimental three-year Customer Choice
Program designed to offer all sales customers added choices and
greater price certainty. The program allows a limited number of
customers to purchase natural gas from suppliers other than
MichCon. For additional detail regarding the Plan, refer to the
Regulatory Reform Plan section that follows.

Alternative fuels  Natural gas continues to be
the preferred space and water-heating fuel for Michigan
residences and businesses. Nearly every residential and
commercial developer in MichCons service territories
selects natural gas in new construction because of the
convenience, cleanliness and relative price advantage compared
to propane, fuel oil and other alternative fuels.

Gas Distribution continues to take steps to become the preferred
provider of natural gas and high-value energy services within
Michigan in order to achieve competitive financial results. To
accomplish this, Gas Distribution continues to position itself
to respond to changes in regulation and

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ITEM 1. BUSINESS(CONTINUED)


increased competition by reducing its cost of operations,
maintaining a safe and reliable system for customers, and
focusing on meeting the needs of the marketplace.

Business Developments

As discussed in detail in the Regulatory Reform Plan
section, the Gas Sales Program allows MichCon to profit from its
ability to purchase gas at less than $2.95 per thousand cubic
feet (Mcf). The program allowed MichCon to generate favorable
profits in 1999 and 2000. MichCon does not expect to generate
profits from the Gas Sales Program in 2001. As noted in the
Proposed Regulatory Changes section that follows,
MichCon filed an application with the MPSC to modify the Gas
Sales Program. The proposed program would reinstate the Gas Cost
Recovery (GCR) mechanism thereby effectively eliminating
MichCons ability to profit or lose money on gas sales.

The gas sales service in 2000 represented approximately 19% of
total deliveries, 79% of total revenues and 63% of total gross
margins.

END USER TRANSPORTATION

Strategy and Competitive Environment

The primary focus of competition in this market is cost and
reliability. Some large commercial and industrial customers have
the ability to switch to alternative fuel sources such as coal,
electricity, oil and steam. If these customers were to choose an
alternative fuel source, they would not have a need for Gas
Distributions end user transportation service. In
addition, some of these customers could bypass Gas
Distributions pipeline system and have their gas delivered
directly from an interstate pipeline. However, price
differentials must be sufficient to offset the costs, risks and
loss of service flexibility associated with fuel switching or
bypass. Since 1988, only one Gas Distribution industrial
customer has bypassed its distribution system. Gas Distribution
competes against alternative fuel sources by providing
competitive pricing and reliable service, supported by its
extensive storage capacity.

Business Developments

As of December 2000, MichCon had end user transportation
agreements with customers representing annual volumes of 169.0
Bcf. Approximately 73% of these volumes are under contracts that
extend to 2002 or beyond and include the majority of the large,
and most price-sensitive customers. Contracts for the remaining
volumes are typically one-year contracts that expire at various
times during 2001 and relate to a large number of low-volume
users with relatively low price sensitivity.

Gas Distribution has historically been successful in converting
customers facilities to natural gas from alternative fuels
and retaining those customers after conversion. In 2000,
approximately 18 Bcf of MichCons end-user transportation
deliveries were to customers who chose natural gas over coal.
However, as gas prices escalate, lower cost alternative fuels
become more appealing to customers. One customer completed
conversion to coal during 2000, representing a loss of
approximately 0.4 Bcf per year. Of the approximately
18 Bcf of end user transportation deliveries that displaced
coal usage in 2000, approximately 15 Bcf are under
contracts that extend beyond 2001. These

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ITEM 1. BUSINESS(CONTINUED)


contracts generally include provisions that require continued
payments, even if the customer burns an alternative fuel.

Increasing demand for electricity has created new opportunities
for Gas Distribution to market end-user transportation services
to electric utilities and independent power producers. During
2000, three customers added additional gas-fired power
generation facilities representing 2.2 Bcf of annual
incremental load. Gas Distribution is actively seeking
additional electric power producers to locate their facilities
on its system.

MichCon will continue to transport and deliver gas to
customers premises or homes under either the existing
experimental three-year Customer Choice Program or the proposed
choice program. If customers choose to purchase natural gas from
other suppliers, they will be reflected as end user
transportation customers rather than gas sales customers.

In 2000, end user transportation services accounted for
approximately 17% of total gas deliveries, 10% of total revenues
and 18% of total gross margins.

INTERMEDIATE TRANSPORTATION

Strategy and Competitive Environment

Gas Distributions extensive transmission pipeline system
has enabled it to develop a 500 to 600 Bcf annual market
for transportation services for Michigan gas producers,
marketers, distribution companies and other pipeline companies.
Gas Distribution operates in a pivotal geographic location with
links to major interstate pipelines that reach markets elsewhere
in the Midwest, the eastern United States and eastern Canada.
Michigan Antrim gas production has also increased significantly
over the past several years, resulting in a growing demand by
gas producers and brokers for intermediate transportation
services.

Gas Distribution is in an excellent position to increase
revenues by facilitating the transportation of new supplies of
western Canadian gas from Chicago to growing markets in eastern
Canada and the Northeast United States. In December 1997, Gas
Distribution entered into a long-term facility lease of its
Milford-to-Belle-River Pipeline to the Vector Pipeline
Partnership. Pipelines & Processing has a 25% interest in
the $670 million Vector pipeline project. The Vector pipeline
was placed in service in December 2000, and provides a
transportation link for new supply coming into the Chicago area
to growing markets in eastern Canada and the Midwest and
Northeast United States. Construction of a second compressor
station, expected to be completed by November 2001, will
increase the capacity of Vector from 730 MMcf/d to
1 Bcf/d. MichCon is pursuing additional opportunities for
transportation services that would further maximize the use of
its transmission infrastructure.

Business Developments

Gas Distribution expanded the transportation capacity of its
northern Michigan gathering system and further enhanced this
gathering system by purchasing the 44-mile Thunder Bay pipeline.
Additionally, Gas Distribution placed into service a
$91 million, 59-mile loop of its existing
Milford-to-Belle-River Pipeline. This loop has improved the
overall reliability and efficiency of Gas Distributions
gas storage and transmission system by mitigating the risk
associated with the

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ITEM 1. BUSINESS(CONTINUED)


disruption of the existing pipeline or other facilities used to
supply gas to Gas Distributions customers. The pipeline
expansions and acquisitions were needed to meet increased demand
for intermediate transportation services and to generate
significant off-system transportation opportunities.

In 2000, intermediate transportation services accounted for
approximately 64% of total gas deliveries, 5% of total revenues
and 8% of total gross margins. While intermediate transportation
volumes are a significant part of total deliveries, profit
margins on this service are considerably less than margins on
gas sales and end user transportation services.

Effect of Weather

Gas Distributions gas sales, end user transportation and
intermediate transportation volumes, revenues and net income are
impacted by weather. Given the seasonal nature of the business,
revenues and net income are concentrated in the first and fourth
quarters of the calendar year. By the end of the first quarter,
the heating season is largely over, and Gas Distribution
typically incurs substantially reduced revenues and earnings in
the second quarter and losses in the third quarter. The seasonal
nature of Gas Distributions earnings has become more
pronounced as a result of its Gas Sales Program. Refer to
Item 7. MD&A for additional information
relating to the effect of weather.

Gas Supply

Gas Distribution obtains its natural gas supply from various
sources in different geographic areas (the Gulf Coast, the
Midcontinent, Canada and Michigan) under agreements that vary in
both pricing and terms. As a result of its Regulatory Reform
Plan, MichCon entered into new base supply contracts with
suppliers in 1998. As part of its gas acquisition strategy,
MichCon has entered into fixed-priced contracts at costs below
$2.95 per Mcf for approximately 110 Bcf of its expected
2001 supply requirements. This committed supply represents
approximately 65% of the expected 170 Bcf of supply
requirements under the Gas Sales Program in 2001. The balance of
the gas supply requirements will be met through the utilization
of existing gas in inventory and purchasing gas at market
prices. MichCons geographic diversity of supply, coupled
with its 124 Bcf of storage capacity, ensures it will be
able to meet its supply requirements for customers.

Following is a listing of Gas Distributions sources of gas
supply:




Gas Supply (Bcf)

|                                   |                      |      |       |      |  |      |       |      |  |  |       |      | 
|---------------------------------- | -------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                   |                      | 2000 |       | 1999 |  | 1998
|                                   |                      |      |       |      |  |     
|Long Term                          |                      |      |       |      |  |      |       |      |  |  |       |     
|                                  
|                                  
|                                  
|                                  
|                                   | Michigan suppliers   |      |       | 73.5 |  |      |       | 99.4 |  |  |       | 94.4 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Interstate suppliers |      |       | 56.1 |  |      |       | 63.9 |  |  |       | 17.6 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Canadian suppliers   |      |       | 28.0 |  |      |       | 29.9 |  |  |       | 25.9 | 
|                                  
|                                  
|                                  
|                                  
|Spot Market                        |                      |      | 4.4   |      |  |      | 4.7   |      |  |  | 29.8  |     
|                                  
|                                  
|                                  
|                                  
|Exchange Gas Receipts (Deliveries) |                      |      | (1.0  | )    |  |      | (7.5  | )    |  |  | 11.2  |     
|                                  
|                                  
|                                  
|                                  
|Gas From (To) Storage              |                      |      | 24.5  |      |  |      | (7.6  | )    |  |  | (4.7  | )   
|                                   |                      |      |       |      |  |      |       |      |  |  |       |     
|                                   |                      |      | 185.5 |      |  |      | 182.8 |      |  |  | 174.2 |     
|                                   |                      |      |       |      |  |      |       |      |  |  |       |     




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ITEM 1. BUSINESS(CONTINUED)


MichCon has long-term firm transportation agreements expiring on
various dates through 2011 with ANR Pipeline Company (ANR),
Panhandle Eastern Pipeline Company (Panhandle), Viking Gas
Transmission Company (Viking) and Great Lakes Gas Transmission
Limited Partnership (Great Lakes). ANR was obligated to
transport for MichCon up to 375 MMcf/d of supply through October
1999. Effective in November 1999, MichCon permanently released
capacity with ANR thereby reducing contracted capacity to
285 MMcf/d and resulting in roughly $13 million in
annual cost savings. The ANR capacity delivers 117.5 MMcf/d
of supply sourced from the Gulf Coast, 117.5 MMcf/d sourced
from the Midcontinent and 50 MMcf/d from Canada. Viking
transports 50 MMcf/d of Canadian supply to the ANR system
for delivery to MichCon, and Panhandle transports 2 MMcf/d
of Gulf Coast supply from the ANR system for delivery to
MichCon. Additional Canadian supplies of 30 MMcf/d are
delivered through firm transport agreements with Great Lakes.

MichCon has supply contracts with independent Michigan
producers, which expire on various dates through 2007. Many of
these contracts originally tied prices to spot market indices
coupled with transportation rates. As a result of an MPSC Order
and individually negotiated settlements, MichCon amended a
number of these contracts that were previously at above-market
prices to a more competitive level.

Citizens is served by Panhandle and ANR. During 2000, nearly all
of Citizens gas purchases were from the Energy Marketing
segment.

At December 31, 2000, MichCon owned and operated four
natural gas storage fields in Michigan with a working storage
capacity of approximately 124 Bcf. These facilities play an
important role in providing reliable and cost-effective service.
MichCon uses its storage capacity to supplement its supply
during the winter months, replacing the gas in April through
October when demand and prices are generally at their lowest
levels. The use of storage capacity also allows MichCon to lower
its peak-day entitlements, thereby reducing interstate pipeline
charges. MichCons gas distribution system has a planned
maximum daily send-out capacity of 3.1 Bcf, with
approximately 62% of the volume coming from underground storage
for 2001.

Regulatory, Rate and Governmental
Matters

MichCon is subject to the jurisdiction of the MPSC as to various
phases of its operations, including gas sales and transportation
rates, service and accounting. Citizens rates are set by
the Adrian Gas Rate Commission, a municipal commission. Other
various phases of Citizens operations are subject to the
jurisdiction of the MPSC. Both MichCon and Citizens are subject
to the requirements of other regulatory agencies with respect to
safety, the environment and health.

Regulatory Reform Plan:MichCon is currently
operating under its Regulatory Reform Plan, which includes a
comprehensive experimental three-year Customer Choice Program
designed to offer all sales customers added choices and greater
price certainty. The Customer Choice Program began in April
1999, and approximately 70,000 customers chose to purchase
natural gas from suppliers other than MichCon. Year two of the
program began in April 2000, and the number of participating
customers declined to 55,000. Although year three of the program
is scheduled to begin in April 2001, permitting up to 225,000
customers to participate, MichCon has requested the MPSC to

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ITEM 1. BUSINESS(CONTINUED)


modify the program to encourage greater participation as
subsequently discussed. Under the existing program, there is
also a volume limitation of 30 Bcf on commercial and
industrial participants in 2001. MichCon will continue to
transport and deliver the gas to the participating
customers premises at prices that generate favorable
margins.

The Regulatory Reform Plan also includes the Gas Sales Program
that suspended the GCR mechanism for customers who continue to
purchase gas from MichCon, and fixed the gas commodity component
of MichCons sales rates at $2.95 per Mcf for the
three-year period that began in January 1999. The suspension of
the GCR mechanism allows MichCon to profit from its ability to
purchase gas at less than $2.95 per Mcf. The program also
increases MichCons risk associated with generating
positive margins. As part of its gas acquisition strategy,
MichCon has entered into fixed-price contracts at costs below
$2.95 per Mcf for approximately 65% of its expected 2001 supply
requirements under the Gas Sales Program. Although this strategy
produced favorable margins in 1999 and 2000, MichCon does not
expect to generate profits from the Gas Sales Program in 2001.
MichCons fixed-price supplies for 2001 are at prices
higher than those paid in 1999 and 2000. MichCon expects to
supplement its existing fixed price supply by purchasing gas at
market prices, which are unprecedentedly high. Absent a
modification to its Gas Sales Program as subsequently discussed,
MichCon plans to meet its remaining gas supply requirements for
2001 with up to 30 Bcf of withdrawals from storage at
prices significantly lower than $2.95 per Mcf to mitigate the
effect on earnings of high gas prices. The level of margins
generated from selling gas will also be affected by actual gas
sales volumes, which will fluctuate as a result of changes in
weather, and the number of customers who ultimately choose to
purchase gas from suppliers other than MichCon.

The Plan also encompasses an income sharing mechanism that
allows customers to share in profits when actual returns on
equity from utility operations exceed predetermined thresholds.
Based on the MPSC approved formula, management believes that no
income sharing was required in 1999 and 2000, and does not
expect income sharing will be required in 2001.

Proposed Regulatory Changes:The MPSC is
continuing its initiatives designed to give all of
Michigans natural gas customers added choices and the
opportunity to benefit from lower gas costs resulting from
competition. In October 2000, the MPSC issued an order that
provides uniform terms and conditions for a new voluntary
customer choice program in Michigan. Key aspects of the order
include: (i) continuing customer choice on a permanent and
expanding basis; (ii) eliminating fixed commodity rates in
favor of GCR rates that reflect market prices; and
(iii) investigating the potential unbundling of additional
services offered by Michigan gas utilities.

In December 2000, MichCon filed applications with the MPSC
to modify the experimental Customer Choice and Gas Sales
Programs as outlined in the MPSCs October 2000 order.
Among other things, the proposed modifications would become
effective in April 2001, and: (i) replace the experimental
three-year Customer Choice Program with a permanent choice
program, (ii) replace the current $2.95 per Mcf gas
commodity charge included in gas sales rates with a GCR factor,
and (iii) eliminate the current income sharing provision.
Irrespective of the outcome of the proceeding, MichCon will
return to a GCR mechanism no later than January 2002.

The proposed permanent choice program would expand customer
participation to be phased in over a three-year period. In year
one, 40% of MichCons customers could elect to purchase gas
from suppliers other than MichCon. In year two, 60% of customers
would be eligible and, by year three,

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ITEM 1. BUSINESS(CONTINUED)


all of MichCons 1.2 million customers could
participate in the program. Under the proposed GCR mechanism,
MichCons gas sales rates would include a gas commodity
component designed to recover its actual gas costs. MichCon
could no longer profit from selling gas to customers who choose
not to participate in the permanent choice program. Under the
proposal, MichCon could sell its fixed-price supply contracts
that are at prices significantly below current market prices and
refund any proceeds to eligible customers. Additionally, MichCon
could refund all or a portion of the income earned from selling
gas at $2.95 per Mcf under the current experimental Gas Sales
Program.

General Rate Proceedings:MichCon received MPSC
authorization to defer manufactured gas plant investigation and
remediation costs in excess of the $11.7 million previously
reserved. In 1999, MichCon depleted the initial reserve. Costs
incurred in excess of the initial reserve are being deferred and
amortized over a 10-year period beginning in the year subsequent
to the year environmental investigation and remediation costs
are paid. The recovery of any investigation and remediation
costs incurred will be reviewed in a future rate case.

In 2000, Citizens entered into a rate agreement with the
municipal commission that sets its rates. Under the terms of
this agreement, which went into effect in September 2000,
Citizens received a 15% rate increase, and its rates were frozen
for three years. The rate agreement provides Citizens
customers with known prices and MCN with an opportunity to
control costs and continue to earn a reasonable rate of return.

Gas Cost Recovery:Prior to 1999, the GCR process
allowed MichCon to recover its cost of gas sold if the MPSC
determined that such costs were reasonable and prudent. As
previously discussed, beginning in January 1999, MichCons
Regulatory Reform Plan suspended the GCR mechanism and fixed the
gas commodity component of MichCons sales rate at $2.95
per Mcf for three years.

The GCR process included an annual Gas Supply and Cost Review,
in which the MPSC approved maximum monthly GCR factors. A
subsequent annual GCR reconciliation proceeding provided a
review of gas costs incurred during the year, determined whether
approved gas costs had been overcollected or undercollected and,
as a result, whether a refund or surcharge, including interest,
was required to be returned to or collected from GCR customers.
In February 1999, MichCon filed its GCR reconciliation case
covering gas costs incurred during 1998, indicating an
overrecovery of $18 million, including interest. During the
first quarter of 1999, MichCon refunded the overrecovery to
customers. In July 2000, the MPSC issued an order on this case
indicating that an additional $3.2 million, including
$.7 million of interest, had been overrecovered. MichCon
refunded the additional overrecovery to customers in 2000 as a
reduction in gas sales rates.

FERC Rate Matters:In February 1998, the FERC
approved a settlement agreement in an ANR rate case entitling
MichCon to refunds totaling $9.4 million. MichCon received
$5.5 million of this refund in April 1998 relating to certain
transportation services provided by ANR to MichCon. In June
1998, MichCon received the remaining refund.

Other Rate Matters:In March 2000, several
shippers on MichCons northern Michigan gathering system
filed a complaint requesting that the MPSC issue an order
reducing the rate charged for Antrim gas transportation services
from $.090 per Mcf to approximately $.039 to $.031 per Mcf. The
complaint also included a request for refunds of approximately
$21.0 million for periods during which the rate was in effect.
The presiding MPSC Administrative Law Judge (ALJ) found that no

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ITEM 1. BUSINESS(CONTINUED)


refunds of prior rates are required. The MPSC staff filed a
proposed rate of $.049 per Mcf which would result in an annual
revenue reduction of approximately $4.5 million. In
February 2001, the ALJ issued a proposal for decision supporting
the MPSC staffs position. MichCon is defending its
proposed rate of $.088 per Mcf, however, it is unable to predict
the outcome of this complaint.

Energy Assistance Programs:Energy assistance
programs funded by the federal government and the State of
Michigan, including the Home Heating Credit for low-income
customers and the Family Independence Agencys State
Emergency Relief Program, remain critical to MichCons
ability to control its uncollectible gas account expenses.

The State of Michigan provides assistance in the form of
Michigan Home Heating Credits that are funded almost exclusively
by the Federal Low-Income Home Energy Assistance Program
(LIHEAP). Congress approved funding for fiscal 2000 and 1999 at
$1.1 billion. During the year, an additional $600 million
was appropriated in an emergency fund for fiscal 2000. The State
of Michigans LIHEAP funds were $64 million for 2000
compared to $59 million in fiscal 1999. The State of
Michigan received an additional $23 million from the LIHEAP
emergency fund which is being carried over to the States
2001 fiscal year, which began October 2000. MichCon received
$15.1 million of funds in 2000 compared to $12.6 million in
1999. Home Heating Credits assisted 75,600 MichCon customers in
2000 compared to 69,000 in 1999. For fiscal 2001, Congress
increased the LIHEAP funding level to $1.4 billion and
provided an additional $300 million in emergency funds. Unlike
past practice, these funds have not been advanced to states for
use in the next fiscal year. While this creates some uncertainty
when planning winter heating assistance programs, both Congress
and President George W. Bush have pledged continued support for
the program.

Environmental Matters

A discussion of environmental matters is included in
Item 7. MD&A under the heading
Environmental Matters and in Item 8.
Financial Statements and Supplementary Data,
Note 14b  Commitments and Contingencies
under the heading Environmental Matters.

Franchises

MichCon operates in more than 530 cities, villages and townships
under franchises or permits that typically are revocable at will
and have a 30-year maximum duration. Prior to 1993, MichCon had
no policy requiring the renewal of franchises. Thereafter,
MichCon implemented such a policy and began a process to renew
or re-establish franchises that had expired in 233
municipalities. During the 1994 to 2000 period, an additional
203 franchises expired. To date, 401 franchises have been
renewed, including eight in 1999 and two in 2000. There were no
franchises that lapsed during 1999 or 2000.

As for the 35 franchises that are currently expired,
MichCons gas distribution systems were installed and are
maintained with the consent or acquiescence of the
municipalities. While MichCon could be ordered to remove its
property by any municipality in which its franchise has expired,
it could lose ownership only by its consent and the payment of
an agreed-upon price, or by condemnation and the payment of the
fair value of such property. Should any of these municipalities
seek to terminate MichCons operations therein and
substitute another gas utility operation, publicly

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ITEM 1. BUSINESS(CONCLUDED)


or privately owned, the municipality must either
(i) acquire and operate MichCons system,
(ii) construct a new system or (iii) grant a franchise
to another privately owned utility to construct or acquire its
own distribution system.

Citizens operates in cities and townships in and around Adrian,
Michigan under franchises or permits that are revocable, have a
30-year maximum duration, and provide for municipal rate
setting. In November 1995, the residents of Adrian voted
favorably on granting a 30-year renewal franchise to Citizens.
There were three franchise renewals during 1998 and one in 2000.
No franchises were renewed in 1999.

Other

Collective Bargaining Agreements:MichCon has five
collective bargaining agreements that cover slightly less than
half of its labor force. In December 2000, MichCon negotiated
and signed two agreements that are in effect through
October 2004. The three remaining agreements expire in
June 2001 and are subject to pending negotiations.

Slightly more than half of Citizens 41 employees are
covered under a three year collective bargaining agreement which
expires in April 2002.

Other:MCNIC Gas Storage Company, a 100%-owned subsidiary
of MCNEE, holds a 50% limited partnership interest in The
Orchards Golf Limited Partnership. The Orchards golf course is
above the Washington 28 storage field, located north of
Detroit. The partnership developed approximately 450 acres
of land in Washington Township, Michigan. The acreage consists
of an 18-hole championship golf course on approximately
200 acres and residential development of the remaining
250 acres.

MichCon Development Company, a 100%-owned subsidiary of MichCon,
holds between a 33% and a 50% interest in various partnerships
related to the Harbortown development. The Harbortown
development is a mixed use development consisting of a 60,000
square foot retail shopping center, a 63 slip marina,
273 rental units and 80 low-rise condominiums located
along the Detroit River. The development consists of
35 acres of land, of which 12 are undeveloped.

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ITEM 2. PROPERTIES


MCN

MCN, through its principal subsidiaries, owns or leases office
space in Detroit, Grand Rapids and Traverse City, Michigan, and
Hartford, Connecticut. MCNs facilities are suitable and
adequate for their intended use. MCNs capital investments
totaled approximately $322 million for 2000, $496 million for
1999 and $791 million for 1998.

DIVERSIFIED ENERGY

Diversified Energy has investments that own property primarily
associated with gas gathering, processing, transmission and
storage, and real estate. The majority of these investments are
in unconsolidated joint ventures and partnerships in which
Diversified Energy has an ownership interest of less than or
equal to 50%.

Exploration & Production
Activities

MCN Oil & Gas Company (MOG), an indirect subsidiary of MCN,
is engaged in natural gas and oil exploration, development and
production. During 1999, MOG sold its Western, Midcontinent/
Gulf Coast and Appalachian E&P properties, representing
643 Bcfe of proved reserves. MOG retained its Michigan
properties, which had 433 Bcfe of proved reserves at
December 31, 2000.




|                            |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|--------------------------- |  | ----- | ------- | ---- |  | ----- | ------- | --- |  | ----- | ------- | --- |  |  | ------- |  |  |  | --------- |  |  |  | --------- | 
|                            |  |       |         |      |  |      
|                            |  | 2000  |         | 1999 |  | 1998 
|                            |  |       |         |      |  |      
|Producing Wells and Acreage |  | Gross |         | Net  |  | Gross |         | Net |  | Gross |         | Net
|                            |  |       |         |      |  |       |         |     |  |       |         |    
|Producing Wells             |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|                           
|                           
|                           
|                           
|United States               |  |       | 1,435   |      |  |       | 1,114   |     |  |       | 1,377   |     |  |  | 1,053   |  |  |  | 3,143     |  |  |  | 1,782     | 
|                            |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|Developed Lease Acreage     |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|                           
|                           
|                           
|                           
|United States               |  |       | 233,722 |      |  |       | 194,927 |     |  |       | 248,725 |     |  |  | 208,625 |  |  |  | 623,076   |  |  |  | 352,315   | 
|                            |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|Undeveloped Lease Acreage   |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 
|                           
|                           
|                           
|                           
|United States               |  |       | 64,987  |      |  |       | 57,715  |     |  |       | 410,877 |     |  |  | 213,108 |  |  |  | 2,693,767 |  |  |  | 1,148,920 | 
|                            |  |       |         |      |  |       |         |     |  |       |         |     |  |  |         |  |  |  |           |  |  |  |           | 




GAS DISTRIBUTION

MichCon operates natural gas distribution, transmission and
storage facilities in Michigan. At December 31, 2000,
MichCons distribution system included 17,313 miles of
distribution mains, 1,109,528 service lines and 1,222,287 active
meters. MichCon owns 2,604 miles of transmission and production
lines that deliver natural gas to the distribution districts and
interconnect its storage fields with the sources of supply and
the market areas. MichCon owns properties relating to four
underground storage fields with an aggregate storage capacity of
approximately 124 Bcf. Additionally, MichCon owns district
office buildings, service buildings and gas receiving and

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ITEM 2. PROPERTIES(CONCLUDED)


metering stations. MichCon also owns its principal office
building in Detroit (the Guardian Building) and occupies an
office building in Grand Rapids under a long-term lease.
Portions of these buildings are subleased to affiliates and
others.

Most of MichCons properties are held in fee, by easement,
or under lease agreements expiring at various dates to 2006,
with renewal options extending beyond that date. The principal
plants and properties of MichCon are held subject to the lien of
MichCons Indenture of Mortgage and Deed of Trust under
which MichCons First Mortgage Bonds are issued. Some
properties are being fully utilized, and new properties are
being added to meet the expansion requirements of existing
areas. Gas Distributions capital investments for 2000
totaled $119 million, which compares with $137 million in 1999
and $158 million in 1998.

MichCons subsidiaries own (i) a 67-mile gathering
pipeline that transports natural gas and natural gas liquids
from reserves in east-central Michigan to natural gas processing
plants in northern Michigan and (ii) 134 miles of gathering
lines and a 2,400 horsepower compressor station located in
northern Michigan. Other MichCon subsidiaries have (i) a
46% interest in a partnership that owns lateral lines related to
the 67-mile gathering pipeline and (ii) an 83% interest in
an additional 32 miles of gathering pipelines in northern
Michigan.

Citizens owns all of the properties used in the conduct of its
utility business. Included in these properties is a gas
distribution system, a two-story office building in downtown
Adrian and a one-story service center.

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ITEM 3. LEGAL PROCEEDINGS


In addition to Gas Distributions regulatory proceedings
and other matters described in Item 1,
Business, MCN also is involved in a number of lawsuits and
administrative proceedings in the ordinary course of business
with respect to taxes, environmental matters, contracts,
personal injury, property damage claims and other matters.

Environmental

MichCon originally received a general notice of liability letter
from the United States Environmental Protection Agency (EPA) in
1994, stating that it was one of two potentially responsible
parties at the Lower Ecorse Creek Superfund site in Wyandotte,
Michigan. MichCon reviewed the EPAs bases for determining
that it is a potentially responsible party and concluded that it
was not responsible for contamination discovered at that site
and informed the EPA of its decision. In December 1999, the EPA
asked for recovery of its costs which totaled $5.1 million. In
mid-2000, MichCon and the EPA reached an agreement on the terms
of a settlement whereby MichCon would pay $.24 million towards
the total costs of cleaning up the sites. As required by the
Comprehensive Environmental Response Compensation and Liability
Act, the EPA filed an action in federal court in
December 2000 seeking approval of the terms of the
settlement with MichCon. Management believes the settlement will
be approved in mid-2001 and the ultimate resolution of this
matter will not have a material adverse effect on MCNs
financial statements.

Other

Since 1996, MichCon and 200 other natural gas transmission
companies, producers, gatherers and processors of natural gas
from across the United States have been defending claims filed
by Jack Grynberg on behalf of the U.S. Government under the
False Claims Act, seeking unspecified damages for alleged
underpayment of royalties on federal and Indian lands due to
purported improper measurement of gas. The initial suit was
dismissed in 1997, and that dismissal was affirmed by the
District Court of Appeals in October 1998. Mr. Grynberg
refiled that suit in September 1997 in 77 separate federal
district courts. MichCon and MichCon Pipeline Company (MichCon
Pipeline), a 100% owned subsidiary of MichCon, have been named
in one suit in the U.S. District Court, Eastern District of
Michigan. In April 1999, the U.S. Department of Justice
declined intervention, and subsequently, the 77 separate
cases were consolidated by the Multidistrict Litigation Panel
for pre-trial proceedings in Wyoming. MichCon and MichCon
Pipeline are defending against the claims and believe they lack
merit.

In May 1999, a class action suit was filed in Kansas state court
naming approximately 200 pipeline companies and producers,
seeking unspecified damages for alleged underpayment of
royalties due to purported mismeasurement of gas on all natural
gas purchased in the U.S. since 1974. MichCon and MichCon
Pipeline are among those named in this suit. The case was
removed to U.S. District Court, Southern Division of
Kansas, and consolidated with the Grynberg False Claims Act case
in Wyoming. In January 2001, the court granted plaintiffs
request to remand the case back to state court agreeing there
was no federal court jurisdiction over the state law claims. The
company is defending against these claims and believes they lack
merit.

23



---



##### Table of Contents








ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS


None.

24



---



##### Table of Contents








PART II







|         |                                           
|-------- | ------------------------------------------
|ITEM  5. | MARKET FOR REGISTRANTS COMMON EQUITY
	AND

RELATED STOCKHOLDER MATTERS


MCN Common Stock is traded on the New York Stock Exchange. On
February 28, 2001 there were 18,759 holders of record of
MCN Common Stock. Information regarding the market price of MCN
Common Stock and related security holder matters is contained in
Item 8. Financial Statements and Supplementary
Data.

As discussed in Item 8.  Financial Statements
and Supplementary Data, Note 11a  MCN-Obligated
Mandatorily Redeemable Preferred Securities of
Subsidiaries, MCN has the right to extend interest
payments on certain debentures. In the event that it exercises
this right, MCN may not declare dividends on its common shares.

25



---



##### Table of Contents








ITEM 6. SELECTED FINANCIAL DATA


|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |         | 
|------------------------------------------------------------------------------------------- | ------------------------------------- | ---- | --------- | ------ |  | ----- | --------- | -------- | - | ----- | --------- | -------- | - | - | --------- | ------- |  | - | --------- | ------- | 
|Selected Financial Data                                                                     |                                       | 2000 |           | 1999*  |  | 1998* |           | 1997*    |   | 1996*
|                                                                                            |                                       |      |           |        |  |       |           |          |   |      
|                                                                                           
|(in Thousands of Dollars  Except Per Share Amounts)                                       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net Income (Loss)                                                                           |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Continuing Operations                                                                       |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Before unusual items and merger costs |      | $         | 66,404 |  |       | $         | 104,897  |   |       | $         | 84,284   |   |   | $         | 106,633 |  |   | $         | 124,217 | 
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Unusual items and merger costs        |      |           | 42,464 |  |       |           | (120,954 | ) |       |           | (383,156 | ) |   |           | 3,650   |  |   |           | 4,150   | 
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 108,868   |        |  |       | (16,057   | )        |   |       | (298,872  | )        |   |   | 110,283   |         |  |   | 128,367   |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Discontinued Operations                                                                     |                                       |      |          |        |  |       |          |          |   |       |          |          |   |   |          |         |  |   | 37,771    |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 108,868   |        |  |       | (16,057   | )        |   |       | (298,872  | )        |   |   | 110,283   |         |  |   | 166,138   |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Accounting Change For Start-Up Costs (Note 5)                                               |                                       |      |          |        |  |       | (2,872    | )        |   |       |          |          |   |   |          |         |  |   |          |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       | $    | 108,868   |        |  | $     | (18,929   | )        |   | $     | (298,872  | )        |   | $ | 110,283   |         |  | $ | 166,138   |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Cash Dividends Declared                                                                     |                                       | $    | 90,047    |        |  | $     | 86,256    |          |   | $     | 82,239    |          |   | $ | 72,851    |         |  | $ | 62,875    |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Common Stock Data                                                                           |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Basic Earnings (Loss) Per Share                                                             |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Continuing Operations                                                                       |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Before unusual items and merger costs |      | $         | .75    |  |       | $         | 1.26     |   |       | $         | 1.07     |   |   | $         | 1.46    |  |   | $         | 1.85    | 
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Unusual items and merger costs        |      |           | .48    |  |       |           | (1.45    | ) |       |           | (4.86    | ) |   |           | .05     |  |   |           | .06     | 
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 1.23      |        |  |       | (.19      | )        |   |       | (3.79     | )        |   |   | 1.51      |         |  |   | 1.91      |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Discontinued Operations                                                                     |                                       |      |          |        |  |       |          |          |   |       |          |          |   |   |          |         |  |   | .57       |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 1.23      |        |  |       | (.19      | )        |   |       | (3.79     | )        |   |   | 1.51      |         |  |   | 2.48      |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Accounting Change For Start-Up Costs (Note 5)                                               |                                       |      |          |        |  |       | (.03      | )        |   |       |          |          |   |   |          |         |  |   |          |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       | $    | 1.23      |        |  | $     | (.22      | )        |   | $     | (3.79     | )        |   | $ | 1.51      |         |  | $ | 2.48      |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Diluted Earnings (Loss) Per Share                                                           |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Continuing Operations                                                                       |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Before unusual items and merger costs |      | $         | .75    |  |       | $         | 1.26     |   |       | $         | 1.07     |   |   | $         | 1.43    |  |   | $         | 1.84    | 
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Unusual items and merger costs        |      |           | .47    |  |       |           | (1.45    | ) |       |           | (4.86    | ) |   |           | .05     |  |   |           | .06     | 
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 1.22      |        |  |       | (.19      | )        |   |       | (3.79     | )        |   |   | 1.48      |         |  |   | 1.90      |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Discontinued Operations                                                                     |                                       |      |          |        |  |       |          |          |   |       |          |          |   |   |          |         |  |   | .56       |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 1.22      |        |  |       | (.19      | )        |   |       | (3.79     | )        |   |   | 1.48      |         |  |   | 2.46      |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Accounting Change For Start-Up Costs (Note 5)                                               |                                       |      |          |        |  |       | (.03      | )        |   |       |          |          |   |   |          |         |  |   |          |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       | $    | 1.22      |        |  | $     | (.22      | )        |   | $     | (3.79     | )        |   | $ | 1.48      |         |  | $ | 2.46      |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Book Value Per Share                                                                        |                                       | $    | 10.76     |        |  | $     | 9.56      |          |   | $     | 9.79      |          |   | $ | 14.63     |         |  | $ | 12.01     |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Return on Average Common Shareholders Equity,
	Before Accounting Change For Start-Up Costs |                                       |      | 12.2      | %      |  |       | (2.0      | )%       |   |       | (31.0     | )%       |   |   | 11.3      | %       |  |   | 17.3      | %      
|Average Common Shares Outstanding (000)                                                     |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Basic                                 |      |           | 88,398 |  |       |           | 83,407   |   |       |           | 78,823   |   |   |           | 72,887  |  |   |           | 66,944  | 
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Diluted                               |      |           | 89,107 |  |       |           | 83,407   |   |       |           | 78,823   |   |   |           | 75,435  |  |   |           | 67,521  | 
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Actual Common Shares Outstanding (000)                                                      |                                       |      | 90,186    |        |  |       | 85,655    |          |   |       | 79,725    |          |   |   | 78,232    |         |  |   | 67,304    |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Property, Plant and Equipment                                                               |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Diversified Energy                                                                          |                                       | $    | 661,773   |        |  | $     | 696,239   |          |   | $     | 1,124,877 |          |   | $ | 1,373,340 |         |  | $ | 1,028,518 |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Gas Distribution                                                                            |                                       |      | 3,008,216 |        |  |       | 3,016,231 |          |   |       | 2,916,540 |          |   |   | 2,813,434 |         |  |   | 2,689,039 |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       |      | 3,669,989 |        |  |       | 3,712,470 |          |   |       | 4,041,417 |          |   |   | 4,186,774 |         |  |   | 3,717,557 |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Less  Accumulated Depreciation and Depletion                                               |                                       |      | 1,802,401 |        |  |       | 1,697,212 |          |   |       | 1,644,094 |          |   |   | 1,488,050 |         |  |   | 1,335,201 |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       | $    | 1,867,588 |        |  | $     | 2,015,258 |          |   | $     | 2,397,323 |          |   | $ | 2,698,724 |         |  | $ | 2,382,356 |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Assets                                                                                      |                                       | $    | 4,864,349 |        |  | $     | 4,238,022 |          |   | $     | 4,377,956 |          |   | $ | 4,331,940 |         |  | $ | 3,672,431 |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Capital Investments                                                                         |                                       | $    | 321,668   |        |  | $     | 496,379   |          |   | $     | 790,930   |          |   | $ | 959,610   |         |  | $ | 790,748   |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|Capitalization                                                                              |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Long-Term Debt, Including Capital Lease Obligations                                         |                                       | $    | 1,056,825 |        |  | $     | 1,457,617 |          |   | $     | 1,307,168 |          |   | $ | 1,212,564 |         |  | $ | 1,252,040 |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Redeemable Cumulative Preferred Securities                                                  |                                       |      | 272,484   |        |  |       | 402,922   |          |   |       | 502,203   |          |   |   | 505,104   |         |  |   | 173,809   |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Common Shareholders Equity                                                                 |                                       |      | 970,572   |        |  |       | 818,912   |          |   |       | 780,407   |          |   |   | 1,144,840 |         |  |   | 808,403   |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        
|                                                                                            |                                       | $    | 2,299,881 |        |  | $     | 2,679,451 |          |   | $     | 2,589,778 |          |   | $ | 2,862,508 |         |  | $ | 2,234,252 |        
|                                                                                            |                                       |      |           |        |  |       |           |          |   |       |           |          |   |   |           |         |  |   |           |        




|  |                                                                                                  
|- | -------------------------------------------------------------------------------------------------
|* | Periods prior to 2000 have been restated due to
	the change in accounting for inventory (Note 3).

26



---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA(CONCLUDED)


|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |         |        | 
|---------------------------------------------------- | --------------------------- | ---------------------------------------- | --------------------------- | ------- | ------- | ------ | --------- | ------- | ------- | ------ | --------- | ------- | ------- | ------ | --------- | --------- | ------- | ------ | --------- | --------- | ------- | ------ | 
|Selected Financial Data                              |                             | 2000                                     |                             | 1999*   |         | 1998*  |           | 1997*   |         | 1996* 
|                                                     |                             |                                          |                             |         |         |        |           |         |         |       
|                                                    
|(in Thousands of Dollars  Except Per Share Amounts)
|                                                    
|                                                    
|                                                    
|                                                    
|Operating Revenues                                   |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|Diversified Energy                                   |                             | $                                        | 1,713,918                   |         |         | $      | 1,343,026 |         |         | $      | 973,746   |         |         | $      | 915,966   |           |         | $      | 758,745   |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|Gas Distribution                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gas sales                   |                                          |                             | 929,099 |         |        |           | 924,580 |         |        |           | 838,876 |         |        |           | 1,080,104 |         |        |           | 1,102,957 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | End user transportation     |                                          |                             | 117,415 |         |        |           | 103,879 |         |        |           | 82,275  |         |        |           | 84,749    |         |        |           | 82,467    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Intermediate transportation |                                          |                             | 52,577  |         |        |           | 57,783  |         |        |           | 63,218  |         |        |           | 55,221    |         |        |           | 48,570    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                       |                                          |                             | 74,036  |         |        |           | 84,358  |         |        |           | 67,405  |         |        |           | 51,212    |         |        |           | 42,260    |        
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             |                                          | 1,173,127                   |         |         |        | 1,170,600 |         |         |        | 1,051,774 |         |         |        | 1,271,286 |           |         |        | 1,276,254 |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|Less Intercompany Transactions                       |                             |                                          | 95,938                      |         |         |        | 89,373    |         |         |        | 14,299    |         |         |        | 14,688    |           |         |        | 13,427    |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             | $                                        | 2,791,107                   |         |         | $      | 2,424,253 |         |         | $      | 2,011,221 |         |         | $      | 2,172,564 |           |         | $      | 2,021,572 |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|Effect of Weather                                    |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|Percent Colder (Warmer) Than Normal                  |                             |                                          | (5.5                        | )%      |         |        | (9.0      | )%      |         |        | (19.3     | )%      |         |        | .8        | %         |         |        | 5.4       | %        
|Increase (Decrease) From Normal in                   |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gas markets (MMcf)          |                                          |                             | (12,352 | )       |        |           | (18,732 | )       |        |           | (40,272 | )       |        |           | 589       |         |        |           | 10,909    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                  |                                          | $                           | (11,718 | )       |        | $         | (18,592 | )       |        | $         | (35,314 | )       |        | $         | 467       |         |        | $         | 9,886     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Diluted earnings per share  |                                          | $                           | (.13    | )       |        | $         | (.22    | )       |        | $         | (.45    | )       |        | $         | .01       |         |        | $         | .15       |        
|                                                    
|                                                    
|                                                    
|                                                    
|Operating Statistics                                 |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|Diversified Energy(1)                                |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     | Pipelines & Processing      |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |        
|                                                     |                             | Gas processed (MMcf)                     |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             |                                          | Carbon dioxide treatment    |         |         | 53,873 |           |         |         | 51,807 |           |         |         | 48,868 |           |           |         | 42,761 |           |           |         | 44,223 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             |                                          | Natural gas liquids removal |         |         | 60,733 |           |         |         | 73,065 |           |         |         | 45,082 |           |           |         | 21,764 |           |           |         | 7,446  | 
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             |                                          | 114,606                     |         |         |        | 124,872   |         |         |        | 93,950    |         |         |        | 64,525    |           |         |        | 51,669    |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             | Methanol produced (thousand gallons)     |                             |         | 64,919  |        |           |         | 57,419  |        |           |         | 60,446  |        |           |           | 60,810  |        |           |           | 10,545  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Transportation (MMcf)                    |                             |         | 142,551 |        |           |         | 208,618 |        |           |         | 175,466 |        |           |           | 115,975 |        |           |           | 86,391  |       
|                                                     | Electric Power              |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Electricity sales (thousands of MWh)     |                             |         | 185     |        |           |         | 2,756   |        |           |         | 3,805   |        |           |           | 1,843   |        |           |           | 709     |       
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     | Energy Marketing (MMcf)     |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Gas sales                                |                             |         | 451,003 |        |           |         | 585,717 |        |           |         | 454,681 |        |           |           | 343,719 |        |           |           | 218,952 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Exchange gas deliveries                  |                             |         | 23,846  |        |           |         | 11,882  |        |           |         | 11,061  |        |           |           | 15,109  |        |           |           | 22,586  |       
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             |                                          | 474,849                     |         |         |        | 597,599   |         |         |        | 465,742   |         |         |        | 358,828   |           |         |        | 241,538   |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     | Exploration & Production    |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Gas production (MMcf)                    |                             |         | 26,214  |        |           |         | 61,838  |        |           |         | 82,040  |        |           |           | 78,218  |        |           |           | 57,202  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Oil production (MBbl)                    |                             |         | 117     |        |           |         | 1,164   |        |           |         | 2,635   |        |           |           | 3,346   |        |           |           | 1,086   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                             | Gas and oil production (MMcf equivalent) |                             |         | 26,916  |        |           |         | 68,822  |        |           |         | 97,850  |        |           |           | 98,294  |        |           |           | 63,718  |       
|                                                    
|Gas Distribution (MMcf)                              |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gas sales                   |                                          |                             | 182,556 |         |        |           | 181,756 |         |        |           | 172,177 |         |        |           | 209,092   |         |        |           | 220,958   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | End user transportation     |                                          |                             | 163,883 |         |        |           | 152,036 |         |        |           | 140,315 |         |        |           | 145,101   |         |        |           | 146,895   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Intermediate transportation |                                          |                             | 598,868 |         |        |           | 531,912 |         |        |           | 537,532 |         |        |           | 586,496   |         |        |           | 527,510   |        
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                     |                             |                                          | 945,307                     |         |         |        | 865,704   |         |         |        | 850,024   |         |         |        | 940,689   |           |         |        | 895,363   |          
|                                                     |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|Gas Distribution Customers                           |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|Residential                                          |                             |                                          | 1,104,891                   |         |         |        | 1,080,455 |         |         |        | 1,117,977 |         |         |        | 1,105,749 |           |         |        | 1,100,101 |          
|                                                    
|                                                    
|                                                    
|                                                    
|Total                                                |                             |                                          | 1,234,541                   |         |         |        | 1,219,510 |         |         |        | 1,205,628 |         |         |        | 1,193,122 |           |         |        | 1,183,443 |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Employees                                            |                             |                                          |                             |         |         |        |           |         |         |        |           |         |         |        |           |           |         |        |           |          
|                                                    
|                                                    
|                                                    
|                                                    
|Diversified Energy                                   |                             |                                          | 198                         |         |         |        | 209       |         |         |        | 213       |         |         |        | 289       |           |         |        | 243       |          
|                                                    
|                                                    
|                                                    
|                                                    
|Gas Distribution                                     |                             |                                          | 2,748                       |         |         |        | 2,761     |         |         |        | 2,773     |         |         |        | 2,920     |           |         |        | 3,117     |          




|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|*   | Periods prior to 2000 have been restated due to
	the change in accounting for inventory (Note 3).
|(1) | Includes MCNs share of joint
	ventures.                                                         

27



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##### Table of Contents








|        |                                                   
|------- | --------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
	FINANCIAL

CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Results for 2000 reflect unusual items, asset sales and lower
margins  MCNs earnings in 2000 were $108.9
million, or $1.22 per diluted share, compared to a net loss in
1999 of $18.9 million, or $.22 per share. As subsequently
discussed, the comparability of earnings was affected by the
impact of several unusual items, merger costs and an accounting
change for start-up costs. Excluding the unusual items, merger
costs and accounting change, MCN had 2000 earnings of $66.4
million, or $.75 per diluted share, compared to 1999 earnings of
$104.9 million, or $1.26 per share. The earnings decline
reflects reduced contributions from Diversified Energys
operating segments, largely due to asset sales, and lower
earnings from MichCons Gas Sales Program. Also affecting
comparability was the implementation of mark-to-market
accounting for storage-related trading activities in 2000, in
combination with a change in accounting for inventory
(Notes 3 and 4).

|                                              |                                     |      |       |       |   |      |        |       |   |   |        |        |  
|--------------------------------------------- | ----------------------------------- | ---- | ----- | ----- | - | ---- | ------ | ----- | - | - | ------ | ------ | -
|                                             
|                                             
|                                              |                                     | 2000 |       | 1999  |   | 1998
|(in Millions)                                 |                                     |      |       |       |   |     
|                                              |                                     |      |       |       |   |     
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                     |      |       |       |   |      |        |       |   |   |        |       
|Diversified Energy                            |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      | $     | (43.8 | ) |      | $      | (15.3 | ) |   | $      | (4.1   | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6)              |      |       | 54.5  |   |      |        | (98.3 | ) |   |        | (366.5 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |       | (1.4  | ) |      |        | (5.9  | ) |   |        |       |  
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                              |                                     |      | 9.3   |       |   |      | (119.5 | )     |   |   | (370.6 | )     
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|Gas Distribution                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      |       | 110.2 |   |      |        | 120.2 |   |   |        | 88.4   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6f)             |      |       | (7.9  | ) |      |        |      |   |   |        | (16.7  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |       | (2.7  | ) |      |        | (16.8 | ) |   |        |       |  
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                              |                                     |      | 99.6  |       |   |      | 103.4  |       |   |   | 71.7   |       
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|Total Before Accounting Change                |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      |       | 66.4  |   |      |        | 104.9 |   |   |        | 84.3   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6)              |      |       | 46.6  |   |      |        | (98.3 | ) |   |        | (383.2 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |       | (4.1  | ) |      |        | (22.7 | ) |   |        |       |  
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                              |                                     |      | 108.9 |       |   |      | (16.1  | )     |   |   | (298.9 | )     
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-Up Costs (Note 5) |                                     |      |      |       |   |      | (2.8   | )     |   |   |       |       
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                              |                                     | $    | 108.9 |       |   | $    | (18.9  | )     |   | $ | (298.9 | )     
|                                              |                                     |      |       |       |   |      |        |       |   |   |        |       
|                                             

28



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|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

|                                              |                                     |      |      |      |   |      |       |       |   |   |       |       |  
|--------------------------------------------- | ----------------------------------- | ---- | ---- | ---- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|                                             
|                                             
|                                              |                                     | 2000 |      | 1999 |   | 1998
|(in Millions)                                 |                                     |      |      |      |   |     
|                                              |                                     |      |      |      |   |     
|                                             
|                                             
|                                             
|                                             
|Diluted Earnings (Loss) Per Share             |                                     |      |      |      |   |      |       |       |   |   |       |      
|Diversified Energy                            |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      | $    | (.49 | ) |      | $     | (.18  | ) |   | $     | (.05  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6)              |      |      | .61  |   |      |       | (1.18 | ) |   |       | (4.65 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |      | (.02 | ) |      |       | (.07  | ) |   |       |      |  
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                              |                                     |      | .10  |      |   |      | (1.43 | )     |   |   | (4.70 | )    
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|Gas Distribution                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      |      | 1.24 |   |      |       | 1.44  |   |   |       | 1.12  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6f)             |      |      | (.09 | ) |      |       |      |   |   |       | (.21  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |      | (.03 | ) |      |       | (.20  | ) |   |       |      |  
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                              |                                     |      | 1.12 |      |   |      | 1.24  |       |   |   | .91   |      
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|Total Before Accounting Change                |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items & merger costs |      |      | .75  |   |      |       | 1.26  |   |   |       | 1.07  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 6)              |      |      | .52  |   |      |       | (1.18 | ) |   |       | (4.86 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)               |      |      | (.05 | ) |      |       | (.27  | ) |   |       |      |  
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                              |                                     |      | 1.22 |      |   |      | (.19  | )     |   |   | (3.79 | )    
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-Up Costs (Note 5) |                                     |      |     |      |   |      | (.03  | )     |   |   |      |      
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      
|                                              |                                     | $    | 1.22 |      |   | $    | (.22  | )     |   | $ | (3.79 | )    
|                                              |                                     |      |      |      |   |      |       |       |   |   |       |      




MCNs results in 1999, before unusual items, merger costs
and the accounting change for start-up costs, increased $20.6
million, or $.19 per share, from 1998 earnings of $84.3 million,
or $1.07 per share. The 1999 improvement reflects earnings from
MichCons Gas Sales Program and the effect of more
favorable weather, partially offset by reduced earnings from
asset sales. All per share comparisons were also affected by an
increase in the average number of shares outstanding due to the
issuance of 4,557,000 shares in 2000 and 5,865,000 shares in
1999.

Inventory accounting change  As
described in Note 3 to the Consolidated Financial Statements
included herein, during 2000 MCN changed its method of
accounting for inventory held by its Energy Marketing segment.
The consolidated financial statements of prior periods have been
restated to apply the new inventory accounting method
retroactively. The effect of the accounting change impacted
earnings as follows.

|                                        |  |      |       |      |  |      |      |  |  |   |       |  
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- |  |  | - | ----- | -
|                                       
|                                       
|                                        |  | 2000 |       | 1999 |  | 1998
|(in Millions, Except Per Share Amounts) |  |      |       |      |  |     
|Net Income                              |  | $    | 134.1 |      |  | $    | 11.9 |  |  | $ | (12.4 | )
|                                        |  |      |       |      |  |      |      |  |  |   |       |  
|Diluted Earnings Per Share              |  | $    | 1.50  |      |  | $    | .15  |  |  | $ | (.16  | )
|                                        |  |      |       |      |  |      |      |  |  |   |       |  




Pending merger MCN and DTE Energy
Company (DTE) signed a definitive merger agreement dated
October 4, 1999, which was amended on February 28,
2001, under which DTE will acquire all outstanding shares of MCN
common stock. The boards of directors of both companies approved
the merger under the October 1999 and the
February 2001 merger agreements. In December 1999,

29



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

shareholders of both companies approved the merger under the
terms of the October 1999 merger agreement. The revised
merger agreement is subject to the approval of MCN shareholders.
The transaction is also subject to certain regulatory approvals.
The transaction will be accounted for as a purchase by DTE. The
combined company, which will be named DTE Energy Company and
headquartered in Detroit, will be the largest electric and gas
utility in Michigan. MCN recorded legal, accounting, employee
benefit and other expenses associated with the merger which had
the effect of reducing 2000 earnings by $4.1 million, or $.05
per diluted share, and 1999 results by $22.7 million, or $.27
per share. MCN will incur additional merger-related costs in
2001. Further information regarding the merger is included in
Note 2 to the Consolidated Financial Statements included herein.

Strategic direction MCNs
objective is to achieve competitive long-term returns for its
shareholders. In 1999, MCN significantly revised its strategic
direction that now includes: focusing on the
Midwest-to-Northeast region; emphasizing operational
efficiencies and growth through the integration of existing
businesses; and reducing capital investment levels to
approximately $150 million to $200 million annually.

MCN reports its operating results through two major business
groups: Diversified Energy and Gas Distribution.

Diversified Energy, operating through MCN Energy
Enterprises Inc. (MCNEE), is a wholly owned subsidiary of MCN
and serves as a holding company for MCNs non-utility
businesses. MCNEE is comprised of the following segments:



|  |                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pipelines & Processinghas pipeline, gathering,
	processing and related facilities in major supply areas.                                                                                                                                                                                                                                       
| 
| | Electric Power holds joint venture interests in electric
	power generation facilities, most of which were sold in 2000.
	Electric Power also provides fuel management services and
	supplies gas to power generation facilities under long-term
	sales contracts.                                                                              
| 
| | Energy Marketingsells premium, reliable bundled energy
	services to large-volume customers and has rights to market-area
	storage capacity. Energy Marketing also sells gas to other gas
	marketers and brokerage companies. In 2000, Energy Marketing
	began trading activities to optimize the value of its gas
	storage capacity and assets.
| 
| | Exploration & Production(E&P) is engaged in
	natural gas and oil exploration, development and production in
	Michigan.                                                                                                                                                                                                                         

Gas Distributionconsists principally of MichCon, a
natural gas utility serving approximately 1.2 million customers
in over 530 communities throughout Michigan.

Unusual items As previously discussed,
MCN recorded several unusual items in 2000, 1999 and 1998,
consisting of gains and losses on the sale of assets, property
write-downs, and restructuring charges. The unusual items
increased 2000 earnings by $46.6 million, or $.52 per diluted
share, and

30



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

reduced 1999 earnings by $98.3 million, or $1.18 per share, and
1998 earnings by $383.2 million, or $4.86 per share. A detailed
discussion of each unusual item by segment follows:




|                                        |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |       |  
|--------------------------------------- | ---------------------------------- | ------ | ---- | ------- |  | ------ | ---- | ------- |  | ------ | ----- | ------- | - | - | ----- | ----- | - | - | ------ | ------ | - | - | ----- | ----- | -
|                                        |                                    |        |      |         |  |       
|                                        |                                    | 2000   |      | 1999    |  | 1998  
|                                        |                                    |        |      |         |  |       
|                                        |                                    | Net    |      |         |  | Net    |      |         |  | Net    |       |        
|                                        |                                    | Income |      | Diluted |  | Income |      | Diluted |  | Income |       | Diluted
|                                        |                                    | (Loss) |      | EPS     |  | (Loss) |      | EPS     |  | (Loss) |       | EPS    
|(in Millions, Except Per Share Amounts) |                                    |        |      |         |  |        |      |         |  |        |       |        
|Unusual Items                           |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |      
|Diversified Energy                      |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |      
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines & Processing (Note 6a)   |        | $    | 16.7    |  |        | $    | .19     |  |        | $     |        |   |   | $     |      |   |   | $      | (89.5  | ) |   | $     | (1.13 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Electric Power (Note 6b)           |        |      | 30.0    |  |        |      | .33     |  |        |       | (3.2    | ) |   |       | (.04  | ) |   |        | .9     |   |   |       | .01   |  
|                                       
|                                       
|                                       
|                                       
|                                        | Energy Marketing (Note 6c)         |        |      |        |  |        |      |        |  |        |       | (1.6    | ) |   |       | (.02  | ) |   |        | 3.9    |   |   |       | .05   |  
|                                       
|                                       
|                                       
|                                       
|                                        | Exploration & Production (Note 6d) |        |      | 7.8     |  |        |      | .09     |  |        |       | (93.5   | ) |   |       | (1.12 | ) |   |        | (275.0 | ) |   |       | (3.49 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Corporate & Other (Note 6e)        |        |      |        |  |        |      |        |  |        |       |        |   |   |       |      |   |   |        | (6.8   | ) |   |       | (.09  | )
|                                        |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |      
|                                        |                                    |        | 54.5 |         |  |        | .61  |         |  |        | (98.3 | )       |   |   | (1.18 | )     |   |   | (366.5 | )      |   |   | (4.65 | )    
|                                       
|                                       
|                                       
|                                       
|Gas Distribution (Note 6f)              |                                    |        | (7.9 | )       |  |        | (.09 | )       |  |        |      |         |   |   |      |       |   |   | (16.7  | )      |   |   | (.21  | )    
|                                        |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |      
|                                        |                                    | $      | 46.6 |         |  | $      | .52  |         |  | $      | (98.3 | )       |   | $ | (1.18 | )     |   | $ | (383.2 | )      |   | $ | (4.86 | )    
|                                        |                                    |        |      |         |  |        |      |         |  |        |       |         |   |   |       |       |   |   |        |        |   |   |       |      




Pipelines & Processingrecorded in 2000 gains
totaling $28.1 million pre-tax ($18.2 million net of taxes) from
the sale of its interest in two gas gathering partnerships.
Additionally, MCN recorded in 2000 a $2.3 million pre-tax loss
($1.5 million net of taxes) from the sale of notes associated
with its interest in a carbon dioxide pipeline project.

MCN recorded in 1998 a $133.8 million pre-tax ($87.0 million net
of taxes) write-off of its coal fines project. The economic
viability of the project was dependent on coal briquettes
produced from six coal fines plants qualifying for
synthetic-fuel tax credits and MCNs ability to utilize or
sell such credits. The plants were required to be in service by
June 30, 1998 in order to qualify for the tax credits.
Operating delays at the plants in the 1998 third quarter
significantly increased the possibility that the Internal
Revenue Service (IRS) would challenge the projects
eligibility for tax credits. In addition, there was uncertainty
as to whether MCN could utilize or sell the credits. These
factors led to MCNs decision to record an impairment loss
equal to the carrying value of the plants, reflecting the likely
inability to recover such costs. MCN filed a request with the
IRS seeking a factual determination that its coal fines plants
were in service on June 30, 1998. The IRS has concluded
that the six coal fines plants met the in-service
deadline for purposes of claiming synthetic-fuel tax credits.

During 1998, MCN also recorded an impairment loss of $3.9
million pre-tax ($2.5 million net of taxes) relating to an
acquired out-of-service pipeline in Michigan. MCN reviewed the
business alternatives for this asset and determined that its
development is unlikely. Accordingly, MCN recorded an impairment
loss equal to the carrying value of this asset.

Electric Powerrecorded in 2000 gains totaling $46.1
million pre-tax ($30.0 million net of taxes) from the sale of
four power generation projects. The power projects were sold in
connection with the pending merger with DTE.

31



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

MCN recorded in 1999 a $5.0 million pre-tax ($3.2 million net of
taxes) write-off of capitalized costs associated with the
exiting of two power projects under development that were not
consistent with its new strategic direction.

During 1998, Electric Power recorded a $2.5 million pre-tax
($1.6 million net of taxes) restructuring charge related to
exiting certain international power projects. In 1998, MCN also
recorded a $3.9 million pre-tax ($2.5 million net of taxes) gain
from the sale of a 50% interest in a power generation project.

Energy Marketingrecorded in 1999 a $2.4 million pre-tax
($1.6 million net of taxes) loss resulting from the termination
of its gas sales contracts with a 49% owned joint venture. The
contracts were terminated in conjunction with the sale of
MCNs interest in the joint venture.

In 1998, MCN recorded a $6.0 million pre-tax ($3.9 million net
of taxes) gain from the sale of certain gas sales contracts.

Exploration & Productionrecorded in 2000 a $7.6
million pre-tax ($5.0 million net of taxes) gain from the sale
of its investment in the common stock of an E&P company.
During 1999 and 1998, MCN recognized losses of $7.5 million
pre-tax ($4.9 million net of taxes) and $6.1 million pre-tax
($4.0 million net of taxes), respectively, from the write-down
of this E&P investment. The losses were due to declines in
the fair value of the securities that were not considered
temporary.

MCN recorded in 1999 a $52.0 million pre-tax ($33.8 million net
of taxes) write-down of its gas and oil properties under the
full cost method of accounting, due primarily to an unfavorable
revision in the timing of the production of proved gas and oil
reserves as well as reduced expectations of sales proceeds on
unproved acreage. Under the full cost method of accounting as
prescribed by the Securities and Exchange Commission (SEC),
MCNs capitalized exploration and production costs exceeded
the full cost ceiling, resulting in the excess being
written off to income. The ceiling is the sum of discounted
future net cash flows from the production of proved gas and oil
reserves, and the lower of cost or estimated fair value of
unproved properties, net of related income tax effects. During
1998, MCN recognized write-downs of its gas and oil properties
totaling $416.9 million pre-tax ($271.0 million net of taxes).
The write-downs were also the result of MCNs capitalized
exploration and production costs exceeding the full cost ceiling.

During 1999, E&P recorded a $2.3 million pre-tax ($1.5
million net of taxes) write-down relating to unproved property
that is excluded from the full cost pool. An impairment loss was
recorded representing the amount by which the carrying value of
the property exceeded its appraised value.

Additionally, MCN recognized in 1999 losses from the sale of its
Western, Midcontinent/ Gulf Coast and Appalachian E&P
properties totaling $82.0 million pre-tax ($53.3 million net of
taxes). Subsequent adjustments in 2000 related to these sales
reduced the losses by $4.3 million pre-tax ($2.8 million net of
taxes).

Corporate & Otherrecorded in 1998 a $10.4 million
pre-tax ($6.8 million net of taxes) restructuring charge related
to a corporate realignment designed to improve operating
efficiencies through a more streamlined organizational
structure. The realignment included cost saving initiatives
expected to reduce operating expenses.

Gas Distributionrecorded in 2000 a $9.7 million pre-tax
($7.9 million net of taxes) write-down of its heating,
ventilation and cooling company that was sold in January 2001.
The write-down represents the amount by which the carrying value
of the company exceeded its estimated fair value.

32



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

MCN recorded in 1998 a $24.8 million pre-tax ($11.2 million net
of taxes and minority interest) write-down of certain gas
gathering properties. An analysis revealed that projected cash
flows from the gathering system were not sufficient to cover the
systems carrying value. Therefore, an impairment loss was
recorded representing the amount by which the carrying value of
the system exceeded its estimated fair value.

During 1998, MCN also recorded an $8.5 million pre-tax ($5.5
million net of taxes) loss from the write-down of an investment
in a Missouri gas distribution company. The write-down
represents the amount by which the carrying value exceeded the
estimated fair value of the investment.

Diversified Energy

Results reflect unusual items, reduced earnings due to asset
sales and Energy Marketing losses Diversified
Energy had earnings of $9.3 million compared to a loss in 1999
of $119.5 million. The comparison was impacted by unusual items
and merger costs as previously discussed. Excluding the unusual
items and merger costs, Diversified Energy had a 2000 loss of
$43.8 million compared to a 1999 loss of $15.3 million. These
results primarily reflect reduced earnings attributable to the
sale of properties and joint venture interest in the Electric
Power and E&P segments. Additionally, 2000 includes losses
from the Energy Marketing segment.

Excluding the unusual items and merger costs, Diversified
Energys results for 1999 declined $11.2 million from 1998
earnings. These results also reflect the effect of asset sales
as well as increased financing costs, partially offset by
increased Energy Marketing margins.




|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |        |  
|------------------------------------ | ------------------------------------------------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------ | -
|                                     |                                                                           | 2000 |         | 1999    |   | 1998
|(in Millions)                        |                                                                           |      |         |         |   |     
|Diversified Energy Operations        |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|Operating Revenues*                  |                                                                           | $    | 1,713.9 |         |   | $    | 1,343.0 |         |   | $ | 973.7   |       
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Operating Expenses*                  |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-downs, gains & losses, and restructuring
	charges (Note 6) |      |         | (76.2   | ) |      |         | 143.8   |   |   |         | 557.6  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Merger costs (Note 2)                                                     |      |         | 2.2     |   |      |         | 9.1     |   |   |         |       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                     |      |         | 1,724.3 |   |      |         | 1,319.4 |   |   |         | 982.2  |  
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                     |                                                                           |      | 1,650.3 |         |   |      | 1,472.3 |         |   |   | 1,539.8 |       
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Operating Income (Loss)              |                                                                           |      | 63.6    |         |   |      | (129.3  | )       |   |   | (566.1  | )     
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Equity in Earnings of Joint Ventures |                                                                           |      | 26.1    |         |   |      | 50.4    |         |   |   | 61.2    |       
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Other Income & (Deductions)*         |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                                           |      |         | 9.8     |   |      |         | 4.2     |   |   |         | 5.2    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                                          |      |         | (62.3   | ) |      |         | (63.4   | ) |   |         | (54.3  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends on preferred securities                                         |      |         | (28.6   | ) |      |         | (40.1   | ) |   |         | (36.4  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Investment gains and losses (Note 6d)                                     |      |         | 7.6     |   |      |         | (7.5    | ) |   |         | (6.1   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                     |      |         | (4.0    | ) |      |         | 7.8     |   |   |         | 2.9    |  
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                     |                                                                           |      | (77.5   | )       |   |      | (99.0   | )       |   |   | (88.7   | )     
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Income (Loss) Before Income Taxes    |                                                                           |      | 12.2    |         |   |      | (177.9  | )       |   |   | (593.6  | )     
|                                    
|                                    
|                                    
|                                    
|Income Tax Provision (Benefit)       |                                                                           |      | 2.9     |         |   |      | (58.4   | )       |   |   | (223.0  | )     
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|Net Income (Loss)                    |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual items and merger costs                                     |      |         | (43.8   | ) |      |         | (15.3   | ) |   |         | (4.1   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items and merger costs (Notes 2 & 6)                              |      |         | 53.1    |   |      |         | (104.2  | ) |   |         | (366.5 | )
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       
|                                     |                                                                           | $    | 9.3     |         |   | $    | (119.5  | )       |   | $ | (370.6  | )     
|                                     |                                                                           |      |         |         |   |      |         |         |   |   |         |       




|  |                                   
|- | ----------------------------------
|* | Includes intercompany transactions

33



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

Operating and Joint Venture Income

Operating and joint venture results, excluding the unusual items
and merger costs, declined $58.3 million in 2000 and increased
$21.3 million in 1999. A discussion of each business
segments results and outlook follows.




|                                             |                          |      |      |       |   |      |        |      |   |   |        |       |  
|-------------------------------------------- | ------------------------ | ---- | ---- | ----- | - | ---- | ------ | ---- | - | - | ------ | ----- | -
|                                             |                          | 2000 |      | 1999  |   | 1998
|(in Millions)                                |                          |      |      |       |   |     
|Operating and Joint Venture Income (Loss)    |                          |      |      |       |   |      |        |      |   |   |        |      
|Before Unusual Items and Merger Costs        |                          |      |      |       |   |      |        |      |   |   |        |      
|                                            
|                                            
|                                            
|                                            
|                                             | Pipelines & Processing   |      | $    | 16.2  |   |      | $      | 19.2 |   |   | $      | 21.4  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Electric Power           |      |      | 2.7   |   |      |        | 22.9 |   |   |        | 26.0  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Energy Marketing         |      |      | (18.8 | ) |      |        | 6.9  |   |   |        | (22.7 | )
|                                            
|                                            
|                                            
|                                            
|                                             | Exploration & Production |      |      | 18.1  |   |      |        | 25.8 |   |   |        | 36.4  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Corporate & Other        |      |      | (2.5  | ) |      |        | (.8  | ) |   |        | (8.4  | )
|                                             |                          |      |      |       |   |      |        |      |   |   |        |      
|                                             |                          |      | 15.7 |       |   |      | 74.0   |      |   |   | 52.7   |      
|                                            
|                                            
|                                            
|                                            
|Unusual Items and Merger Costs (Notes 2 & 6) |                          |      | 74.0 |       |   |      | (152.9 | )    |   |   | (557.6 | )    
|                                             |                          |      |      |       |   |      |        |      |   |   |        |      
|                                             |                          | $    | 89.7 |       |   | $    | (78.9  | )    |   | $ | (504.9 | )    
|                                             |                          |      |      |       |   |      |        |      |   |   |        |      




Pipelines & Processingoperating and joint venture
income, excluding unusual items, decreased $3.0 million in 2000
and $2.2 million in 1999. Results for 2000 were lower due to
lost earnings from the sale of interests in pipeline projects
that were located in areas outside MCNs target region. The
2000 periods also include increased losses from Pipelines &
Processings interests in asphalt distribution and
manufacturing partnerships as well as reduced contributions from
certain joint ventures that had fixed returns. The asphalt
manufacturing partnership constructed a plant designed to
produce annually up to 100,000 tons of high-quality asphalt. The
plant is experiencing technical difficulties in producing
economical quantities of asphalt and, as a result, is incurring
losses. MCN is working to resolve the technical issues. The 2000
comparison was also affected by earnings recorded in 1999 from
certain joint ventures where MCN was allocated income based on
its share of the ventures earnings but not less than a
predetermined fixed amount. Joint venture income from these
investments in 1999 was based on the fixed amounts. Under the
joint venture agreements, the fixed amounts were lowered or
eliminated in 2000.

Pipelines & Processing 2000 results include increased
contributions from its methanol production and gas processing
ventures. Improved results from MCNs 25%-owned Lyondell
Methanol Company, L.P. (Lyondell), a 248 million gallon-per-year
methanol production plant, were attributable to higher methanol
prices, margins and volumes produced. Pipelines &
Processings average methanol sales prices increased 52% in
2000 compared to 1999. Methanol production rose 7.5 million
gallons in 2000, primarily due to the shutdown of the methanol
plant for scheduled maintenance in March 1999. Gas processed to
remove carbon dioxide (CO2) and natural gas liquids
(NGLs) decreased 10.3 billion cubic feet (Bcf) in 2000. Although
processing volumes declined, earnings from processing ventures
increased due to improved gas processing margins. Additionally,
2000 benefited from an increase in allowance for funds
used during construction

34



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

(AFUDC) associated with the 25%-owned Vector Pipeline project, a
348-mile interstate pipeline that became operational in December
2000.




|                                    |                             |      |       |      |  |      |       |      |  |  |       |      | 
|----------------------------------- | --------------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                    |                             | 2000 |       | 1999 |  | 1998
|                                    |                             |      |       |      |  |     
|Pipelines & Processing Statistics*  |                             |      |       |      |  |      |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|Methanol Produced (million gallons) |                             |      | 64.9  |      |  |      | 57.4  |      |  |  | 60.4  |     
|                                   
|                                   
|                                   
|                                   
|Transportation (Bcf)                |                             |      | 142.6 |      |  |      | 208.6 |      |  |  | 175.5 |     
|Gas Processed (Bcf)                 |                             |      |       |      |  |      |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|                                    | Carbon dioxide treatment    |      |       | 53.9 |  |      |       | 51.8 |  |  |       | 48.9 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Natural gas liquids removal |      |       | 60.7 |  |      |       | 73.1 |  |  |       | 45.1 | 
|                                    |                             |      |       |      |  |      |       |      |  |  |       |     
|                                    |                             |      | 114.6 |      |  |      | 124.9 |      |  |  | 94.0  |     
|                                    |                             |      |       |      |  |      |       |      |  |  |       |     




|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

The 1999 decline reflects reduced contributions from MCNs
16%-owned Portland Natural Gas Transmission System (PNGTS), a
292-mile interstate pipeline. The decline is attributable to the
discontinuation of recording AFUDC associated with the PNGTS
project that was placed in service in early 1999.
Pipelines & Processing 1999 results also reflect a
decline in earnings from the Lyondell methanol plant due to
lower methanol margins and volumes produced. Lyondells
average methanol sales prices declined 3% in 1999. Methanol
production declined 3.0 million gallons in 1999 due
primarily to the plant shutdown. Results in 1999 also include
losses from the asphalt manufacturing partnership.

Pipelines & Processing 1999 operating and joint venture
income was also affected by an increase in gas transportation
volumes, as well as an increase in the level of gas processed to
remove CO2 and NGLs. The improvements were due to the
acquisition and expansion of pipeline and processing facilities
over the past several years.

Outlook Pipelines & Processing will
continue to focus on investing in and developing projects in the
Midwest-to-Northeast region to be integrated with existing MCN
businesses. Pipelines & Processing existing investments that
are not within the target region will continue to be managed and
developed. Disposition of each non-regional investment will be
independently evaluated to maximize shareholder value.

The Pipelines & Processing segment has advanced three
interstate pipeline projects located within the target region
that are expected to contribute to future operating results.
PNGTS, Vector Pipeline and Millennium Pipeline are designed to
transport Canadian and U.S. natural gas volumes into the
Northeast and Southeast U.S. markets. As previously
discussed, the PNGTS project was completed in early 1999 and the
Vector Pipeline was completed in December 2000. MCNs
future operating results are expected to be favorably impacted
through the generation of markets to utilize the projects
significant unused capacity. MCN has a 10.5% interest in the
Millennium Pipeline, a 442-mile interstate pipeline. The
Millennium Pipeline is subject to regulatory approval and
sufficient market development.

35



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

In 1998, MCN advanced approximately $18 million of a
$20 million commitment to develop a fertilizer project in
the United Arab Emirates. The advance was structured as an
interest-bearing loan with the option to convert into an equity
investment in the project. The original advance was due in
September 1999. In March 2000, MCN advanced the remaining
$2 million of its original commitment and restructured the
entire $20 million advance plus accrued interest by taking
a promissory note for $23.3 million and waiving its rights
to convert the advance to equity. The note is secured by the
projects assets and was due in September 2000. MCN is
taking legal action to collect the receivable and believes that
its lien on the project provides reasonable security.

In December 1999, MCN sold four of its coal fines plants to
DTE (Note 7a) in an arms-length transaction that was
independent of the merger. The sales price will depend on total
production performance of the four plants. DTE made an initial
$45 million payment in January 2000 that will be
adjusted up to $152 million or down to zero based on the
results of a 36-month production test period. These plants have
been relocated by DTE and one plant is currently operating. The
remaining two plants are being held pending the completion of
the merger with DTE.

Pipelines & Processings future operating results will
be affected by projects acquired and sold as well as by the
timing and extent of any divesting of projects that are not in
the Midwest-to-Northeast region. Operating results will also be
affected by the level of gas volumes transported and processed
as well as by changes in gas processing margins, methanol
prices, and transportation and gathering rates. Additionally,
results will be impacted by MCNs ability to resolve the
technical difficulties currently being experienced by its
asphalt manufacturing plant in generating economical quantities
of asphalt.

Electric Poweroperating and joint venture results,
excluding unusual items, decreased $20.2 million in 2000
and $3.1 million in 1999. The 2000 decline reflects lost
earnings from the sale of interests in five domestic power
projects as a condition of MCNs pending merger with DTE.
In 2000, MCN sold its interest in four Qualifying
Facilities as defined by the Public Utility Regulatory
Policies Act of 1978 as well as its interest in a power plant
under construction (Note 7b).



---

|                                                           |  |      |       |      |  |      |         |  |  |  |         | 
|---------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                           |  | 2000 |       | 1999 |  | 1998
|                                                           |  |      |       |      |  |     
|Electric Power Statistics*                                 |  |      |       |      |  |      |         |  |  |  |         | 
|                                                          
|                                                          
|                                                          
|                                                          
|Electricity Sales  Domestic (thousands of MW hours)       |  |      | 185.2 |      |  |      | 2,755.8 |  |  |  | 2,516.7 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Electricity Sales  International (thousands of MW
	hours) |  |      |      |      |  |      |        |  |  |  | 1,288.3 | 
|                                                           |  |      |       |      |  |      |         |  |  |  |         | 
|                                                           |  |      | 185.2 |      |  |      | 2,755.8 |  |  |  | 3,805.0 | 
|                                                           |  |      |       |      |  |      |         |  |  |  |         | 
|Gas Sales (Bcf)                                            |  |      | 20.3  |      |  |      | 19.0    |  |  |  | 18.6    | 
|                                                           |  |      |       |      |  |      |         |  |  |  |         | 




|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

Electric Power results for both periods also reflect lower
margins earned from selling gas to power generation facilities
under long-term gas sales contracts. Although volumes sold
increased slightly, margins declined due to higher cost gas
supplies. Additionally, the 1999 decline is due to the sale of
joint venture interests in both international and domestic power
projects as well as the impact of an

36



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

uncollectible expense provision associated with the bankruptcy
of a customer that owned a small cogeneration facility.

Outlook  MCNs remaining significant
electric power investments are not within the target region and
will continue to be managed and developed to maximize
shareholder value.

Energy Marketingoperating and joint venture results,
excluding unusual items, decreased $25.7 million in 2000
and increased $29.6 million in 1999. The 2000 comparison
was affected by reduced gas sales, significantly higher reserves
for potentially uncollectible accounts receivable balances,
higher storage and transportation expenses, and fair value and
mark-to-market accounting adjustments.

Energy Marketings gas sales margins generated from retail
customers have declined in 2000 as a result of a decrease in gas
sales and exchange gas deliveries primarily due to warmer
weather and the exiting of two marketing joint ventures during
2000. Additionally, margins generated from wholesale customers
have declined due to the narrowing or reversal of seasonal and
geographical price differentials. As subsequently discussed,
seasonal price differentials allow Energy Marketing to profit
from its ability to purchase and store gas in the summer months
and sell such gas in winter months. Geographical price
differentials allow Energy Marketing to purchase lower priced
gas in the Midcontinent/ Gulf Coast region, and transport and
sell such gas at higher prices in the Midwest and Eastern
regions. These assets are being managed in order to optimize
capacity utilization and maximize their value.

Current natural gas prices are high when compared to historical
periods. Higher prices, coupled with lower margins, have
resulted in financial pressures for some of Energy
Marketings customers. As a result of these financial
pressures and a customer bankruptcy filing, Energy
Marketings allowance for potentially uncollectible
accounts receivable balances was $13.0 million higher in
2000.

Energy Marketings results for 2000 also include higher
expenses for increased natural gas storage and transportation
capacity. The Washington 10 storage project, for which MCN
markets 100% of the 42 Bcf of storage capacity, was
completed and placed into operation in July 1999.
Completion of this project brings Energy Marketings
storage capacity to 71 Bcf. Additionally, Energy Marketing
added new firm transportation capacity in 1999 with the
completion of PNGTS. The storage capacity, coupled with firm
transportation capacity on interstate pipelines, enhances Energy
Marketings ability to offer reliable gas supply during
peak winter months.



---

|                                      |  |      |       |      |  |      |       |  |  |  |       | 
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                      |  | 2000 |       | 1999 |  | 1998
|                                      |  |      |       |      |  |     
|Energy Marketing Statistics (in Bcf)* |  |      |       |      |  |      |       |  |  |  |       | 
|                                     
|                                     
|                                     
|                                     
|Gas Sales                             |  |      | 451.0 |      |  |      | 585.7 |  |  |  | 454.7 | 
|                                     
|                                     
|                                     
|                                     
|Exchange Gas Deliveries               |  |      | 23.8  |      |  |      | 11.9  |  |  |  | 11.0  | 
|                                      |  |      |       |      |  |      |       |  |  |  |       | 
|                                      |  |      | 474.8 |      |  |      | 597.6 |  |  |  | 465.7 | 
|                                      |  |      |       |      |  |      |       |  |  |  |       | 




|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

37



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

As discussed in Notes 3 and 4 to the Consolidated
Financial Statements included herein, Energy Marketing changed
its operating strategy in 2000 and began trading activities to
optimize the value of its storage assets. In connection with
this change in strategy, Energy Marketing also changed to the
Fair Value method of accounting for gas in inventory
and implemented mark-to-market accounting for the related
forward, derivative financial and storage capacity contracts.
The fair value accounting change and the mark-to-market
adjustments had the effect of increasing Energy Marketings
operating and joint venture income $43.3 million in 2000
and $18.3 million in 1999, and decreasing such income by
$19.1 million in 1998.

The traditional value of storage assets resulted from the
ability to buy natural gas and inject it into storage fields
during the spring-to-early-fall period when gas demand and
prices are usually their lowest. The gas is withdrawn from
storage and sold in the late fall-to-winter period when demand
and gas prices are traditionally their highest. In 2000 there
was a change in the natural gas pricing environment, including
the narrowing or reversal of these summer-to-winter price
differentials. In the 2000 second quarter, Energy Marketing
implemented a strategy of optimizing the value of its storage
assets primarily through financial instruments, while continuing
to minimize its exposure to commodity price changes. These
financial instruments, and the related storage capacity and
forward contracts, are considered energy trading activities
under generally accepted accounting principles and are required
to be marked-to-market with unrealized gains and losses recorded
to earnings.



---

|                                        |  |      |        |      |  |      |      |  |  |   |       |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ---- |  |  | - | ----- | -
|                                        |  | 2000 |        | 1999 |  | 1998
|(in Millions, Except Per Share Amounts) |  |      |        |      |  |     
|Energy Marketing Adjustments            |  |      |        |      |  |      |      |  |  |   |       |  
|                                       
|                                       
|                                       
|                                       
|Mark-to-Market Accounting (Note 4)      |  | $    | (163.0 | )    |  | $    |     |  |  | $ |      |  
|                                       
|                                       
|                                       
|                                       
|Fair Value Accounting (Note 3)          |  |      | 206.3  |      |  |      | 18.3 |  |  |   | (19.1 | )
|                                        |  |      |        |      |  |      |      |  |  |   |       |  
|Pre-Tax Income                          |  | $    | 43.3   |      |  | $    | 18.3 |  |  | $ | (19.1 | )
|                                        |  |      |        |      |  |      |      |  |  |   |       |  
|Net Income                              |  | $    | 28.1   |      |  | $    | 11.9 |  |  | $ | (12.4 | )
|                                        |  |      |        |      |  |      |      |  |  |   |       |  
|Diluted Earnings Per Share              |  | $    | .31    |      |  | $    | .15  |  |  | $ | (.16  | )
|                                        |  |      |        |      |  |      |      |  |  |   |       |  




In conjunction with applying mark-to-market accounting to
storage-related financial instruments, and capacity and forward
contracts, Energy Marketing changed its method of accounting for
gas in inventory from the Last In First Out
(LIFO) method to the Fair Value method. The
Fair Value method allows Energy Marketing to revalue its gas in
inventory each accounting period at current market prices, with
unrealized gains and losses recorded to earnings. Fair Value
accounting better aligns financial reporting for energy trading
inventory with the way in which price risk for trading
activities is measured and managed. Fair Value accounting for
inventory, coupled with mark-to-market accounting for
storage-related financial instruments, and capacity and forward
contracts, is expected to remove or minimize earnings
mismatches. As the value of gas in inventory increases or
decreases, the value of the storage-related financial
instruments is expected to move in the opposite direction and in
similar amounts, thereby substantially offsetting each other. As

38



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

previously discussed, the change to Fair Value accounting
required the financial statements of prior periods to be
restated to apply the new accounting method retroactively.

The 1999 improvement primarily reflects the impact of the Fair
Value accounting change, which increased Energy Marketings
operating and joint venture income by $37.4 million in 1999 as
compared to 1998. Additionally, 1999 earnings reflect a
significant increase in gas sales and exchange gas delivery
volumes. Partially offsetting the impact of the fair value
adjustments and increased gas deliveries were higher gas storage
and transportation costs, uncollectible accounts receivable
expenses as well as costs associated with the June 1999
dissolution of the DTE-CoEnergy joint venture.

Outlook MCN will focus on growing its Energy
Marketing segment through expansion of its coverage within
existing markets in the target region. MCNs gas storage
and transportation capacity enhances its ability to provide
reliable and custom-tailored, bundled services to large-volume
end users and utilities. This capacity, coupled with the
synergies from MCNs other businesses, positions Energy
Marketing to capitalize on opportunities for expansion of its
market base into the Northeast and Midwest United States and
eastern Canada.

Energy Marketings future operating results are expected to
be favorably impacted by the fair valuing of its interstate
transportation contracts under Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities.MCN
expects to record lower expenses in future periods associated
with interstate transportation contracts as a result of adopting
SFAS No. 133 on January 1, 2001.

Exploration & Productionoperating and joint venture
income, excluding the unusual items, decreased $7.7 million in
2000 and $10.6 million in 1999. The comparisons primarily
reflect a decrease in overall gas and oil production of
41.9 Bcf equivalent in 2000 and 29.1 Bcf equivalent in
1999. Gas and oil production declined due to the sale of
MCNs Western and Midcontinent/ Gulf Coast E&P
properties in early and mid-1999, as well as the sale of its
Appalachian properties in December 1999.

E&P results for both 2000 and 1999 were also impacted by
increases in production-related expenses, depreciation,
depletion and amortization (DD&A), and increases in the
overall average gas and oil sales prices. The higher average
sales prices in 2000, coupled with significantly lower
administrative and general expenses, substantially offset the
effects of the drop in gas and oil production. The increased
production expenses reflect higher severance taxes as a result
of the increase in gas and oil sales prices, which were
partially offset by lower operating costs. Operating costs
include savings associated with MCN assuming operator
responsibilities in early 2000. DD&A was impacted by a
downward revision in proved reserves. The increased average
sales prices are due to higher industry prices for both natural
gas and oil. The impact of higher natural gas and oil sales
prices on E&P

39



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

operating and joint venture income was moderate as a result of
hedging with swap and futures agreements, as discussed in the
Risk Management Strategy section that follows.




|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |      | 
|----------------------------------------------------------- | ---------------------------------------------- | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                                            |                                                | 2000 |      | 1999 |  | 1998
|                                                            |                                                |      |      |      |  |     
|Exploration & Production Statistics                         |                                                |      |      |      |  |      |      |      |  |   |      |     
|Gas and Oil Production (Bcf equivalent)                     |                                                |      |      |      |  |      |      |      |  |   |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Michigan                                       |      |      | 25.7 |  |      |      | 27.3 |  |   |      | 28.0 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Western, Midcontinent/ Gulf Coast & Appalachia |      |      | 1.2  |  |      |      | 41.5 |  |   |      | 69.9 | 
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     
|                                                            |                                                |      | 26.9 |      |  |      | 68.8 |      |  |   | 97.9 |     
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     
|Production Costs (per Mcf equivalent)                       |                                                |      |      |      |  |      |      |      |  |   |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operating                                      |      | $    | .55  |  |      | $    | .58  |  |   | $    | .53  | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Transportation, treating and marketing         |      |      | .30  |  |      |      | .25  |  |   |      | .18  | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Severance taxes                                |      |      | .22  |  |      |      | .12  |  |   |      | .10  | 
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     
|                                                            | Overall                                        |      | $    | 1.07 |  |      | $    | .95  |  |   | $    | .81  | 
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     
|Depreciation, Depletion & Amortization (per Mcf equivalent) |                                                | $    | .94  |      |  | $    | .83  |      |  | $ | .82  |     
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     
|Average Selling Price (per Mcf equivalent)*                 |                                                | $    | 2.48 |      |  | $    | 2.22 |      |  | $ | 2.12 |     
|                                                            |                                                |      |      |      |  |      |      |      |  |   |      |     




|  |                                                                                                     
|- | ----------------------------------------------------------------------------------------------------
|* | The average selling prices have been adjusted for
	amounts received or paid under hedging contracts.

E&P operations have increased Diversified Energys
earnings through the generation of gas production tax credits,
primarily associated with coalbed methane and Antrim shale gas.
MCN sold the Antrim tax credits in mid-1998 and the income from
such sale is recorded as operating income as the credits are
generated. Income from the sale of tax credits totaled $11.5
million in 2000, $11.2 million in 1999 and $7.4 million in 1998.
Prior to the sale, MCN recorded $10.5 million of tax credits in
1998.

Outlook MCN will aggressively manage its
natural gas producing properties in Michigan. MCN will seek to
optimize returns from its Michigan properties by efficiently
integrating production with MCNs other businesses.

Risk management strategy MCN manages
commodity price risk by utilizing futures, options and swap
contracts to more fully balance its portfolio of gas and oil
supply and sales agreements. MCNs Energy Marketing
business coordinates all of MCNs hedging activities to
ensure compliance with risk management policies that are
periodically reviewed by MCNs Board of Directors. Certain
hedging gains or losses related to gas and oil production are
recorded by MCNs E&P operations. Gains and losses on
gas and oil production-related hedging transactions that are not
recorded by MCNs E&P unit are recorded by Energy
Marketing.

40



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

Corporate & Otheroperating and joint venture losses,
excluding restructuring charges, increased $1.7 million in 2000
and decreased $7.6 million in 1999. The comparisons were
affected by adjustments recorded in 1999 that reduced or
eliminated accruals for employee incentive awards that were
based on MCNs operating or stock-price performance. The
1999 results also reflect lower administrative expenses
associated with corporate management activities. The Diversified
Energy group was charged a smaller portion of such expenses
beginning in 1999 to reflect its reduced percentage of
MCNs consolidated financial position and results.

Other Income and Deductions

Other income and deductions decreased $21.5 million in 2000 and
increased $10.3 million in 1999. The 2000 comparison was
affected by higher interest income, and lower interest and
preferred dividend expenses. Additionally, gains and losses from
an investment in the common stock of an E&P company affected
the 2000 comparison. The 1999 increase reflects higher interest
and preferred dividend expenses.

Income Taxes

Income taxes increased $61.3 million in 2000 and $164.6 million
in 1999. Income taxes were impacted by variations in pre-tax
earnings and tax credits. Additionally, 1999 reflects taxes on
approximately $3.6 million of undistributed earnings of foreign
subsidiaries generated in 1998. There was no provision for
federal, state or foreign taxes in 1998 related to foreign
undistributed income as it was MCNs intent to permanently
reinvest the earnings under its prior corporate strategy.

Gas Distribution

Results reflect lower earnings from Gas Sales Program and
higher operating costs, partially offset by more favorable
weather Gas Distributions earnings for
2000 were $99.6 million, a decrease of $3.8 million
from 1999 earnings of $103.4 million. The comparison was
impacted by unusual items and merger costs as previously
discussed. Excluding the unusual items and merger costs, 2000
earnings declined $10.0 million from 1999 results
reflecting lower gross margins and higher operating costs. The
lower gross margins were due to reduced earnings from the Gas
Sales Program, partially offset by the impact of more favorable
weather. Gas Distributions return on equity of 13.1% in
2000 as compared to 14.5% in 1999 and 11.0% in 1998 continues
its record of solid financial performance.

Gas Distributions earnings in 1999 were $31.7 million
higher than earnings in 1998. The comparison was also impacted
by unusual items and merger costs. The 1999 earnings improvement

41



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

reflects contributions from the Gas Sales Program that began in
January 1999, as well as the impact of more favorable
weather.




|                                     |                                               |      |         |       |   |      |         |       |   |   |         |       |  
|------------------------------------ | --------------------------------------------- | ---- | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                     |                                               | 2000 |         | 1999  |   | 1998
|(in Millions)                        |                                               |      |         |       |   |     
|Gas Distribution Operations          |                                               |      |         |       |   |      |         |       |   |   |         |      
|Operating Revenues*                  |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Gas sales                                     |      | $       | 929.1 |   |      | $       | 924.6 |   |   | $       | 838.9 |  
|                                    
|                                    
|                                    
|                                    
|                                     | End user transportation                       |      |         | 117.4 |   |      |         | 103.9 |   |   |         | 82.3  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Intermediate transportation                   |      |         | 52.6  |   |      |         | 57.8  |   |   |         | 63.2  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                         |      |         | 74.0  |   |      |         | 84.3  |   |   |         | 67.4  |  
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                     |                                               |      | 1,173.1 |       |   |      | 1,170.6 |       |   |   | 1,051.8 |      
|                                    
|                                    
|                                    
|                                    
|Cost of Sales                        |                                               |      | 526.5   |       |   |      | 507.3   |       |   |   | 462.1   |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|Gross Margin                         |                                               |      | 646.6   |       |   |      | 663.3   |       |   |   | 589.7   |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|Other Operating Expenses*            |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Operation and maintenance                     |      |         | 260.9 |   |      |         | 278.4 |   |   |         | 256.6 |  
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and depletion                    |      |         | 105.0 |   |      |         | 100.1 |   |   |         | 93.8  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property and other taxes                      |      |         | 61.9  |   |      |         | 45.9  |   |   |         | 56.0  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-downs (Note 6f)                |      |         | 9.4   |   |      |         |      |   |   |         | 33.3  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Merger costs (Note 2)                         |      |         | 4.1   |   |      |         | 25.8  |   |   |         |      |  
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                     |                                               |      | 441.3   |       |   |      | 450.2   |       |   |   | 439.7   |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|Operating Income                     |                                               |      | 205.3   |       |   |      | 213.1   |       |   |   | 150.0   |      
|                                    
|                                    
|                                    
|                                    
|Equity in Earnings of Joint Ventures |                                               |      | 2.4     |       |   |      | 2.0     |       |   |   | 1.0     |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|Other Income and (Deductions)*       |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                               |      |         | 2.7   |   |      |         | 2.3   |   |   |         | 5.7   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                              |      |         | (60.5 | ) |      |         | (56.5 | ) |   |         | (57.5 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Minority interest                             |      |         | (.5   | ) |      |         | (1.0  | ) |   |         | 5.7   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                         |      |         | 2.5   |   |      |         | (1.4  | ) |   |         | (.2   | )
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                     |                                               |      | (55.8   | )     |   |      | (56.6   | )     |   |   | (46.3   | )    
|                                    
|                                    
|                                    
|                                    
|Income Before Income Taxes           |                                               |      | 151.9   |       |   |      | 158.5   |       |   |   | 104.7   |      
|                                    
|                                    
|                                    
|                                    
|Income Tax Provision                 |                                               |      | 52.3    |       |   |      | 55.1    |       |   |   | 33.0    |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|Net Income                           |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual items and merger costs         |      |         | 110.2 |   |      |         | 120.2 |   |   |         | 88.4  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items and merger costs (Notes 2 & 6f) |      |         | (10.6 | ) |      |         | (16.8 | ) |   |         | (16.7 | )
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      
|                                     |                                               | $    | 99.6    |       |   | $    | 103.4   |       |   | $ | 71.7    |      
|                                     |                                               |      |         |       |   |      |         |       |   |   |         |      




|  |                                   
|- | ----------------------------------
|* | Includes intercompany transactions

Gross Margin

Gross margin (operating revenues less cost of gas) decreased
$16.7 million in 2000 and increased $73.6 million in 1999. Gross
margins reflect varying contributions from MichCons Gas
Sales Program and the impact of more favorable weather.

MichCons three-year Gas Sales Program is part of its
Regulatory Reform Plan (Note 9a) which was implemented in
January 1999. Margins generated under the sales program
were lower in 2000

42



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

as compared to 1999. Under the Gas Sales Program, MichCons
gas sales rates include a gas commodity component that is fixed
at $2.95 per Mcf. As part of its gas acquisition strategy,
MichCon entered into fixed-price contracts at costs below $2.95
per Mcf for a substantial portion of its gas supply requirements
in 2000 and 1999. The cost of gas purchased in 2000 was higher
than in 1999 resulting in reduced margins. As discussed in the
Outlook section that follows, MichCon has requested
that the Michigan Public Service Commission (MPSC) modify the
Gas Sales Program, effective April 2001 (Note 9b).

Margins generated under the Gas Sales Program were also affected
by the number of customers who chose to purchase their gas from
other suppliers under MichCons three-year Customer Choice
Program, which is also a part of its Regulatory Reform Plan.
Year one of this program began in April 1999, with approximately
70,000 customers choosing to participate. Year two commenced in
April 2000, with the number of customers participating declining
to approximately 55,000. Distribution margins were retained from
these customers as MichCon continued to transport and deliver
the gas to the customers premises. Although year three of
the program is scheduled to commence in April 2001, where up to
225,000 customers could participate, MichCon has proposed to the
MPSC to modify the program by expanding the number of customers
who could choose to purchase their gas from other suppliers.

The gross margin comparisons were also affected by increases in
gas sales and end user transportation deliveries due primarily
to more favorable weather. Although weather was warmer than
normal in all periods, it was still colder in 2000 and in 1999
as compared to the previous years. Additionally, gross margins
in 2000 and 1999 reflect fluctuations in intermediate
transportation revenues as well as revenues from other
gas-related services.




|                                              |                            |      |      |       |   |      |      |       |   |  |       |       |  
|--------------------------------------------- | -------------------------- | ---- | ---- | ----- | - | ---- | ---- | ----- | - |  | ----- | ----- | -
|                                              |                            | 2000 |      | 1999  |   | 1998
|                                              |                            |      |      |       |   |     
|Effect of Weather on Gas Markets and Earnings |                            |      |      |       |   |      |      |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|Percentage Warmer Than Normal                 |                            |      | (5.5 | )%    |   |      | (9.0 | )%    |   |  | (19.3 | )%   
|Decrease From Normal in                       |                            |      |      |       |   |      |      |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Gas markets (in Bcf)       |      |      | (12.4 | ) |      |      | (18.7 | ) |  |       | (40.3 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Net income (in Millions)   |      | $    | (11.7 | ) |      | $    | (18.6 | ) |  | $     | (35.3 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Diluted earnings per share |      | $    | (.13  | ) |      | $    | (.22  | ) |  | $     | (.45  | )




Gas sales and end user transportationrevenues in total
increased $18.0 million in 2000 and $107.3 million in 1999.
Revenues reflect higher gas sales and end user transportation
deliveries that increased 12.6 Bcf in 2000 and
21.3 Bcf in 1999 due primarily to weather, which was 3.5%
colder in 2000 and 10.3% colder in 1999 compared to the previous
years.

The revenue comparison for 1999 and 1998 was also impacted by
variations in the cost of the gas commodity component of gas
sales rates. As previously discussed, this gas commodity
component was fixed under MichCons Gas Sales Program at
$2.95 per Mcf beginning in January 1999. Prior to 1999,
MichCons sales rates were set to recover all of its
reasonably and prudently incurred gas costs. Therefore, the
effect of any fluctuations in cost of gas sold prior to 1999 was
substantially

43



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##### Table of Contents



|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

offset by a change in gas sales revenues. The gas commodity
component of MichCons sales rates increased $.24 per Mcf
(9%) in 1999.




|                                      |  |      |       |      |  |      |       |  |  |  |       | 
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                      |  | 2000 |       | 1999 |  | 1998
|                                      |  |      |       |      |  |     
|Gas Distribution Statistics (in Bcf)* |  |      |       |      |  |      |       |  |  |  |       | 
|                                     
|                                     
|                                     
|                                     
|Gas Sales                             |  |      | 182.5 |      |  |      | 181.8 |  |  |  | 172.2 | 
|                                     
|                                     
|                                     
|                                     
|End User Transportation               |  |      | 163.9 |      |  |      | 152.0 |  |  |  | 140.3 | 
|                                      |  |      |       |      |  |      |       |  |  |  |       | 
|                                      |  |      | 346.4 |      |  |      | 333.8 |  |  |  | 312.5 | 
|                                     
|                                     
|                                     
|                                     
|Intermediate Transportation           |  |      | 598.9 |      |  |      | 531.9 |  |  |  | 537.5 | 
|                                      |  |      |       |      |  |      |       |  |  |  |       | 
|                                      |  |      | 945.3 |      |  |      | 865.7 |  |  |  | 850.0 | 
|                                      |  |      |       |      |  |      |       |  |  |  |       | 




|  |                                   
|- | ----------------------------------
|* | Includes intercompany transactions

Intermediate transportationrevenues decreased $5.2
million in 2000 and $5.4 million in 1999. The 2000 decrease
reflects reduced revenues from the Saginaw Bay Area Limited
Partnership that owned a 126-mile gathering system. MichCon held
a 66% interest in the partnership that was dissolved in June
2000. Under the terms of the dissolution, MichCon received the
67-mile northern portion of the gathering system in return for
its partnership interest. Although there are lower revenues
attributable to the gathering system, such decline represents
the joint venture partners share of revenues. Accordingly,
the decline in revenues was offset by a reduction in minority
interest expense. The 1999 decrease is due to customers shifting
volumes from a higher rate to a lower rate transportation route
as well as lower fees generated from tracking the transfer of
gas title on MichCons transportation system.

Intermediate transportation volumes delivered increased
67.0 Bcf in 2000 and decreased 5.6 Bcf in 1999. The
2000 increase reflects higher off-system demand caused by the
more favorable weather and higher volumes transported for
fixed-fee customers. Transportation volumes for fixed-fee
customers may fluctuate significantly, however revenues from
such customers are not affected. While intermediate
transportation volumes are a significant part of total markets,
profit margins on this service are considerably less than
margins on gas sales or for end user transportation services.

Other operating revenuesdecreased $10.3 million in 2000
and increased $16.9 million in 1999. The comparisons
reflect varying revenues from three heating, ventilation and
cooling companies which were acquired in late 1998 and sold in
January 2001 (Note 6f). Additionally, higher revenues from
storage and facility development services in 1999 affected the
comparisons. The decline in 2000 was mitigated by an increase in
late payment fees, appliance maintenance services and other
gas-related services.

Cost of Sales

Cost of sales is affected by variations in sales volumes and the
cost of purchased gas as well as related transportation costs.
Under the Gas Cost Recovery (GCR) mechanism that was in effect
through 1998, MichCons sales rates were set to recover all
of its reasonably and prudently incurred gas costs. Therefore,
fluctuations in cost of gas sold had little effect on gross
margins. Under MichCons Gas Sales Program, the gas
commodity component of its sales rates is fixed.

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

Accordingly, beginning in 1999, changes in cost of gas sold
directly impacted gross margins and earnings.

Cost of sales increased $19.2 million in 2000 and $45.2 million
in 1999, primarily as a result of higher weather-driven gas
sales volumes. The increases attributable to weather in 2000 and
1999 were partially offset by reductions in gas sales volumes as
a result of customers who have chosen to purchase their gas from
other suppliers under MichCons Customer Choice Program. As
previously discussed, MichCon retains margins from these
customers by continuing to transport and deliver the gas to the
customers premises. Additionally, cost of gas sold was
impacted by average prices paid, which increased $.08 (3%) per
Mcf in 2000 and $.02 (1%) per Mcf in 1999. The cost of gas sold
increase in 2000 was tempered by a 24.5 Bcf liquidation of
inventory gas that was priced significantly below 2000 average
purchase rates (Note 8). Additionally, the comparisons
reflect cost of sales associated with the operations of the
three heating, ventilation and cooling companies.

Other Operating Expenses

Operation and maintenanceexpenses declined $17.5 million
in 2000 and increased $21.8 million in 1999. The decrease in
2000 is due primarily to lower employee benefit costs, primarily
pension costs, as well as the receipt of insurance proceeds
resulting from the settlement of environmental claims with
certain insurance carriers. The settlement has allowed MichCon
to recover previously incurred costs and resolved the
carriers liabilities for future costs of environmental
investigation and remediation. The decrease in 2000 also
reflects lower advertising costs, partially offset by higher
uncollectible gas accounts expense.

Operation and maintenance expenses in both years include
additional computer system support costs associated with
MichCons new customer information system that became
operational in 1999. Additionally, the increase in 1999 reflects
higher injuries and damages costs, partially offset by lower
employee benefit costs and uncollectible gas accounts expense.
The comparison was also affected by an interstate pipeline
company refund that benefited the 1998 period.

All periods reflect managements continuing efforts to
control operating costs, specifically employee benefit costs and
uncollectible gas accounts expense. Gas Distribution has
streamlined its organizational structure over the past several
years while increasing its customer base and expanding energy
services to customers. Since 1997, the number of employees has
declined by over 150 or 5%, while the number of customers has
increased by more than 40,000 or 3%.

Gas Distributions uncollectible gas accounts expense
increased $2.6 million in 2000 and declined $1.5 million in
1999. Both periods were affected by the impact of weather on
accounts receivable balances, a more aggressive collection
program, as well as the continuation of home heating assistance
funding obtained by low-income customers.

Gas Distributions uncollectible gas accounts expense is
directly affected by the level of government funded heating
assistance its qualifying customers receive. The State of
Michigan provides this assistance in the form of Michigan Home
Heating Credits which are funded almost exclusively by the
Federal Low-Income Home Energy Assistance Program (LIHEAP).
Congress approved funding for the 1998, 1999 and 2000 fiscal
years at $1.1 billion each year, with additional emergency
funding available only upon Presidential order. The State of
Michigans LIHEAP funds were

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

increased from $59 million in fiscal year 1999 to $64 million in
2000. Gas Distribution received $15.1 million of these funds in
2000, compared to $12.6 million in 1999. Home Heating Credits
assisted 75,600 Gas Distribution customers in 2000, nearly 7,000
more customers than in 1999. For the fiscal year beginning in
October 2001, Congress increased the LIHEAP funding level to
$1.4 billion and provided an additional $300 million in
emergency funds. Unlike prior years, these funds have not been
advanced to states for use in the next fiscal year. While this
creates some uncertainty, both Congress and President
George W. Bush have pledged continued support for the
program. Any future changes in LIHEAP funding may impact Gas
Distributions uncollectible gas accounts expense.

Depreciation and depletionincreased $4.9 million in 2000
and $6.3 million in 1999. The increases reflect higher plant
balances resulting from capital expenditures of $118.6 million
in 2000 and $136.9 million in 1999.

Property and other taxesincreased $16.0 million in 2000
and decreased $10.1 million in 1999, reflecting a change in the
calculation of the value of personal property subject to
taxation by local taxing jurisdictions. In 1998, MichCon began
filing its personal property tax valuation information excluding
intangible costs from the value of personal property. A number
of local taxing jurisdictions accepted the revised calculation,
and MichCon recorded lower property tax expense in 1999 and 1998
associated with the accepting jurisdictions. MichCon also filed
appeals to recover excess payments made in 1996 and 1997 based
on the revised calculation and recorded lower property tax
expense as a result of the filings. At the end of 2000, a number
of the previously accepting jurisdictions protested the revised
calculation. As a result, in 2000 MichCon reversed the reduction
in property tax expense that was associated with prior
years excess payments made to those jurisdictions.

Property tax expense in 2000 was favorably impacted by new
valuation tables approved by the Michigan State Tax Commission
(STC) in November 1999. Several local taxing jurisdictions have
taken legal action against the State of Michigan to prevent the
STC from implementing the new valuation tables (Note 14a).

Property write-downstotaled $9.4 million in 2000 and
$33.3 million in 1998. The 2000 amount reflects the write-down
of a heating, ventilation and cooling company that was sold in
January 2001. The 1998 amount reflects the impairment of certain
gas gathering properties in northern Michigan and the write-down
of an investment in a small natural-gas distribution company
located in Missouri (Note 6f).

Merger coststotaled $4.1 million in 2000 and $25.8
million in 1999. The costs represent legal, consulting,
accounting, employee benefit and other expenses associated with
the pending merger between MCN and DTE Energy Company
(Note 2).

Equity in Earnings of Joint Ventures

Earnings from joint ventures increased $.4 million in 2000 and
$1.0 million in 1999. The comparison reflects increased joint
venture earnings in 2000 from the 25%-owned Blue Lake gas
storage project and losses in 1998 from Gas Distributions
47.5% interest in a Missouri gas distribution company.

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

Other Income and Deductions

Other income and deductions decreased $.8 million in 2000 and
increased $10.3 million in 1999. The 2000 improvement reflects
higher investment and interest income primarily from the Grantor
Trust (Note 17c), partially offset by an increase in
interest expense. The 1999 comparison was affected by a change
in minority interest due to the joint venture partners
share of the 1998 write-down of certain gas gathering properties
(Note 6f). The change in 1999 is also attributable to lower
interest income resulting from the repayment of funds loaned to
MCN.

Income Taxes

Income taxes decreased $2.8 million in 2000 and increased $22.1
million in 1999. Income tax comparisons were affected by
variations in pre-tax earnings, tax credits and tax adjustments
recorded upon filing MCNs tax returns. Additionally, 2000
was impacted by higher non-taxable investment income.

Outlook

Strategy Gas Distributions
strategy is to expand its role as the preferred provider of
natural gas and high-value energy services within Michigan.
Accordingly, Gas Distributions objectives are to grow its
revenues and control its costs in order to deliver strong
shareholder returns and provide customers high-quality service
at competitive prices. Modest revenue growth will be achieved
through initiatives to expand Gas Distributions 900 Bcf of
gas markets, its 1.2 million residential, commercial and
industrial customer base, as well as by continuing to provide
energy-related services that capitalize on its expertise,
capabilities and efficient systems.

The challenges and opportunities resulting from increased
competition in the natural gas industry have been a catalyst for
MPSC action in the development of major reforms in utility
regulation. Gas Distribution continues to position itself to
respond to changes in regulation and increased competition by
reducing its cost of operations while maintaining a safe and
reliable system for customers. Among other cost saving
initiatives, Gas Distribution has reduced its net workforce each
year since 1992.

Regulatory Reform Plan Gas
Distribution has capitalized on opportunities resulting from the
gas industry restructuring. MichCon is currently operating under
its Regulatory Reform Plan, which includes a comprehensive
experimental three-year Customer Choice Program designed to
offer all sales customers added choices and greater price
certainty. The Customer Choice Program began in April 1999,
and approximately 70,000 customers chose to purchase natural gas
from suppliers other than MichCon. Year two of the program began
in April 2000, and the number of participating customers
declined to 55,000. Although year three of the program is
scheduled to begin in April 2001, permitting up to 225,000
customers to participate, MichCon has requested the MPSC to
modify the program to encourage greater participation as
subsequently discussed. Under the existing program, there is
also a volume limitation of 30 Bcf on commercial and industrial
participants in

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

2001. MichCon will continue to transport and deliver the gas to
the participating customers premises at prices that
generate favorable margins.

The Regulatory Reform Plan also includes the Gas Sales Program
that suspended the GCR mechanism for customers who continue to
purchase gas from MichCon, and fixed the gas commodity component
of MichCons sales rates at $2.95 per Mcf for the
three-year period that began in January 1999. The
suspension of the GCR mechanism allows MichCon to profit from
its ability to purchase gas at less than $2.95 per Mcf. The
program also increases MichCons risk associated with
generating positive margins. As part of its gas acquisition
strategy, MichCon has entered into fixed-price contracts at
costs below $2.95 per Mcf for approximately 65% of its expected
2001 supply requirements under the Gas Sales Program. Although
this strategy produced favorable margins in 1999 and 2000,
MichCon does not expect to generate profits from the Gas Sales
Program in 2001. MichCons fixed-price supplies for 2001
are at prices higher than those paid in 1999 and 2000. MichCon
expects to supplement its existing fixed price supply by
purchasing gas at market prices, which are unprecedentedly high.
Absent a modification to its Gas Sales Program as subsequently
discussed, MichCon plans to meet its remaining gas supply
requirements for 2001 with up to 30 Bcf of withdrawals from
storage at prices significantly lower than $2.95 per Mcf to
mitigate the effect on earnings of high gas prices. The level of
margins generated from selling gas will also be affected by
actual gas sales volumes, which will fluctuate as a result of
changes in weather, and the number of customers who ultimately
choose to purchase gas from suppliers other than MichCon.

The Plan also encompasses an income sharing mechanism that
allows customers to share in profits when actual returns on
equity from utility operations exceed predetermined thresholds.
Based on the MPSC approved formula, management believes that no
income sharing was required in 1999 and 2000, and does not
expect income sharing will be required in 2001.

Proposed Regulatory Changes The MPSC
is continuing its initiatives designed to give all of
Michigans natural gas customers added choices and the
opportunity to benefit from lower gas costs resulting from
competition. In October 2000, the MPSC issued an order that
provides uniform terms and conditions for a new voluntary
customer choice program in Michigan. Key aspects of the order
include: (i) continuing customer choice on a permanent and
expanding basis; (ii) eliminating fixed commodity rates in
favor of GCR rates that reflect market prices; and
(iii) investigating the potential unbundling of additional
services offered by Michigan gas utilities.

Gas Distribution supports customer choice initiatives but is
concerned with the structure of the current three-year Customer
Choice and Gas Sales Programs that fixed the gas commodity
component of its sales rates at $2.95 per Mcf. There are
approximately 15,000 fewer customers participating in year two
of the Customer Choice Program than in year one as a result of
fewer natural gas marketers participating due to higher gas
prices. Current market prices for gas are substantially higher
than the $2.95 per Mcf rate available to customers under
MichCons Customer Choice Program, thereby hindering gas
marketers ability to compete with MichCon for such
customers.

In December 2000, MichCon filed applications with the MPSC
to modify the experimental Customer Choice and Gas Sales
Programs as outlined in the MPSCs October 2000 order
(Note 9b). Among other things, the proposed modifications
would become effective in April 2001, and: (i) replace
the experimental three-year Customer Choice Program with a
permanent choice

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

program, (ii) replace the current $2.95 per Mcf gas
commodity charge included in gas sales rates with a GCR factor,
and (iii) eliminate the current income sharing provision.
Irrespective of the outcome of the application, MichCon will
return to a GCR mechanism no later than January 2002.

The proposed permanent choice program would expand customer
participation to be phased in over a three-year period. In year
one, 40% of MichCons customers could elect to purchase gas
from suppliers other than MichCon. In year two, 60% of customers
would be eligible and by year three, all of MichCons
1.2 million customers could participate in the program.
Under the proposed GCR mechanism, MichCons gas sales rates
would include a gas commodity component designed to recover its
actual gas costs. MichCon could no longer profit from selling
gas to customers who choose not to participate in the permanent
choice program. Under the proposal, MichCon could sell its
fixed-price supply contracts that are at prices significantly
below current market prices and refund any proceeds to eligible
customers. Additionally, MichCon could refund all or a portion
of the income earned from selling gas at $2.95 under the current
experimental Gas Sales Program.

Accounting for Regulation As described
in Note 9d to the consolidated financial statements, Gas
Distribution complies with the provisions of SFAS No. 71,
Accounting for the Effects of Certain Types of
Regulation. Future regulatory changes or changes in
the competitive environment could result in Gas Distribution
discontinuing the application of SFAS No. 71 for all or
part of its business and would require the write-off of the
portion of any regulatory asset or liability that was no longer
probable of recovery or refund. If Gas Distribution were to
discontinue application of SFAS No. 71 for all of its
operations as of December 31, 2000, it would have an
extraordinary non-cash increase to net income of approximately
$60.8 million. Factors that could give rise to the
discontinuance of SFAS No. 71 include (i) increasing
competition that restricts Gas Distributions ability to
establish prices to recover specific costs, and (ii) a
significant change in the manner in which rates are set by
regulators from cost-based regulation to another form of
regulation. Based on a current evaluation of the various factors
and conditions that are expected to impact future regulation,
management believes currently available facts support the
continued application of SFAS No. 71.

Environmental Matters

Former manufactured gas plant sites Prior to the construction of major natural gas
pipelines, gas for heating and other uses was manufactured from
processes involving coal, coke or oil. MCN owns, or previously
owned, 17 such former manufactured gas plant (MGP) sites.

During the mid-1980s, MCN conducted preliminary environmental
investigations at former MGP sites, and some contamination
related to the by-products of gas manufacturing was discovered
at each site. The existence of these sites and the results of
the environmental investigations have been reported to the
Michigan Department of Environmental Quality (MDEQ). None of
these former MGP sites is on the National Priorities List
prepared by the United States Environmental Protection
Agency (EPA).

MCN is involved in an administrative proceeding before the EPA
regarding one of the former MGP sites. MCN has executed an order
with the EPA, pursuant to which MCN is legally obligated to
investigate and remediate the MGP site. MCN is remediating five
of the former MGP sites and conducting more extensive
investigations at six other former MGP sites. In 1998, MCN
received

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

state closure of one of the former MGP sites. Additionally, the
MDEQ has determined with respect to one other former MGP site
that MCN is not a responsible party for the purpose of assessing
remediation expenditures. MCN and the MDEQ are in discussions on
whether MCN is a responsible party for one other former MGP site.

In 1984, MCN established an $11.7 million reserve for
environmental investigation and remediation. During 1993,
MichCon received MPSC approval of a cost deferral and rate
recovery mechanism for investigation and remediation costs
incurred at former MGP sites in excess of this reserve.

MCN employed outside consultants to evaluate remediation
alternatives for these sites, to assist in estimating its
potential liabilities and to review its archived insurance
policies. The findings of these investigations indicate that the
estimated total expenditures for investigation and remediation
activities for these sites could range from $30 million to $170
million based on undiscounted 1995 costs. As a result of these
studies, MCN accrued an additional liability and a corresponding
regulatory asset of $35 million during 1995.

MCN notified more than 50 current and former insurance carriers
of the environmental conditions at these former MGP sites. MCN
concluded settlement negotiations with certain carriers in 1996
and 1997 and has received payments from several carriers. In
October 1997, MCN filed suit against major non-settling
carriers seeking recovery of incurred costs and a declaratory
judgment of the carriers liability for future costs of
environmental investigation and remediation costs at former MGP
sites. Settlements were reached with a number of carriers, with
payments received in 2000.

During 2000, 1999 and 1998, MCN spent $1.6 million, $.7 million
and $1.6 million, respectively, investigating and remediating
these former MGP sites. At December 31, 2000, the reserve
balance was $32.8 million, of which $4.5 million is classified
as current. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial
action costs for the sites and, therefore, have an effect on
MCNs financial position and cash flows. However,
management believes the cost deferral and rate recovery
mechanism approved by the MPSC will prevent environmental costs
from having a material adverse impact on MCNs results of
operations.

Mercury Regulators As a result of the
increasing public concern regarding mercury contamination in
homes served by other utilities, and because new more sensitive
mercury detection equipment exists, MichCon initiated a
two-phase testing program in September 2000 to ensure its
mercury handling procedures are safe, effective and protect
public health. During the years 1936 to 1959, some of the
regulators MichCon installed in customer homes contained a small
amount of mercury, which is used to help measure the pressure of
gas flowing into a meter. Less than 15% of MichCons more
than one million residential customers have ever had this type
of regulator.

The regulators operate safely, however, when a regulator is
removed there is a potential for an accidental release of
mercury. To minimize this risk, MichCon employees are trained in
the safe removal of these regulators, which are disposed of
through an environmental recycling and waste disposal company.

MichCon implemented the two-phase testing program in
coordination with the EPA and the Michigan Department of
Community Health (MDCH). The new mercury detection equipment

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

made available by the EPA allowed MichCon to re-test 39 homes
where an accidental release of mercury occurred during the
1990s. MichCon completed this phase I testing in
December 2000 with additional cleanup undertaken at 13
homes to the satisfaction of the EPA and the MDCH. In
February 2001, phase II of the testing program was
implemented, which involves the statistical sampling of up to
4,000 customer homes in which mercury regulators may have once
existed. Management believes the possibility is remote that
customers have been exposed to unsafe levels of mercury from
MichCons equipment. Through December 31, 2000, Gas
Distribution had accrued approximately $3.5 million of costs
related to the mercury regulators, of which $2.5 million had
been incurred during phase I testing. Management cannot predict
the final disposition of this matter, but does not believe it
will have a material adverse impact on MCNs financial
statements.

Formerly owned storage field In 1998,
MichCon received written notification from ANR Pipeline Company
(ANR) alleging that MichCon has responsibility for a
portion of the costs associated with responding to environmental
conditions present at a natural gas storage field in Michigan
currently owned and operated by an affiliate of ANR. At least
some portion of the natural gas storage field was formerly owned
by MichCon. ANRs allegations are being evaluated to
determine whether and to what extent, if any, MichCon may have
legal responsibility for these costs. Management does not
believe this matter will have a material adverse impact on
MCNs financial statements.

CAPITAL RESOURCES AND LIQUIDITY



---

|                                                     |                      |      |     |        |   |      |      |        |   |   |       |        |  
|---------------------------------------------------- | -------------------- | ---- | --- | ------ | - | ---- | ---- | ------ | - | - | ----- | ------ | -
|                                                     |                      | 2000 |     | 1999   |   | 1998
|                                                     |                      |      |     |        |   |     
|Cash and Cash Equivalents(in Millions)               |                      |      |     |        |   |      |      |        |   |   |       |       
|Cash Flow Provided From (Used For)                   |                      |      |     |        |   |      |      |        |   |   |       |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating activities |      | $   | 223.1  |   |      | $    | 130.3  |   |   | $     | 152.7  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Financing activities |      |     | (372.8 | ) |      |      | (154.9 | ) |   |       | 497.8  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investing activities |      |     | 153.7  |   |      |      | 66.9   |   |   |       | (673.0 | )
|                                                     |                      |      |     |        |   |      |      |        |   |   |       |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                      | $    | 4.0 |        |   | $    | 42.3 |        |   | $ | (22.5 | )     
|                                                     |                      |      |     |        |   |      |      |        |   |   |       |       



---

Operating Activities

MCNs cash flow from operating activities increased $92.8
million in 2000 and decreased $22.4 million in 1999. The
fluctuations were due primarily to varying working capital
requirements and earnings, after adjusting for noncash items
(depreciation, unusual items and deferred taxes).

Financing Activities

MCNs cash flow related to financing activities decreased
$217.9 million in 2000 and $652.7 million in 1999. The decrease
in both years reflects higher debt repayments, net of debt and
equity issuances. The debt repayments were made with proceeds
from the sale of assets.

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

MCN typically relies on commercial paper and bank borrowings to
finance capital expenditures on a temporary basis until paid
down with proceeds from the issuance of more permanent capital,
such as long-term debt, preferred securities and common stock.
However, due to the pending merger and the timing of receiving
proceeds from asset sales, MCN relied more on short-term
financing and less on permanent capital issuances during 2000,
and will continue this strategy in 2001. Proceeds from
completing the sale of non-strategic assets in 2001 will be used
to repay commercial paper and bank borrowings. A summary of
MCNs significant financing activities during the
1998  2000 period follows.

MCNs FELINE PRIDES securities matured on May 16,
2000. Each security initially represented a stock purchase
contract and a preferred security. Under each stock purchase
contract, MCN was obligated to sell, and the FELINE PRIDES
holder was obligated to purchase 1.7241 shares of MCN common
stock for $50. The number of MCN common shares purchased totaled
approximately 4.6 million. Each FELINE PRIDES holder had the
option to use the preferred securities, treasury securities or
cash to satisfy the $50 purchase commitment. Holders of
approximately 99% of the FELINE PRIDES used their preferred
securities to purchase MCN common shares. The remaining holders
purchased their MCN shares with cash totaling $1.5 million.

MCNs 5.9 million shares of Preferred Redeemable
Increased Dividend Equity Securities (Enhanced PRIDES) matured
in April 1999. Each security represented a contract to
purchase one share of MCN common stock. Upon conversion of the
Enhanced PRIDES, MCN received cash proceeds totaling
approximately $135.0 million. The proceeds were used to repay a
$130.0 million medium-term note of MCNEE that came due in
May 1999.

In 1999, MCNs $150 million revolving credit agreement
expired. MCN effectively replaced this agreement by entering
into a $290 million revolving credit agreement that expired in
July 2000. Borrowings under the credit agreement were used
to repay debt and redeem $100 million of Single Point Remarketed
Reset Capital Securities in October 1999.

In 1998, MCN issued $100 million of preferred securities and
borrowed $260 million under a one-year term loan. Proceeds were
used to reduce commercial paper, to fund capital investments by
Diversified Energy and for general corporate purposes. MCN
repaid the term loan in 1999 with proceeds from the sale of its
E&P properties.

During 1998, MCN retired $100 million of preferred securities
early because it determined other forms of financing provided
greater flexibility.

Prior to mid-February 1999, MCN traditionally issued new
shares of common stock pursuant to its Direct Stock Purchase and
Dividend Reinvestment Plan and various employee benefit plans.
During the January 1998 to February 1999 period, MCN
issued 1.3 million shares and generated $21.4 million from
common stock issuances under these plans. Beginning in
mid-February 1999, shares issued under these plans are
being acquired by MCN through open-market purchases.

As of December 2000, MCN had an outstanding shelf
registration with $835 million remaining to be issued in the
form of debt or equity securities.

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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

The following table sets forth the ratings as of
December 31, 2000 for securities issued by MCN and its
subsidiaries:




|        |                      |          |  |         |  |       |  |      |  |  |  |     | 
|------- | -------------------- | -------- |  | ------- |  | ----- |  | ---- |  |  |  | --- | 
|        |                      | Standard |  |         |  |      
|        |                      | & Poors |  | Moodys |  | Fitch
|        |                      |          |  |         |  |      
|MCN     |                      |          |  |         |  |       |  |      |  |  |  |    
|       
|       
|       
|       
|        | Preferred securities |          |  | BBB-    |  |       |  | ba1  |  |  |  | BBB | 
|MCNEE   |                      |          |  |         |  |       |  |      |  |  |  |    
|       
|       
|       
|       
|        | Commercial paper*    |          |  | A2      |  |       |  | P3   |  |  |  | F2  | 
|       
|       
|       
|       
|        | Medium-term notes*   |          |  | BBB     |  |       |  | Baa3 |  |  |  | BBB | 
|MichCon |                      |          |  |         |  |       |  |      |  |  |  |    
|       
|       
|       
|       
|        | Commercial paper     |          |  | A2      |  |       |  | P1   |  |  |  | F1  | 
|       
|       
|       
|       
|        | First mortgage bonds |          |  | A-      |  |       |  | A2   |  |  |  | A   | 
|       
|       
|       
|       
|        | Senior notes**       |          |  | AAA     |  |       |  | Aaa  |  |  |  | AAA | 




|  |                                                    
|- | ---------------------------------------------------
|* | Ratings based on MCN support agreement or
	guaranty

|   |                                                                             
|-- | ----------------------------------------------------------------------------
|** | Ratings based on an insurance policy provided by
	MBIA Insurance Corporation

Diversified Energy

MCNEE maintains credit lines that allow for borrowings of up to
$300 million under a 364-day revolving credit facility and up to
$200 million under a three-year revolving credit facility, both
of which expire in July 2001. These facilities support
MCNEEs $400 million commercial paper program, which is
used to finance capital investments and working capital
requirements. The three-year credit facility also supports
letters of credit issued by financing institutions in favor of
Diversified Energy businesses. At December 31, 2000,
commercial paper and bank borrowings totaling $293.4 million
were outstanding under the MCNEE credit facilities.

MCN received approximately $456.8 million in 2000, $470.9
million in 1999 and $47.2 million in 1998 from the sale of
power, pipeline and non-Michigan E&P assets. Proceeds from
these sales were used to repay outstanding debt at the MCN
Corporate and Diversified Energy levels. Proceeds from the sale
of additional non-strategic assets are expected in 2001 and will
be used to repay outstanding borrowings and for general
corporate purposes.

MCNEE repaid $210 million of medium-term notes that came due in
1999.

In 1998, MCNEE issued remarketable debt securities totaling $300
million. Proceeds from these issuances were used to reduce
short-term debt incurred by MCNEE to fund capital investments
and for general corporate purposes.

During 1998, a subsidiary of MCNEE retired early a $100 million
five-year term loan because it determined that other forms of
debt financing provide greater flexibility and lower costs.

As of December 2000, MCNEE had an outstanding shelf registration
with $620 million remaining to be issued in the form of debt
securities. MCNEE anticipates borrowing between
$100 million and

53



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|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

$200 million in April 2000 under a short-term agreement to
temporarily replace or refinance long-term debt.

Gas Distribution

Gas Distribution maintains a relatively consistent amount of
cash and cash equivalents through the use of short-term
borrowings. Short-term borrowings are normally reduced in the
first part of each year as gas inventories are depleted and
funds are received from winter heating sales. During the latter
part of each year, Gas Distributions short-term borrowings
normally increase as funds are used to finance increases in gas
inventories and customer accounts receivable. To meet its
seasonal short-term borrowing needs, Gas Distribution normally
issues commercial paper that is backed by credit lines with
several banks. MichCon has established credit lines to allow for
borrowings of up to $200 million under a 364-day revolving
credit facility, and up to $150 million under a three-year
revolving credit facility, both of which expire in July 2001. At
December 31, 2000, commercial paper of $277.7 million was
outstanding under this program.

During 2000, MichCon repaid $12.3 million of term debt of a
non-utility subsidiary that was scheduled to mature in 2006.
Additionally, MichCon repaid $20 million of first mortgage bonds.

During 1999, MichCon issued $110 million of senior secured notes
(Note 10). Proceeds from the issuances were used to
refinance long-term debt, short-term obligations and for general
corporate purposes. MichCon also repaid $68 million of first
mortgage bonds during 1999.

During 1998, MichCon issued $150 million of remarketable debt
securities (Note 10). Proceeds from these issuances were
used to retire first mortgage bonds, fund capital expenditures
and for general corporate purposes. Also during 1998, MichCon
repaid $109.7 million of first mortgage bonds.

As of December 2000, MichCon had an outstanding shelf
registration with $140 million remaining to be issued in the
form of debt securities.

Investing Activities

MCNs cash flow related to investing activities increased
$86.8 million in 2000 and $739.9 million in 1999. As previously
discussed, the improvement in both years was due to cash
received from sales of non-strategic assets, coupled with lower
capital expenditures and acquisitions.

During 1998, MichCon invested $28.2 million in a Grantor Trust
to meet future cash flow obligations related to certain
postretirement healthcare costs.

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|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

Capital investments equaled $321.6 million in 2000, $496.4
million in 1999 and $790.9 million in 1998. The comparisons
reflect lower acquisitions as well as lower Diversified Energy
and Gas Distribution capital expenditures.




|                                                   |                          |      |       |       |  |      |       |       |  |   |       |       | 
|-------------------------------------------------- | ------------------------ | ---- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                   |                          | 2000 |       | 1999  |  | 1998
|(in Millions)                                      |                          |      |       |       |  |     
|Capital Investments                                |                          |      |       |       |  |      |       |       |  |   |       |      
|Consolidated Capital Expenditures                  |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Pipelines & Processing   |      | $     | 1.9   |  |      | $     | 3.6   |  |   | $     | 113.2 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Electric Power           |      |       | .9    |  |      |       | 52.4  |  |   |       | 3.6   | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Exploration & Production |      |       | 29.9  |  |      |       | 100.0 |  |   |       | 200.4 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Gas Distribution         |      |       | 118.6 |  |      |       | 136.9 |  |   |       | 158.0 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                    |      |       | 2.2   |  |      |       | 1.4   |  |   |       | 7.6   | 
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                   |                          |      | 153.5 |       |  |      | 294.3 |       |  |   | 482.8 |      
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|MCNs Share of Joint Venture Capital Expenditures* |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Pipelines & Processing   |      |       | 141.4 |  |      |       | 94.3  |  |   |       | 219.9 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Electric Power           |      |       | 26.5  |  |      |       | 78.1  |  |   |       | 24.8  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                    |      |       | .2    |  |      |       | .2    |  |   |       | 1.7   | 
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                   |                          |      | 168.1 |       |  |      | 172.6 |       |  |   | 246.4 |      
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|Acquisitions                                       |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Significant              |      |       |      |  |      |       | 22.5  |  |   |       | 54.0  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                    |      |       |      |  |      |       | 7.0   |  |   |       | 7.7   | 
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|                                                   |                          |      |      |       |  |      | 29.5  |       |  |   | 61.7  |      
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      
|Total Capital Investments                          |                          | $    | 321.6 |       |  | $    | 496.4 |       |  | $ | 790.9 |      
|                                                   |                          |      |       |       |  |      |       |       |  |   |       |      




|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
|* | A portion of joint venture capital expenditures
	is financed with joint venture project debt.

Outlook

2001 capital investments estimated at $160
million MCNs strategic direction will
result in capital investments in future years of approximately
$150 million to $200 million annually  significantly
lower than in the past several years.

The proposed level of investments in future years is expected to
be financed primarily with internally generated funds, including
proceeds received from the sale of non-strategic assets.
MCNs actual capital requirements will depend on proceeds
received from the sale of such assets. MCNs capitalization
objective is to maintain its credit ratings through a strong
balance sheet. It is managements opinion that MCN and its
subsidiaries will have sufficient capital resources, both
internal and external, to meet anticipated capital requirements.

MARKET RISK INFORMATION

MCNs primary market risk arises from fluctuations in
commodity prices and interest rates. MCN manages commodity price
and interest rate risk through the use of various derivative
instruments. Prior to April 2000, MCN generally limited the use
of such instruments to hedging activities. In the 2000 second
quarter, MCNs Energy Marketing segment began using
derivative instruments for

55



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|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)

trading activities. A further discussion of MCNs risk
management activities is included in Note 15 to the
Consolidated Financial Statements.

Commodity Price Risk

Hedging Activities MCNs exposure to
commodity price risk arises from changes in natural gas, natural
gas liquids, oil and methanol prices throughout the United
States and in eastern Canada where MCN conducts sales and
purchase transactions. MCN closely monitors and manages its
exposure to commodity price risk through a variety of risk
management techniques. Natural gas and oil futures and swap
agreements are used to manage MCNs exposure to the risk of
market price fluctuations on gas sale and purchase contracts,
natural gas and oil production and gas inventories.

Trading Activities In the 2000 second
quarter, MCNs Energy Marketing segment began trading
activities upon revising its operating strategy to optimize the
value of its storage assets. The strategy includes using natural
gas futures and swap agreements that are marked-to-market under
generally accepted accounting principles (Note 4).

A sensitivity analysis model was used to calculate the fair
values of MCNs natural gas and oil futures and swap
agreements utilizing applicable forward commodity rates in
effect at December 31. The sensitivity analysis involved
increasing and decreasing the forward rates by a hypothetical
10% and calculating the resulting change in the fair values of
the gas and oil futures and swap agreements.

Interest Rate Risk

MCN is subject to interest rate risk in connection with the
issuance of variable- and fixed-rate debt and preferred
securities. In order to manage interest costs, MCN uses interest
rate swap agreements to exchange fixed- and variable-rate
interest payment obligations over the life of the agreements
without exchange of the underlying principal amounts. MCNs
exposure to interest rate risk arises primarily from changes in
U.S. Treasury rates and London Inter-Bank Offered Rates
(LIBOR).

A sensitivity analysis model was used to calculate the fair
values or cash flows of MCNs debt and preferred
securities, as well as its interest rate swaps, utilizing
applicable forward interest rates in effect at December 31.
The sensitivity analysis involved increasing and decreasing the
forward rates by a hypothetical 10% and calculating the
resulting change in the fair values or cash flows of the
interest rate sensitive instruments.

56



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|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS(CONCLUDED)

The results of the sensitivity model calculations follow:



---

|                          |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |            | 
|------------------------- | ---------------------------------- | ------------ | - | ------------ | - | ------------ | - | ------------ | - | ------------- | - | ----- | - |  | - | ----- | - |  |  | ---------- | 
|                          |                                    |              |   |              |   |             
|                          |                                    | 2000         |   | 1999         |   |             
|                          |                                    |              |   |              |   |             
|                          |                                    | Assuming     |   | Assuming     |   | Assuming     |   | Assuming     |   |              
|                          |                                    | a 10%        |   | a 10%        |   | a 10%        |   | a 10%        |   | Favorable    
|                          |                                    | Increase in  |   | Decrease in  |   | Increase in  |   | Decrease in  |   | (Unfavorable)
|                          |                                    | Prices/Rates |   | Prices/Rates |   | Prices/Rates |   | Prices/Rates |   | Change In    
|(in Millions)             |                                    |              |   |              |   |              |   |              |   |              
|                          |                                    |              |   |              |   |              |   |              |   |              
|                         
|                         
|                         
|                         
|Market Risk               |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |           
|                         
|                         
|                         
|                         
|Commodity Price Sensitive |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |           
|Hedging activities*       |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |           
|                         
|                         
|                         
|                         
|                          | Swaps:  Pay fixed/receive variable |              | $ | 117.8        |   |              | $ | (117.8       | ) |               | $ | 89.8  |   |  | $ | (89.8 | ) |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Pay
	variable/receive fixed        |              | $ | (97.9        | ) |              | $ | 97.9         |   |               | $ | (81.1 | ) |  | $ | 81.1  |   |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Futures: Longs                     |              | $ | 3.0          |   |              | $ | (3.0         | ) |               | $ | 5.0   |   |  | $ | (5.0  | ) |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Shorts                             |              | $ | (.6          | ) |              | $ | .6           |   |               | $ | (2.1  | ) |  | $ | 2.1   |   |  |  | Fair Value | 
|Trading Activities        |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |           
|                         
|                         
|                         
|                         
|                          | Swaps:  Pay fixed/receive variable |              | $ | 14.8         |   |              | $ | (14.8        | ) |               |   | N/A   |   |  |   | N/A   |   |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Pay
	variable/receive fixed        |              | $ | (11.9        | ) |              | $ | 11.9         |   |               |   | N/A   |   |  |   | N/A   |   |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Futures: Longs                     |              | $ | 1.6          |   |              | $ | (1.6         | ) |               |   | N/A   |   |  |   | N/A   |   |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Shorts                             |              | $ | (3.7         | ) |              | $ | 3.7          |   |               |   | N/A   |   |  |   | N/A   |   |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|Interest Rate Sensitive   |                                    |              |   |              |   |              |   |              |   |               |   |       |   |  |   |       |   |  |  |           
|                         
|                         
|                         
|                         
|                          | Debt:   Fixed rate                 |              | $ | 42.1         |   |              | $ | (42.1        | ) |               | $ | 58.3  |   |  | $ | (58.3 | ) |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Variable rate                      |              | $ | (.1          | ) |              | $ | .1           |   |               | $ | (.5   | ) |  | $ | .5    |   |  |  | Cash Flow  | 
|                         
|                         
|                         
|                         
|                          | Swaps:  Pay fixed/receive variable |              | $ |             |   |              | $ |             |   |               | $ | .2    |   |  | $ | (.2   | ) |  |  | Fair Value | 
|                         
|                         
|                         
|                         
|                          | Pay
	variable/receive fixed        |              | $ | (1.6         | ) |              | $ | 1.6          |   |               | $ | (2.8  | ) |  | $ | 2.8   |   |  |  | Fair Value | 




|  |                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------
|* | Includes only the risk related to the derivative
	instruments that serve as hedges and does not include the
	related underlying hedged item.

NEW ACCOUNTING PRONOUNCEMENT

As of January 1, 2001, MCN adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133, and SFAS No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities. The Statement requires all
derivatives to be recognized in the statement of financial
position as either assets or liabilities measured at their fair
value and sets forth conditions in which a derivative instrument
may be designated as a hedge. The Statement requires that
changes in the fair value of derivatives be recognized currently
in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a
derivatives gains and losses to be recorded to other
comprehensive income or to offset related results on the hedged
item in earnings.

MCN has identified interest rate swaps, options embedded in
certain debt instruments, commodity forward contracts, commodity
futures and swaps, and certain transportation contracts as
derivatives. The cumulative effect of adopting SFAS No. 133
is expected to be an approximate $150 million pre-tax ($100
million net of taxes) decrease in earnings, and an approximate
$100 million pre-tax ($65 million net of taxes) increase in
other comprehensive income. The adoption will also impact assets
and liabilities recorded in the statement of financial position.

The Derivatives Implementation Group (DIG), a committee created
by the Financial Accounting Standards Board, is expected to
continue providing guidance and clarification on SFAS
No. 133 issues in 2001. It is possible the DIG could
conclude on issues that would have a material impact on how MCN
accounts for derivatives.

57



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##### Table of Contents








|         |                                               
|-------- | ----------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE
	ABOUT

MARKET RISK


For information required pursuant to this item refer to
Item 7. MD&A  Market Risk
Information.

58



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##### Table of Contents








ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA


|                                                                               |                                                 |      |     |     | 
|------------------------------------------------------------------------------ | ----------------------------------------------- | ---- | --- | --- | 
|                                                                               |                                                 | Page
|                                                                               |                                                 |     
|Consolidated Statement of Operations                                           |                                                 |      | 60  |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Financial Position                                   |                                                 |      | 61  |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Cash Flows                                           |                                                 |      | 63  |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Common Shareholders Equity                          |                                                 |      | 65  |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Notes to Consolidated Financial Statements                                     |                                                 |      | 66  |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Responsibilities for Financial Statements                                      |                                                 |      | 115 |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Independent Auditors Report                                                   |                                                 |      | 116 |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Supplementary Financial Information  Quarterly
	Operating Results (Unaudited) |                                                 |      | 117 |    
|                                                                              
|Financial Statement Schedule -                                                 |                                                 |      |     |    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Schedule II  Valuation and Qualifying Accounts |      |     | 119 | 

59



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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS




|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |           |  
|----------------------------------------------------------------- | ------------------------------------------------------------------------- | ---------------------- | --------- | ---------- | - | ---------- | --------- | --------- | - | - | --------- | --------- | -
|                                                                  |                                                                           |                       
|                                                                  |                                                                           | Year Ended December 31
|                                                                  |                                                                           |                       
|                                                                  |                                                                           |                        |           | 1999       |   | 1998      
|                                                                  |                                                                           |                        |           | (Restated) |   | (Restated)
|                                                                  |                                                                           | 2000                   |           | Note 3     |   | Note 3    
|(in Thousands, Except Per Share Amounts)                          |                                                                           |                        |           |            |   |           
|Operating Revenues                                                |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Gas and oil sales                                                         |                        | $         | 2,477,662  |   |            | $         | 2,162,960 |   |   | $         | 1,812,948 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Transportation                                                            |                        |           | 155,572    |   |            |           | 151,216   |   |   |           | 139,609   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Other                                                                     |                        |           | 157,873    |   |            |           | 110,077   |   |   |           | 58,664    |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  |                                                                           |                        | 2,791,107 |            |   |            | 2,424,253 |           |   |   | 2,011,221 |          
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Operating Expenses                                                |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cost of sales                                                             |                        |           | 2,021,770  |   |            |           | 1,539,841 |   |   |           | 1,205,379 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Operation and maintenance                                                 |                        |           | 364,266    |   |            |           | 411,223   |   |   |           | 389,415   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Depreciation, depletion and amortization                                  |                        |           | 137,626    |   |            |           | 164,638   |   |   |           | 179,490   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Property and other taxes                                                  |                        |           | 71,368     |   |            |           | 57,197    |   |   |           | 69,553    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Property write-downs, contract losses and restructuring charges
	(Note 6) |                        |           | 9,651      |   |            |           | 61,782    |   |   |           | 600,818   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Gains and losses from sale of assets, net (Note 6)                        |                        |           | (77,370    | ) |            |           | 81,989    |   |   |           | (9,911    | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Gains from sale of tax credits                                            |                        |           | (11,493    | ) |            |           | (11,164   | ) |   |           | (7,398    | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Merger costs (Note 2)                                                     |                        |           | 6,305      |   |            |           | 34,856    |   |   |           |          |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  |                                                                           |                        | 2,522,123 |            |   |            | 2,340,362 |           |   |   | 2,427,346 |          
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Operating Income (Loss)                                           |                                                                           |                        | 268,984   |            |   |            | 83,891    |           |   |   | (416,125  | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Equity in Earnings of Joint Ventures(Note 19)                     |                                                                           |                        | 28,425    |            |   |            | 52,386    |           |   |   | 62,225    |          
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Other Income and (Deductions)                                     |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest income                                                           |                        |           | 12,474     |   |            |           | 6,575     |   |   |           | 10,893    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest on long-term debt                                                |                        |           | (92,907    | ) |            |           | (89,431   | ) |   |           | (87,346   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Other interest expense                                                    |                        |           | (29,890    | ) |            |           | (30,342   | ) |   |           | (24,404   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Dividends on preferred securities of subsidiaries                         |                        |           | (28,565    | ) |            |           | (40,139   | ) |   |           | (36,370   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Investment gains (losses) (Note 6d)                                       |                        |           | 7,638      |   |            |           | (7,456    | ) |   |           | (6,135    | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Minority interest                                                         |                        |           | (1,260     | ) |            |           | (1,612    | ) |   |           | 5,992     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Other                                                                     |                        |           | (858       | ) |            |           | 6,785     |   |   |           | 2,252     |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  |                                                                           |                        | (133,368  | )          |   |            | (155,620  | )         |   |   | (135,118  | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Income (Loss) Before Income Taxes                                 |                                                                           |                        | 164,041   |            |   |            | (19,343   | )         |   |   | (489,018  | )        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income Tax Provision (Benefit)                                    |                                                                           |                        | 55,173    |            |   |            | (3,286    | )         |   |   | (190,146  | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change      |                                                                           |                        | 108,868   |            |   |            | (16,057   | )         |   |   | (298,872  | )        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cumulative Effect of Accounting Change for Start-up Costs(Note 5) |                                                                           |                        |          |            |   |            | (2,872    | )         |   |   |          |          
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Net Income (Loss)                                                 |                                                                           | $                      | 108,868   |            |   | $          | (18,929   | )         |   | $ | (298,872  | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Basic Earnings (Loss) Per Share(Note 12d)                         |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Before cumulative effect of accounting change                             |                        | $         | 1.23       |   |            | $         | (.19      | ) |   | $         | (3.79     | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cumulative effect of accounting change for start-up costs
	(Note 5)       |                        |           |           |   |            |           | (.03      | ) |   |           |          |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  |                                                                           | $                      | 1.23      |            |   | $          | (.22      | )         |   | $ | (3.79     | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Diluted Earnings (Loss) Per Share(Note 12d)                       |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Before cumulative effect of accounting change                             |                        | $         | 1.22       |   |            | $         | (.19      | ) |   | $         | (3.79     | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cumulative effect of accounting change for start-up costs
	(Note 5)       |                        |           |           |   |            |           | (.03      | ) |   |           |          |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  |                                                                           | $                      | 1.22      |            |   | $          | (.22      | )         |   | $ | (3.79     | )        
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Average Common Shares Outstanding                                 |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Basic                                                                     |                        |           | 88,398     |   |            |           | 83,407    |   |   |           | 78,823    |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|                                                                  | Diluted                                                                   |                        |           | 89,107     |   |            |           | 83,407    |   |   |           | 78,823    |  
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          
|Dividends Declared Per Share                                      |                                                                           | $                      | 1.0200    |            |   | $          | 1.0200    |           |   | $ | 1.0200    |          
|                                                                  |                                                                           |                        |           |            |   |            |           |           |   |   |           |          



---

The notes to the consolidated financial
statements are an integral part of this statement.


60



---



##### Table of Contents



CONSOLIDATED STATEMENT OF FINANCIAL
POSITION




|                                                       |                                                                                                 |             |           |            |  |   |           |           | 
|------------------------------------------------------ | ----------------------------------------------------------------------------------------------- | ----------- | --------- | ---------- |  | - | --------- | --------- | 
|                                                       |                                                                                                 |            
|                                                       |                                                                                                 | December 31
|                                                       |                                                                                                 |            
|                                                       |                                                                                                 |             |           | 1999      
|                                                       |                                                                                                 |             |           | (Restated)
|                                                       |                                                                                                 | 2000        |           | Note 3    
|(in Thousands)                                         |                                                                                                 |             |           |           
|ASSETS                                                 |                                                                                                 |             |           |            |  |   |           |          
|                                                      
|                                                      
|                                                      
|                                                      
|Current Assets                                         |                                                                                                 |             |           |            |  |   |           |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cash and cash equivalents, at cost (which approximates market
	value)                           |             | $         | 63,389     |  |   | $         | 59,366    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accounts receivable, less allowance for doubtful accounts of
	$33,604 and $20,720, respectively |             |           | 1,006,212  |  |   |           | 546,689   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accrued unbilled revenues                                                                       |             |           | 137,473    |  |   |           | 100,439   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Gas in inventory                                                                                |             |           | 253,599    |  |   |           | 179,826   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Property taxes assessed applicable to future periods                                            |             |           | 57,103     |  |   |           | 62,651    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred income taxes (Note 20)                                                                 |             |           | 31,538     |  |   |           | 32,508    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Assets from trading activities (Note 4)                                                         |             |           | 25,953     |  |   |           |          | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                           |             |           | 52,660     |  |   |           | 51,043    | 
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 |             | 1,627,927 |            |  |   | 1,032,522 |          
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|Deferred Charges and Other Assets                      |                                                                                                 |             |           |            |  |   |           |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred income taxes (Note 20)                                                                 |             |           |           |  |   |           | 14,549    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Investments in debt and equity securities                                                       |             |           | 186,772    |  |   |           | 72,077    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Investments in leases (Note 13)                                                                 |             |           | 76,395     |  |   |           |          | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred swap losses and receivables (Note 15a)                                                 |             |           | 173,672    |  |   |           | 43,907    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred environmental costs (Note 14b)                                                         |             |           | 28,675     |  |   |           | 31,173    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Prepaid benefit costs (Note 17a)                                                                |             |           | 214,473    |  |   |           | 156,276   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                           |             |           | 82,289     |  |   |           | 108,288   | 
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 |             | 762,276   |            |  |   | 426,270   |          
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|Investments in and Advances to Joint Ventures(Note 19) |                                                                                                 |             |           |            |  |   |           |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Pipelines & Processing                                                                          |             |           | 523,864    |  |   |           | 575,684   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Electric Power                                                                                  |             |           | 38,776     |  |   |           | 145,684   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Energy Marketing                                                                                |             |           | 23,158     |  |   |           | 21,512    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Gas Distribution                                                                                |             |           | 3,383      |  |   |           | 2,898     | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                           |             |           | 17,377     |  |   |           | 18,194    | 
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 |             | 606,558   |            |  |   | 763,972   |          
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|Property, Plant and Equipment                          |                                                                                                 |             |           |            |  |   |           |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Pipelines & Processing                                                                          |             |           | 46,463     |  |   |           | 46,480    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Exploration & Production                                                                        |             |           | 588,512    |  |   |           | 573,514   | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Gas Distribution                                                                                |             |           | 3,008,216  |  |   |           | 3,016,231 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                           |             |           | 26,798     |  |   |           | 76,245    | 
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 |             | 3,669,989 |            |  |   | 3,712,470 |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Less  Accumulated depreciation and depletion                                                   |             |           | 1,802,401  |  |   |           | 1,697,212 | 
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 |             | 1,867,588 |            |  |   | 2,015,258 |          
|                                                       |                                                                                                 |             |           |            |  |   |           |          
|                                                       |                                                                                                 | $           | 4,864,349 |            |  | $ | 4,238,022 |          
|                                                       |                                                                                                 |             |           |            |  |   |           |          




The notes to the consolidated financial
statements are an integral part of this statement.


61



---



##### Table of Contents



CONSOLIDATED STATEMENT OF FINANCIAL
POSITION




|                                                   |                                                                                                                         |             |           |            |  |   |           |           | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ----------- | --------- | ---------- |  | - | --------- | --------- | 
|                                                   |                                                                                                                         |            
|                                                   |                                                                                                                         | December 31
|                                                   |                                                                                                                         |            
|                                                   |                                                                                                                         |             |           | 1999      
|                                                   |                                                                                                                         |             |           | (Restated)
|                                                   |                                                                                                                         | 2000        |           | Note 3    
|(in Thousands)                                     |                                                                                                                         |             |           |           
|LIABILITIES AND CAPITALIZATION                     |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|                                                  
|                                                  
|                                                  
|Current Liabilities                                |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Accounts payable                                                                                                        |             | $         | 860,439    |  |   | $         | 296,139   | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Notes payable                                                                                                           |             |           | 576,392    |  |   |           | 617,755   | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Current portion of long-term debt and capital lease obligations                                                         |             |           | 184,652    |  |   |           | 28,102    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Federal income, property and other taxes payable                                                                        |             |           | 70,645     |  |   |           | 68,500    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Gas payable                                                                                                             |             |           | 62,427     |  |   |           | 23,422    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Liabilities from trading activities (Note 4)                                                                            |             |           | 108,523    |  |   |           |          | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Customer deposits                                                                                                       |             |           | 17,708     |  |   |           | 17,707    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                                                                                                                   |             |           | 131,975    |  |   |           | 146,949   | 
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|                                                   |                                                                                                                         |             | 2,012,761 |            |  |   | 1,198,574 |          
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|Deferred Credits and Other Liabilities             |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Deferred income taxes (Note 20)                                                                                         |             |           | 29,842     |  |   |           |          | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Unamortized investment tax credit                                                                                       |             |           | 26,084     |  |   |           | 28,022    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Tax benefits amortizable to customers                                                                                   |             |           | 138,161    |  |   |           | 136,236   | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Deferred swap gains and payables (Note 15a)                                                                             |             |           | 239,207    |  |   |           | 64,962    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Accrued environmental costs (Note 14b)                                                                                  |             |           | 28,250     |  |   |           | 28,068    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Minority interest                                                                                                       |             |           | 1,166      |  |   |           | 11,096    | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                                                                                                                   |             |           | 88,997     |  |   |           | 91,613    | 
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|                                                   |                                                                                                                         |             | 551,707   |            |  |   | 359,997   |          
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|Commitments and Contingencies(Notes 9, 13
	and 14) |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|                                                  
|                                                  
|                                                  
|Capitalization                                     |                                                                                                                         |             |           |            |  |   |           |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Long-term debt, including capital lease obligations                                                                     |             |           | 1,056,825  |  |   |           | 1,457,617 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | MCN-obligated mandatorily redeemable preferred securities of
	subsidiaries holding solely debentures of MCN (Note  11a) |             |           | 272,484    |  |   |           | 402,922   | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Common shareholders equity (see accompanying statement)                                                                |             |           | 970,572    |  |   |           | 818,912   | 
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|                                                   |                                                                                                                         |             | 2,299,881 |            |  |   | 2,679,451 |          
|                                                   |                                                                                                                         |             |           |            |  |   |           |          
|                                                   |                                                                                                                         | $           | 4,864,349 |            |  | $ | 4,238,022 |          
|                                                   |                                                                                                                         |             |           |            |  |   |           |          



---

The notes to the consolidated financial
statements are an integral part of this statement.


62



---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS




|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |          |         |         |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | --------------------------- | ------------------------------------------------------ | ------- | ---------- | -------- | -------- | -------- | ------- | -------- | -------- | ------- | ------- | -------- | -
|                                                     |                                                                                            |                                                                          
|                                                     |                                                                                            | Year Ended December 31                                                   
|                                                     |                                                                                            |                                                                          
|                                                     |                                                                                            |                                                                           |                             | 1999                                                   |         | 1998      
|                                                     |                                                                                            |                                                                           |                             | (Restated)                                             |         | (Restated)
|                                                     |                                                                                            | 2000                                                                      |                             | Note 3                                                 |         | Note 3    
|(in Thousands)                                       |                                                                                            |                                                                           |                             |                                                        |         |           
|Cash Flow From Operating Activities                  |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                                          |                                                                           | $                           | 108,868                                                |         |            | $        | (18,929  | )        |         | $        | (298,872 | )      
|                                                     | Adjustments to reconcile net income (loss) to net cash provided
	from operating activities |                                                                           |                             |                                                        |         |            |          |          |          |         |          |          |        
|                                                     |                                                                                            | Depreciation, depletion and amortization                                  |                             |                                                        |         |            |          |          |          |         |          |          |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                                           | Per statement of operations |                                                        |         | 137,626    |          |          |          | 164,638 |          |          |         | 179,490 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                                           | Charged to other accounts   |                                                        |         | 9,314      |          |          |          | 9,055   |          |          |         | 8,000   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Unusual items, net of taxes (Note 6)                                      |                             |                                                        | (46,562 | )          |          |          | 98,298   |         |          |          | 389,598 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Cumulative effect of accounting change, net of taxes
	(Note 5)            |                             |                                                        |        |            |          |          | 2,872    |         |          |          |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Deferred income taxes  current                                           |                             |                                                        | 970     |            |          |          | (35,498  | )       |          |          | (9,265  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Deferred income taxes and investment tax credit, net                      |                             |                                                        | 18,094  |            |          |          | 84,462   |         |          |          | 14,565  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Equity in earnings of joint ventures, net of distributions                |                             |                                                        | 2,249   |            |          |          | (12,529  | )       |          |          | (40,360 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Other                                                                     |                             |                                                        | (6,667  | )          |          |          | (1,313   | )       |          |          | (11,550 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Changes in assets and liabilities, exclusive of changes shown
	separately |                             |                                                        | (809    | )          |          |          | (160,769 | )       |          |          | (78,884 | )      
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                     |                                                                                            |                                                                           |                             | Net cash provided from operating activities            |         |            | 223,083  |          |          |         | 130,287  |          |         |         | 152,722  |  
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|Cash Flow From Financing Activities                  |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                                         |                                                                           |                             | (221,509                                               | )       |            |          | (1,096   | )        |         |          | 307,482  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                                             |                                                                           |                             | (90,047                                                | )       |            |          | (86,256  | )        |         |          | (82,239  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock (Note 12a)                                                        |                                                                           |                             | 4,877                                                  |         |            |          | 136,145  |          |         |          | 20,192   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock (Note 12a)                                                   |                                                                           |                             | (2,564                                                 | )       |            |          | (6,745   | )        |         |          |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of preferred securities (Note 11)                                                 |                                                                           |                             |                                                       |         |            |          |         |          |         |          | 96,850   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt (Note 10)                                                       |                                                                           |                             |                                                       |         |            |          | 106,535  |          |         |          | 458,761  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net
	(Note 10)                             |                                                                           |                             | (19,854                                                | )       |            |          | 92,344   |          |         |          | 17,299   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities
	(Notes 10 and 11)                   |                                                                           |                             | (43,548                                                | )       |            |          | (395,789 | )        |         |          | (328,810 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                                      |                                                                           |                             | (123                                                   | )       |            |          |         |          |         |          | 8,243    |        
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                     |                                                                                            |                                                                           |                             | Net cash provided from (used for) financing activities |         |            | (372,768 | )        |          |         | (154,862 | )        |         |         | 497,778  |  
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|Cash Flow From Investing Activities                  |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                                       |                                                                           |                             | (153,492                                               | )       |            |          | (294,258 | )        |         |          | (482,775 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions (Note 7)                                                                      |                                                                           |                             |                                                       |         |            |          | (29,551  | )        |         |          | (42,429  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                              |                                                                           |                             | (83,261                                                | )       |            |          | (4,157   | )        |         |          | 17,831   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures                                                               |                                                                           |                             | (74,449                                                | )       |            |          | (77,427  | )        |         |          | (189,309 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests (Note 7)                                      |                                                                           |                             | 466,469                                                |         |            |          | 470,904  |          |         |          | 47,185   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other (Note 17c)                                                                           |                                                                           |                             | (1,559                                                 | )       |            |          | 1,391    |          |         |          | (23,459  | )      
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                     |                                                                                            |                                                                           |                             | Net cash provided from (used for) investing activities |         |            | 153,708  |          |          |         | 66,902   |          |         |         | (672,956 | )
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                            |                                                                           | 4,023                       |                                                        |         |            | 42,327   |          |          |         | (22,456  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                                            |                                                                           | 59,366                      |                                                        |         |            | 17,039   |          |          |         | 39,495   |         
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|Cash and Cash Equivalents, December 31               |                                                                                            | $                                                                         | 63,389                      |                                                        |         | $          | 59,366   |          |          | $       | 17,039   |         
|                                                     |                                                                                            |                                                                           |                             |                                                        |         |            |          |          |          |         |          |         
|                                                    

63



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##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS





|                                                                          |                                                      |                        |      |            |   |            |          |         |   |   |         |         |  
|------------------------------------------------------------------------- | ---------------------------------------------------- | ---------------------- | ---- | ---------- | - | ---------- | -------- | ------- | - | - | ------- | ------- | -
|                                                                          |                                                      |                       
|                                                                          |                                                      | Year Ended December 31
|                                                                          |                                                      |                       
|                                                                          |                                                      |                        |      | 1999       |   | 1998      
|                                                                          |                                                      |                        |      | (Restated) |   | (Restated)
|                                                                          |                                                      | 2000                   |      | Note 3     |   | Note 3    
|(in Thousands)                                                            |                                                      |                        |      |            |   |           
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                      |                        |      |            |   |            |          |         |   |   |         |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                             |                        | $    | (579,461   | ) |            | $        | (63,377 | ) |   | $       | (6,653  | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                            |                        |      | (37,034    | ) |            |          | (12,551 | ) |   |         | 5,122   |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                     |                        |      | (73,773    | ) |            |          | (51,321 | ) |   |         | (71,528 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net     |                        |      |           |   |            |          | (14,980 | ) |   |         | 27,842  |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid/accrued benefit costs, net                   |                        |      | (57,633    | ) |            |          | (44,457 | ) |   |         | (31,490 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Property taxes assessed applicable to future periods |                        |      | 5,548      |   |            |          |        |   |   |         |        |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                     |                        |      | 564,300    |   |            |          | (35     | ) |   |         | (35,597 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable     |                        |      | 2,145      |   |            |          | (965    | ) |   |         | (17,333 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                          |                        |      | 39,005     |   |            |          | (17,811 | ) |   |         | 34,352  |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Asset/ liability from trading activity               |                        |      | 82,570     |   |            |          |        |   |   |         |        |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net            |                        |      | (18,898    | ) |            |          | 41,187  |   |   |         | 8,152   |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net           |                        |      | 72,422     |   |            |          | 3,541   |   |   |         | 8,249   |  
|                                                                          |                                                      |                        |      |            |   |            |          |         |   |   |         |        
|                                                                          |                                                      | $                      | (809 | )          |   | $          | (160,769 | )       |   | $ | (78,884 | )      
|                                                                          |                                                      |                        |      |            |   |            |          |         |   |   |         |        




The notes to the consolidated financial
statements are an integral part of this statement.


64



---



##### Table of Contents



CONSOLIDATED STATEMENT OF COMMON
SHAREHOLDERS EQUITY




|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |          |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------- | ---------- | ------ | ---------- | ------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                                                                                                                |                                           |                                                                                                        
|                                                                                                                                                |                                           | Year Ended December 31                                                                                 
|                                                                                                                                                |                                           |                                                                                                        
|                                                                                                                                                |                                           |                                                                                                         |         | 1999       |        | 1998      
|                                                                                                                                                |                                           |                                                                                                         |         | (Restated) |        | (Restated)
|                                                                                                                                                |                                           | 2000                                                                                                    |         | Note 3     |        | Note 3    
|(in Thousands)                                                                                                                                  |                                           |                                                                                                         |         |            |        |           
|COMMON SHAREHOLDERS EQUITY(Note 12)                                                                                                            |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|Common Stock,par value $.01 per share  250,000,000 shares
	authorized, 90,185,793, 85,655,381 and 79,724,542 shares
	outstanding, respectively |                                           | $                                                                                                       | 902     |            |        | $          | 857     |          |         | $ | 797      |         
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|Additional Paid-in Capital                                                                                                                      |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Balance  beginning of period             |                                                                                                         |         | 960,176    |        |            |         | 832,966  |         |   |          | 806,997  |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Common stock and performance units        |                                                                                                         |         | 132,977    |        |            |         | 127,210  |         |   |          | 25,969   |        
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                | Balance  end of period                   |                                                                                                         |         | 1,093,153  |        |            |         | 960,176  |         |   |          | 832,966  |        
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|Accumulated Other Comprehensive Loss                                                                                                            |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                | Foreign Currency Translation Adjustments  |                                                                                                         |         |            |        |            |         |          |         |   |          |          |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Balance  beginning of period                                                                           |         |            | (156   | )          |         |          | (12,889 | ) |          |          | (6,335  | )
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Net change in foreign currency translation adjustment (a)                                               |         |            | (59    | )          |         |          | 12,733  |   |          |          | (6,554  | )
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                |                                           | Balance  end of period                                                                                 |         |            | (215   | )          |         |          | (156    | ) |          |          | (12,889 | )
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                | Unrealized Gains and Losses on Securities |                                                                                                         |         |            |        |            |         |          |         |   |          |          |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Balance  beginning of period                                                                           |         |            |       |            |         |          | (3,687  | ) |          |          | (1,184  | )
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Net change in unrealized gains and losses on securities (a)                                             |         |            |       |            |         |          | 3,687   |   |          |          | (2,503  | )
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                |                                           | Balance  end of period                                                                                 |         |            |       |            |         |          |        |   |          |          | (3,687  | )
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                |                                           | Balance  end of period                                                                                 |         |            | (215   | )          |         |          | (156    | ) |          |          | (16,576 | )
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|Retained Earnings (Deficit)                                                                                                                     |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Balance  beginning of period             |                                                                                                         |         | (119,677   | )      |            |         | (14,492  | )       |   |          | 366,619  |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Net income (loss) (a)                     |                                                                                                         |         | 108,868    |        |            |         | (18,929  | )       |   |          | (298,872 | )      
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Cash dividends declared                   |                                                                                                         |         | (90,047    | )      |            |         | (86,256  | )       |   |          | (82,239  | )      
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                | Balance  end of period                   |                                                                                                         |         | (100,856   | )      |            |         | (119,677 | )       |   |          | (14,492  | )      
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|Yield Enhancement, Contract and Issuance Costs                                                                                                  |                                           |                                                                                                         | (22,412 | )          |        |            | (22,288 | )        |         |   | (22,288  | )       
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                |                                           | $                                                                                                       | 970,572 |            |        | $          | 818,912 |          |         | $ | 780,407  |         
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|(a) Disclosure of Comprehensive Income(Note 1)                                                                                                  |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                | Net income (loss)                         |                                                                                                         | $       | 108,868    |        |            | $       | (18,929  | )       |   | $        | (298,872 | )      
|                                                                                                                                                | Other comprehensive income, net of tax    |                                                                                                         |         |            |        |            |         |          |         |   |          |          |        
|                                                                                                                                                | Foreign Currency Translation Adjustment   |                                                                                                         |         |            |        |            |         |          |         |   |          |          |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Foreign currency translation losses, net of taxes of $32, $215
	and $3,529                              |         |            | (59    | )          |         |          | (399    | ) |          |          | (6,554  | )
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Reclassification of losses recognized in net income, net of
	taxes of $, $7,072 and $                 |         |            |       |            |         |          | 13,132  |   |          |          |        |  
|                                                                                                                                                | Unrealized Gains and Losses on Securities |                                                                                                         |         |            |        |            |         |          |         |   |          |          |        
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Unrealized gains (losses) on securities, net of taxes of $2,673,
	$625 and $3,495                       |         |            | 4,965  |            |         |          | (1,159  | ) |          |          | (6,490  | )
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                                |                                           | Reclassification of (gains) losses recognized in net income, net
	of taxes of $2,673, $2,610 and $2,147 |         |            | (4,965 | )          |         |          | 4,846   |   |          |          | 3,987   |  
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         
|                                                                                                                                                |                                           | $                                                                                                       | 108,809 |            |        | $          | (2,509  | )        |         | $ | (307,929 | )       
|                                                                                                                                                |                                           |                                                                                                         |         |            |        |            |         |          |         |   |          |         




The notes to the consolidated financial
statements are an integral part of this statement.


65



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                            
|-- | -------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING
	POLICIES

Company Description MCN Energy Group Inc.
(MCN) is a diversified energy company with markets and
investments primarily in the Midwest-to-Northeast corridor. MCN
operates through two major business groups, Diversified Energy
and Gas Distribution.

Diversified Energy, operating through MCN Energy
Enterprises Inc. (MCNEE) is a wholly owned subsidiary of MCN and
serves as a holding company for MCNs non-utility
businesses. MCNEE is comprised of the following segments:



|  |                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pipelines & Processinghas pipeline, gathering,
	processing and related facilities in major supply areas.                                                                                                                                                                                                                                       
| 
| | Electric Power holds joint venture interests in electric
	power generation facilities, most of which were sold in 2000.
	Electric Power also provides fuel management services and
	supplies gas to power generation facilities under long-term
	sales contracts.                                                                              
| 
| | Energy Marketingsells premium, reliable bundled energy
	services to large-volume customers and has rights to market-area
	storage capacity. Energy Marketing also sells gas to other gas
	marketers and brokerage companies. In 2000, Energy Marketing
	began trading activities to optimize the value of its gas
	storage capacity and assets.
| 
| | Exploration & Production(E&P) is engaged in
	natural gas and oil exploration, development and production in
	Michigan.                                                                                                                                                                                                                         

Gas Distributionconsists principally of MichCon, a
natural gas utility serving approximately 1.2 million customers
in more than 530 communities throughout Michigan. MichCon is
subject to the accounting requirements and rate regulation of
the Michigan Public Service Commission (MPSC) with respect to
the distribution and intrastate transportation of natural gas.
Gas Distribution also includes Citizens Gas Fuel Company
(Citizens), a small gas utility serving approximately 15,000
customers in Adrian, Michigan. Citizens rates are
regulated by the Adrian Gas Rate Commission.

Basis of Presentation The accompanying
consolidated financial statements were prepared in conformity
with accounting principles generally accepted in the United
States. In connection with their preparation, management was
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and
the disclosure of contingent liabilities. Actual results could
differ from those estimates. Certain reclassifications have been
made to prior years statements to conform to the 2000
presentation.

Principles of Consolidation The consolidated
financial statements include the accounts of MCN and certain
consolidated subsidiaries and partnerships. Investments in
entities in which MCN has a controlling influence that it
intends to maintain are consolidated. Generally, investments in
50% or less owned entities in which MCN has significant but not
controlling influence, and entities where control is temporary,
have been accounted for under the equity method.

66



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Revenues and Cost of Gas Gas Distribution
accrues revenues for gas service provided but unbilled at month
end. Through December 31, 1998, MichCons accrued
revenues included a component for cost of gas sold that was
recoverable through the gas cost recovery (GCR) mechanism. Prior
to 1999, GCR proceedings before the MPSC permitted MichCon to
recover the prudent and reasonable cost of gas sold. Beginning
in 1999, MichCon implemented a Regulatory Reform Plan approved
by the MPSC. The Plan suspended the GCR mechanism and fixed the
gas commodity component of MichCons sales rates for the
three-year period beginning in January 1999. Accordingly,
MichCon no longer accrues revenues under this mechanism.

Natural Gas and Oil Exploration and Production The full-cost accounting method prescribed by the Securities
and Exchange Commission (SEC) is followed for investments in gas
and oil properties. Under the full-cost method, substantially
all acquisition, exploration and development costs are
capitalized. To the extent such capitalized costs exceed the
ceiling, the excess is written off to income. The
ceiling is the sum of discounted future net cash flows from the
production of proved gas and oil reserves (using unescalated
prices and costs unless contractual arrangements exist) and the
lower of cost or estimated fair value of unproved properties,
net of related income tax effects. The ceiling test is applied
at the end of each quarter and requires a write-down of gas and
oil properties if the ceiling is exceeded, even if any price
decline is temporary. Managements investment and operating
decisions are based upon prices, costs and production
assumptions that are different from those used to compute the
ceiling. As a result, it is possible that future fluctuations in
key forecast assumptions could result in impairments being
recorded for accounting purposes, when the long-term economics
of such properties have not changed.

The unit of production method is used for calculating
depreciation, depletion and amortization (DD&A) on proved
gas and oil properties. The average DD&A expense per
thousand cubic feet equivalent (Mcfe) was $.94, $.83 and $.82 in
2000, 1999 and 1998, respectively. Costs directly associated
with the acquisition and evaluation of unproved gas and oil
properties are excluded from the amortization base until the
related properties are evaluated. Such unproved properties are
assessed periodically, and a provision for impairment is made to
the full-cost amortization base when appropriate.

Comprehensive Income MCN complies with the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income,which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as the
change in common shareholders equity during a period from
transactions and events from non-owner sources, including net
income. Other items of comprehensive income include revenues,
expenses, gains and losses that are excluded from net income.
Items of other comprehensive income applicable to MCN and their
accounting policies are as follows:



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Foreign Currency Translation Adjustments MCNs foreign joint ventures use the local currency as
	the functional currency. As a result, MCNs investments in
	foreign entities are translated from foreign currencies into
	U.S. dollars using end-of-period exchange rates. Equity in
	earnings of foreign entities is translated at the average
	exchange rate prevailing during the month the respective
	earnings occur. Translation adjustments, net of taxes, are
	excluded from net income and shown as a separate component of
	other comprehensive income until realized in net income upon
	sale or upon complete liquidation of the investment in the
	foreign entity.

67



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Holding Gains and Losses on Available-for-Sale
	Securities Unrealized holding gains and losses
	resulting from temporary changes in the fair value of MCNs
	available-for-sale securities are excluded from net income and
	reported as a separate component of other comprehensive income
	until realized in net income upon sale. If a fair value decline
	is judged to be other than temporary, the decline is recorded to
	net income.

Property, Plant and Equipment Property, plant
and equipment, excluding E&P property, is stated at cost and
includes amounts for labor, materials, overhead and an allowance
for funds used during construction. Unit of production
depreciation and depletion is used for certain Gas Distribution
production and transmission property. All other property, plant
and equipment of MCN, excluding E&P property, is depreciated
over its useful life using the straight-line method.
Depreciation rates vary by class of property.

The ratio of the provision for depreciation and depletion to the
average cost of depreciable property is as follows:



---

|                       |  |      |      |      |  |      |      |   |  |  |      |  
|---------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                       |  | 2000 |      | 1999 |  | 1998
|                       |  |      |      |      |  |     
|Pipelines & Processing |  |      | 4.9  | %    |  |      | 4.2  | % |  |  | 3.4  | %
|                      
|                      
|                      
|                      
|Gas Distribution       |  |      | 3.6  | %    |  |      | 3.5  | % |  |  | 3.5  | %
|                      
|                      
|                      
|                      
|Other                  |  |      | 12.9 | %    |  |      | 12.4 | % |  |  | 12.2 | %



---

Long-Lived Assets In accordance with SFAS
No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,MCN reviews its long-lived assets to be held and
used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. MCN also reviews long-lived assets to be disposed
of to determine if the assets carrying amount is in excess
of its fair value less the cost to sell.

Allowance for Funds Used During Construction Gas Distribution capitalizes an allowance for both debt and
equity funds used during construction in the cost of major
additions to plant. Diversified Energy also capitalizes interest
on debt funds used during construction. The total amount
capitalized was $2,765,000, $8,929,000 and $19,938,000 in 2000,
1999 and 1998, respectively.

Income Taxes and Investment Tax Credits Tax
Benefits Amortizable to Customers recorded in the Consolidated
Statement of Financial Position represents the net revenue
equivalent of the difference in property-related accumulated
deferred income taxes computed in accordance with SFAS
No. 109, Accounting for Income Taxes,as
compared to the amounts previously reflected in setting utility
rates. This amount is primarily due to current tax rates being
lower than the rates in effect when the original deferred taxes
were recorded and because of temporary differences, including
accumulated investment tax credits, for which deferred income
taxes were not previously recorded in setting utility rates.
These net tax benefits are being amortized, in accordance with
the regulatory treatment, over the life of the related plant as
the related temporary differences reverse.

Investment tax credits relating to Gas Distribution property
placed into service were deferred and are being credited to
income over the life of the related property. Investment tax
credits relating to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Diversified Energy operations were recorded to income in the
year the related property was placed into service.

Deferred Debt Costs In accordance with MPSC
regulations, MichCon defers reacquisition and unamortized
issuance costs of reacquired long-term debt when such debt is
refinanced. These costs are amortized over the term of the
replacement debt.

Consolidated Statement of Cash Flows For
purposes of this statement, MCN considers all highly liquid
investments, excluding restricted investments, purchased with a
maturity of three months or less to be cash equivalents.

Other cash and non-cash investing and financing activities for
the years ended December 31 were as follows:




|                                            |                                      |      |   |         |  |      |   |         |  |  |   |         | 
|------------------------------------------- | ------------------------------------ | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                            |                                      | 2000 |   | 1999    |  | 1998
|(in Thousands)                              |                                      |      |   |         |  |     
|Cash Paid During the Year For               |                                      |      |   |         |  |      |   |         |  |  |   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Interest, net of amounts capitalized |      | $ | 117,963 |  |      | $ | 128,535 |  |  | $ | 117,162 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Federal income taxes                 |      |   | 4,000   |  |      |   | 3,550   |  |  |   | 12,175  | 
|Non-cash Investing and Financing Activities |                                      |      |   |         |  |      |   |         |  |  |   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Investment in leases (Note 13)       |      | $ | 76,395  |  |      | $ |        |  |  | $ |        | 
|                                           
|                                           
|                                           
|                                           
|                                            | FELINE PRIDES settlement (Note 11)   |      |   | 130,721 |  |      |   |        |  |  |   |        | 
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock and performance units   |      |   | 12      |  |      |   | 2,043   |  |  |   | 5,697   | 




Accounting For Derivative Instruments and Hedging
Activities MCN adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133, and SFAS No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities, as of January 1,
2001. Refer to Note 15d for further discussion.



2.  MERGER AGREEMENT WITH DTE ENERGY
COMPANY

MCN and DTE Energy Company (DTE) signed a definitive merger
agreement dated October 4, 1999, which was amended on
February 28, 2001, under which DTE will acquire all
outstanding shares of MCN common stock. Under the terms of the
revised agreement, MCN shareholders will have the right to elect
to receive either $24.00 in cash or 0.715 shares of DTE common
stock in exchange for each share of MCN common stock that they
hold. The acquisition of shares is subject to an allocation and
proration that is intended to result in 45% of the MCN shares
being converted into shares of DTE common stock and 55% being
converted into cash. The amended merger agreement imposes more
stringent restrictions on MCNs ability to take significant
actions without DTEs consent.

The boards of directors of both companies approved the merger
under the October 1999 and the February 2001 merger agreements.
In December 1999, shareholders of both companies approved the
merger under the terms of the October 1999 agreement. The
revised merger agreement is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


subject to the approval of MCN shareholders. The transaction is
also subject to certain regulatory approvals.

The Federal Trade Commission (FTC) is reviewing the proposed
merger and its staff has raised concerns regarding the loss of
possible competition between MichCon and DTE Energys
Detroit Edison electric utility for electric displacement
applications in their overlapping retail distribution area. To
address these concerns, in February 2001 MichCon agreed to
transfer a property interest to a unit of Exelon Corp. (Exelon)
allowing for the utilization of natural gas transportation
capacity on MichCons system within the relevant
distribution area. While the contract is designed specifically
to encourage competition for on-site electric power generation
and displacement loads, the initial five billion cubic feet
(Bcf) per year of annual capacity may be used to serve any class
of customer. Supplemental capacity of up to 15 Bcf may be
purchased under the contract, at least half of which must be
utilized to serve on-site power generation or
electric-displacement applications. Beyond this 20 Bcf of
capacity, Exelon may exercise its right to purchase additional
capacity to serve only certain identified electric generation
markets. The MPSC approved the contract in February 2001, but it
remains subject to consummation of the merger. Management
believes that the proposal will be the basis for addressing the
FTCs concerns, but is unable to predict the outcome of the
FTC review, or when the merger will close. In February 2001, DTE
also filed with the SEC seeking approval of the proposed merger
under the Public Utility Holding Company Act.

As a result of the pending merger, MCN incurred merger-related
costs which include legal, accounting, consulting, employee
benefit and other expenses. These costs had the effect of
decreasing earnings by $6,305,000 pre-tax ($4,098,000 net of
taxes) and $34,856,000 pre-tax ($22,656,000 net of taxes) in
2000 and 1999, respectively.

Furthermore, pursuant to the merger agreement, MCN sold its
interest in five power projects, four of which are defined as a
Qualifying Facility (QF) under the Public Utility
Regulatory Policies Act of 1978, as amended (Note 7b). This
act limits the interest in a project that can be owned by
electric utilities while maintaining the projects status
as a QF.

3.  CHANGE IN ACCOUNTING FOR
INVENTORY

During 2000, MCNs Energy Marketing segment began trading
activities. Under Emerging Issues Task Force (EITF) Issue
No. 98-10, Accounting for Energy Trading and Risk
Management Activities,these trading activities are
marked-to-market with unrealized gains and losses recorded to
earnings (Note 4). In connection with entering into these
energy trading activities, MCN changed its method of accounting
for natural gas inventory held by Energy Marketing from the Last
In First Out (LIFO) method to the Fair Value method.

Fair Value accounting for energy trading inventories is
preferable because: (i) it better informs users of the
financial statements of the companys net commodity price
risk with respect to its energy trading activities; (ii) it
better aligns financial reporting for energy trading inventory
with the way in which price risk is measured and managed as part
of trading activities; and (iii) the company expects to
continue its involvement with trading activities in the future.

In accordance with Accounting Principles Board Opinion
No. 20, Accounting Changes,the
financial statements of prior periods have been restated to
apply the new inventory accounting

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


method retroactively. The effects of the accounting change on
net income for the years ended December 31 were as follows:




|                                         |                             |      |         |         |  |      |         |        |  |   |          |         |  
|---------------------------------------- | --------------------------- | ---- | ------- | ------- |  | ---- | ------- | ------ |  | - | -------- | ------- | -
|                                         |                             | 2000 |         | 1999    |  | 1998
|(in Thousands, Except Per Share Amounts) |                             |      |         |         |  |     
|Net Income (Loss)                        |                             |      |         |         |  |      |         |        |  |   |          |        
|                                        
|                                        
|                                        
|                                        
|LIFO method                              |                             | $    | (25,218 | )       |  | $    | (30,848 | )      |  | $ | (286,468 | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Effect of accounting change |      |         | 134,086 |  |      |         | 11,919 |  |   |          | (12,404 | )
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        
|Fair Value method                        |                             | $    | 108,868 |         |  | $    | (18,929 | )      |  | $ | (298,872 | )      
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        
|Basic Earnings (Loss) Per Share          |                             |      |         |         |  |      |         |        |  |   |          |        
|                                        
|                                        
|                                        
|                                        
|LIFO method                              |                             | $    | (.29    | )       |  | $    | (.37    | )      |  | $ | (3.63    | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Effect of accounting change |      |         | 1.52    |  |      |         | .15    |  |   |          | (.16    | )
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        
|Fair Value method                        |                             | $    | 1.23    |         |  | $    | (.22    | )      |  | $ | (3.79    | )      
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        
|Diluted Earnings (Loss) Per Share        |                             |      |         |         |  |      |         |        |  |   |          |        
|                                        
|                                        
|                                        
|                                        
|LIFO method                              |                             | $    | (.28    | )       |  | $    | (.37    | )      |  | $ | (3.63    | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Effect of accounting change |      |         | 1.50    |  |      |         | .15    |  |   |          | (.16    | )
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        
|Fair Value method                        |                             | $    | 1.22    |         |  | $    | (.22    | )      |  | $ | (3.79    | )      
|                                         |                             |      |         |         |  |      |         |        |  |   |          |        




The balances of retained earnings for all prior periods have
been adjusted for the effect of retroactively applying the new
inventory accounting method.

4.  TRADING ACTIVITIES

During 2000, MCNs Energy Marketing segment began trading
activities by entering into transactions that better utilize its
gas storage capacity and assets. Energy Marketing utilizes
forward contracts, futures contracts, swap agreements, and
natural gas inventories as part of its trading strategy. Forward
contracts, financial instruments and storage capacity contracts
used in connection with trading activities are marked-to-market
utilizing quoted prices and recorded at their fair value in the
Consolidated Statement of Financial Position and are shown as
Assets and Liabilities from Trading Activities.
Energy Marketings gas inventory is also recorded at fair
value (Note 3). Unrealized gains and losses from forward
contracts, financial instruments, storage contracts and
inventories are recognized in revenues in the Consolidated
Statement of Operations. The net realized and unrealized loss
included in 2000 revenues from marking-to-market MCNs
forward contracts, financial instruments and storage contracts
utilized in trading activities was $163,048,000 pre-tax
($105,981,000 net of taxes). The net unrealized gain included in
2000 revenues from marking-to-market MCNs gas inventory
was $206,286,000 pre-tax ($134,086,000 net of taxes).

5.  ACCOUNTING FOR START-UP
ACTIVITIES

In January 1999, MCN adopted Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up
Activities, issued by the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants. SOP 98-5 requires start-up and
organizational costs to be expensed as incurred. This change in
accounting principle resulted in the write-off of start-up and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


organization costs capitalized as of December 31, 1998. The
cumulative effect of the change was to decrease 1999 earnings by
$4,418,000 pre-tax ($2,872,000 net of taxes).

6.  UNUSUAL CHARGES

a.  Pipelines & Processing

Gain on Sale of Joint Ventures:


During 2000, MCN recognized a $3,968,000 pre-tax ($2,579,000 net
of taxes) gain from the sale of its interest in the Cardinal
States Gathering Company.

Loss on Sale of Notes:During 2000, MCN recognized a
$2,325,000 pre-tax ($1,511,000 net of taxes) loss from the sale
of notes associated with its interest in Petro Source Partners
Limited, a carbon dioxide pipeline partnership.

Property Write-Downs:During 1998, MCN recorded a
$133,782,000 pre-tax ($86,959,000 net of taxes) write-off of its
coal fines project. The economic viability of the project was
dependent on coal briquettes produced from six coal fines plants
qualifying for synthetic fuel tax credits and MCNs ability
to utilize or sell such credits. The plants were required to be
in service by June 30, 1998, the date specified to qualify
for the tax credits. Operating delays at the plants in the 1998
third quarter significantly increased the possibility that the
Internal Revenue Service (IRS) would challenge the
projects eligibility for tax credits. In addition, there
was uncertainty as to whether MCN could utilize or sell the
credits. These factors led to MCNs decision to record an
impairment loss equal to the carrying value of the plants,
reflecting the likely inability to recover such costs. MCN filed
a request with the IRS seeking a factual determination that its
coal fines plants were in service on June 30, 1998. The IRS
has concluded that the six coal fines plants met the
in-service deadline for purposes of claiming
synthetic-fuel tax credits. In December 1999, MCN sold four coal
fines plants to DTE (Note 7a).

During 1998, MCN also recorded an impairment loss of $3,899,000
pre-tax ($2,534,000 net of taxes) relating to an acquired
out-of-service pipeline in Michigan. MCN reviewed the business
alternatives for this asset and determined that its development
is unlikely. Accordingly, MCN recorded an impairment loss equal
to the carrying value of this asset.

b.  Electric Power

Gain on Sale of Joint Ventures:


During 2000, MCN recognized a $41,138,000 pre-tax ($26,740,000
net of taxes) gain from the sale of its interest in the Michigan
Power Project and its remaining interest in the Ada Cogeneration
facility. In 1998, MCN sold a 50% interest in the Ada
Cogeneration facility recognizing a gain of $3,911,000 pre-tax
($2,542,000 net of taxes).

During 2000, MCN recognized a $3,672,000 pre-tax ($2,387,000 net
of taxes) gain from the sale of its interest in the Carson
Cogeneration facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Property Write-Downs:During 1999, MCN exited two
power projects under development that were not consistent with
its new strategic direction. As a result, MCN recorded a
$4,995,000 pre-tax ($3,247,000 net of taxes) write-off of
capitalized costs associated with these projects.

Restructuring Charge:During 1998, MCN recorded a
$2,470,000 pre-tax ($1,605,000 net of taxes) restructuring
charge related to its decision to exit certain international
power projects.

c.  Energy Marketing

Loss on Contracts:


Gain on Contracts:During 1998, MCN recognized a
$6,000,000 pre-tax ($3,900,000 net of taxes) gain from the sale
of certain gas sales contracts.

d.  Exploration & Production

Gain and Losses on Investment:


Property Write-Downs:During 1999, MCN recognized a
$52,000,000 pre-tax ($33,800,000 net of taxes) write-down of its
gas and oil properties under the full cost method of accounting,
due primarily to an unfavorable revision in the timing of the
production of proved gas and oil reserves as well as reduced
expectations of sales proceeds on unproved acreage.

During 1999, MCN recorded a $2,340,000 pre-tax ($1,521,000 net
of taxes) write-down relating to unproved property which is not
included in the full cost pool. An impairment loss was recorded
representing the amount by which the carrying value exceeded the
appraised value of the property.

During 1998, MCN recognized write-downs of its gas and oil
properties totaling $416,977,000 pre-tax ($271,035,000 net of
taxes). The write-downs were also the result of MCNs
capitalized exploration and production costs exceeding the full
cost ceiling.

Losses on Sale of Properties:During 1999, MCN
recognized losses from the sale of its Western, Midcontinent/
Gulf Coast and Appalachian E&P properties totaling
$81,989,000 pre-tax ($53,293,000 net of taxes). Subsequent
adjustments in 2000 related to these sales reduced the losses by
$4,326,000 pre-tax ($2,812,000 net of taxes).

e.  Corporate & Other

Restructuring Charge:


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


and net lease costs. The remaining restructuring costs of
$1,694,000 are expected to be paid through 2006.

f.  Gas Distribution

Property Write-Downs:


During 1998, MCN recorded a $24,800,000 pre-tax ($11,200,000 net
of taxes and minority interest) write-down of certain gas
gathering properties. An analysis revealed that projected cash
flows from the gathering system were not sufficient to cover the
systems carrying value. Therefore, an impairment loss was
recorded representing the amount by which the carrying value of
the system exceeded its estimated fair value.

Loss on Investment:During 1998, MCN also recorded
an $8,500,000 pre-tax ($5,525,000 net of taxes) loss from the
write-down of an investment in a Missouri gas distribution
company. The write-down represents the amount by which the
carrying value exceeded the estimated fair value of the
investment.

7.  ACQUISITIONS AND
DISPOSITIONS

a.  Pipelines & Processing



During 2000, MCN sold its 35% interest in the Jonah Gas
Gathering Company for approximately $45,000,000.

During 2000, MCN sold its 50% interest in the Cardinal States
Gathering Company for approximately $60,000,000.

During 1999, MCN acquired a 43% interest in KCI Compression
Company L.P. which provides a full range of natural gas
compression services. The cost of the acquisition totaled
$22,500,000 and is accounted for under the equity method.

During 1999, MCN sold four coal fines plants to DTE in an
arms-length transaction that is independent of the pending
merger. The sales price will depend on total production
performance of the four plants. DTE made an initial payment of
$45,000,000 and this payment will be adjusted up to $152,000,000
or down to zero based on the results of a 36-month production
test period. MCN has deferred recognizing any gain on this sale
pending the results of the test period.

b.  Electric Power

International Facility:


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


In 1997, MCN acquired a 40% interest in the common equity of
Torrent Power Limited (TPL), a joint venture that holds minority
interests in electric distribution companies and power
generation facilities located in the state of Gujarat, India. In
1997 and 1998, MCN acquired preference shares in TPL, bringing
the total cost of the acquisitions to $121,200,000. In 1999, MCN
completed the sale of its interest in TPL for approximately
$130,000,000, resulting in an immaterial gain.

Qualifying and Other Facilities:As part of the
merger agreement with DTE, MCN agreed to sell its interest in
five power projects, four of which are Qualifying
Facilities as defined by the Public Utility Regulatory
Policies Act of 1978, as amended (Note 2).

During 2000, MCN sold its 95% interest in the Cobisa-Person
facility, a 140 megawatt (MW) power plant that was under
construction in New Mexico, for approximately $1,700,000.

During 2000, MCN sold its 50% interest in the Michigan Power
Project, a 123 MW cogeneration plant located in Ludington,
Michigan, and its remaining 50% interest in the Ada Cogeneration
facility, a 30 MW cogeneration plant located in Ada,
Michigan, for $57,500,000. During 1998, MCN sold a 50% interest
in the Ada Cogeneration facility for approximately $11,500,000.

During 2000, MCN sold its 33 1/3% interest in the Carson
Cogeneration facility, a 42 MW cogeneration plant located
in California, for $3,000,000.

During 2000, MCN sold its 23% ownership in Midland Cogeneration
Venture (MCV), a 1,370 MW cogeneration facility located in
Michigan, for approximately $105,000,000. Under the terms of the
sales agreement, if MCN does not merge with DTE, MCN may
reacquire its 23% interest in MCV.

c.  Exploration & Production



d.  Gas Distribution



8.  GAS IN INVENTORY

Inventory gas is priced on a LIFO basis for Gas Distribution
operations. During 2000, MichCon liquidated 24.5 Bcf of prior
years LIFO layers at an average cost of $2.49 per thousand
cubic feet (Mcf). MichCons average gas purchase rate in
2000 was $.37 per Mcf higher than the average LIFO liquidation
rate. Applying LIFO costs in valuing the liquidation, as opposed
to using the average gas purchase rate, decreased 2000 reported
cost of gas by $9,055,000 and increased earnings by $5,886,000.
At December 31, 2000, the replacement cost of gas remaining
in storage exceeded the $13,586,000 LIFO cost by $533,066,000.
At December 31, 1999, the replacement cost exceeded the
$74,150,000 LIFO cost by $146,563,000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


9.  REGULATORY MATTERS

a.  Regulatory Reform Plan



The Regulatory Reform Plan also includes a Gas Sales Program
that suspended the GCR mechanism for customers who continue to
purchase gas from MichCon, and fixed the gas commodity component
of MichCons sales rates at $2.95 per Mcf for the
three-year period that began in January 1999. The suspension of
the GCR mechanism allows MichCon to profit from its ability to
purchase gas at less than $2.95 per Mcf. The program also
increases MichCons risk associated with generating
positive margins. As part of its gas acquisition strategy,
MichCon has entered into fixed-price contracts at costs below
$2.95 per Mcf for approximately 65% of its expected 2001 supply
requirements under the Gas Sales Program.

The Plan also encompasses an income sharing mechanism that
allows customers to share in profits when actual returns on
equity from utility operations exceed predetermined thresholds.
Based on the MPSC approved formula, management believes that no
income sharing was required in 1999 and 2000.

b.  Proposed Regulatory Changes



In December 2000, MichCon filed applications with the MPSC to
modify the experimental Customer Choice and Gas Sales Programs
as outlined in the MPSCs October 2000 order. Among other
things, the proposed modifications would become effective in
April 2001, and: (i) replace the experimental three-year
Customer Choice Program with a permanent choice program,
(ii) replace the current $2.95 per Mcf gas commodity charge
included in gas sales rates with a GCR factor, and
(iii) eliminate the current income sharing provision.
Irrespective of the outcome of the proceeding, MichCon will
return to a GCR mechanism no later than January 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The proposed permanent choice program would expand customer
participation to be phased in over a three-year period. In year
one, 40% of MichCons customers could elect to purchase gas
from suppliers other than MichCon. In year two, 60% of customers
would be eligible and by year three, all of MichCons 1.2
million customers could participate in the program. Under the
proposed GCR mechanism, MichCons gas sales rates would
include a gas commodity component designed to recover its actual
gas costs. MichCon could no longer profit from selling gas to
customers who choose not to participate in the permanent choice
program. Under the proposal, MichCon could sell its fixed-price
supply contracts that are at prices significantly below current
market prices and refund any proceeds to eligible customers.
Additionally, MichCon could refund all or a portion of the
income earned from selling gas at $2.95 under the current
experimental Gas Sales Program.

c.  Gas Cost Recovery Proceedings



d.  Regulatory Assets and Liabilities

Accounting for the
Effects of Certain Types of Regulation.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The following regulatory assets and liabilities were reflected
in the Consolidated Statement of Financial Position as of
December 31:




|                       |                                         |      |         |         |  |   |         |         | 
|---------------------- | --------------------------------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                       |                                         | 2000 |         | 1999   
|(in Thousands)         |                                         |      |         |        
|Regulatory Assets      |                                         |      |         |         |  |   |         |        
|                      
|                      
|                      
|                      
|                       | Deferred environmental costs (Note 14b) |      | $       | 29,014  |  |   | $       | 31,173  | 
|                      
|                      
|                      
|                      
|                       | Unamortized loss on retirement of debt  |      |         | 14,655  |  |   |         | 15,241  | 
|                      
|                      
|                      
|                      
|                       | Other                                   |      |         | 995     |  |   |         | 811     | 
|                       |                                         |      |         |         |  |   |         |        
|                       |                                         | $    | 44,664  |         |  | $ | 47,225  |        
|                       |                                         |      |         |         |  |   |         |        
|Regulatory Liabilities |                                         |      |         |         |  |   |         |        
|                      
|                      
|                      
|                      
|                       | Tax benefits amortizable to customers   |      | $       | 138,161 |  |   | $       | 136,236 | 
|                      
|                      
|                      
|                      
|                       | Other                                   |      |         | 97      |  |   |         | 88      | 
|                       |                                         |      |         |         |  |   |         |        
|                       |                                         | $    | 138,258 |         |  | $ | 136,324 |        
|                       |                                         |      |         |         |  |   |         |        




Gas Distribution currently has regulatory precedents and orders
in effect which provide for the probable recovery or refund of
its regulatory assets and liabilities. Future regulatory changes
or changes in the competitive environment could result in Gas
Distribution discontinuing the application of SFAS No. 71
for all or part of its business and require the write-off of the
portion of any regulatory asset or liability that was no longer
probable of recovery or refund. If MCN were to have discontinued
the application of SFAS No. 71 for all of its operations as
of December 31, 2000, it would have had an extraordinary
non-cash increase to net income of approximately $60,800,000.
Management believes that currently available facts support the
continued application of SFAS No. 71.

e.  Other Rate Matters



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




|    |                                              
|--- | ---------------------------------------------
|10. | CREDIT FACILITIES, SHORT-TERM BORROWINGS
	AND

LONG-TERM DEBT


Detailed information on long-term debt, excluding current
requirements, is as follows:




|                                                        |                        |      |           |         |  |   |           |         | 
|------------------------------------------------------- | ---------------------- | ---- | --------- | ------- |  | - | --------- | ------- | 
|                                                        |                        | 2000 |           | 1999   
|(in Thousands)                                          |                        |      |           |        
|First Mortgage Bonds, interest payable semi-annually    |                        |      |           |         |  |   |           |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 5 3/4% series due 2001 |      | $         |        |  |   | $         | 20,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 8% series due 2002     |      |           | 17,314  |  |   |           | 17,314  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.72% series due 2003  |      |           | 4,150   |  |   |           | 4,150   | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.80% series due 2003  |      |           | 15,850  |  |   |           | 15,850  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7.15% series due 2006  |      |           | 40,000  |  |   |           | 40,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7.21% series due 2007  |      |           | 30,000  |  |   |           | 30,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7.06% series due 2012  |      |           | 40,000  |  |   |           | 40,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 8 1/4% series due 2014 |      |           | 80,000  |  |   |           | 80,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7.60% series due 2017  |      |           | 14,747  |  |   |           | 14,932  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7 1/2% series due 2020 |      |           | 28,663  |  |   |           | 29,352  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 9 1/2% series due 2021 |      |           | 40,000  |  |   |           | 40,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6 3/4% series due 2023 |      |           | 15,301  |  |   |           | 15,982  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7% series due 2025     |      |           | 40,000  |  |   |           | 40,000  | 
|Remarketable Securities, interest payable semi-annually |                        |      |           |         |  |   |           |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.375% series due 2008 |      |           | 100,000 |  |   |           | 100,000 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.30% series due 2011  |      |           |        |  |   |           | 100,000 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.35% series due 2012  |      |           | 100,000 |  |   |           | 100,000 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.45% series due 2038  |      |           | 75,000  |  |   |           | 75,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.20% series due 2038  |      |           | 75,000  |  |   |           | 75,000  | 
|Senior Notes, interest payable quarterly                |                        |      |           |         |  |   |           |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.85% series due 2038  |      |           | 53,732  |  |   |           | 54,863  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.85% series due 2039  |      |           | 55,000  |  |   |           | 55,000  | 
|Medium-Term Notes, interest payable semi-annually       |                        |      |           |         |  |   |           |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.03% series due 2001  |      |           |        |  |   |           | 60,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.89% series due 2002  |      |           | 90,000  |  |   |           | 90,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 6.32% series due 2003  |      |           | 60,000  |  |   |           | 60,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 7.12% series due 2004  |      |           | 60,000  |  |   |           | 60,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|Commercial Paper and Bank Borrowings                    |                        |      |          |         |  |   | 200,000   |        
|                                                       
|                                                       
|                                                       
|                                                       
|Project Loan Due 2006, interest payable quarterly       |                        |      |          |         |  |   | 10,560    |        
|                                                       
|                                                       
|                                                       
|                                                       
|Long-Term Capital Lease Obligations                     |                        |      | 2,260     |         |  |   | 3,482     |        
|                                                       
|                                                       
|                                                       
|                                                       
|Other Long-Term Debt                                    |                        |      | 11,792    |         |  |   | 17,413    |        
|                                                       
|                                                       
|                                                       
|                                                       
|Net Unamortized Premium                                 |                        |      | 8,016     |         |  |   | 8,719     |        
|                                                        |                        |      |           |         |  |   |           |        
|                                                        |                        | $    | 1,056,825 |         |  | $ | 1,457,617 |        
|                                                        |                        |      |           |         |  |   |           |        




Substantially all of the net utility properties of MichCon,
totaling approximately $1,180,000,000, are pledged as security
for the payment of outstanding first mortgage bonds.

Maturities and sinking fund requirements during the next five
years for long-term debt outstanding at December 31, 2000
are $183,500,000 in 2001, $210,700,000 in 2002, $258,100,000 in
2003, $62,800,000 in 2004 and $2,400,000 in 2005.

79



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Diversified Energy At December 31, 2000,
MCNEE had credit lines permitting borrowings of up to
$300,000,000 under a 364-day revolving credit facility and up to
$200,000,000 under a three-year revolving credit facility. Both
credit facilities expire in July 2001. These facilities
support MCNEEs $400,000,000 commercial paper program.
MCNEE usually issues commercial paper in lieu of an equivalent
amount of borrowings under these lines of credit. Commercial
paper and bank borrowings outstanding at December 31, 2000
and 1999 totaling $293,400,000 and $152,350,000, respectively,
were classified as short term. The remaining 1999 commercial
paper and bank borrowings of $200,000,000 were classified as
long term. Commercial paper and bank borrowings outstanding as
of December 31, 2000 and 1999 were at weighted average
interest rates of 7.5% and 6.7%, respectively. Fees are paid to
compensate banks for lines of credit.

During 2000, MCN paid the outstanding balance of its
$290,000,000 revolving credit agreement.

In 1998, MCNEE issued a total of $300,000,000 of remarketable
debt securities with various interest rates and maturity dates.
These securities are senior unsecured obligations of MCNEE and
are subject to an MCN guaranty. The securities are structured
such that at a specified future remarketing date the remarketing
agents may elect to remarket the securities whereby the annual
interest rate will be reset. MCNEE received option premiums in
return for the remarketing option. If the remarketing agents
elect not to remarket the securities, MCNEE will be required to
repurchase the securities at their principal amounts. The option
premiums received, net of financing costs incurred, totaled
$5,709,000 and are being amortized to income over the life of
the debt. The remarketing dates are in April 2001, 2002 and
2003. The $100,000,000 of remarketable debt subject to
remarketing in April 2001 is currently classified as short
term.

MCNEE has variable interest rate swap agreements with a combined
notional amount of $80,000,000 which mature in 2001. The swap
agreements effectively increased the average cost of related
debt from 6.4% to 6.5% for the year ended December 31, 2000.

Gas Distribution  At December 31, 2000,
MichCon had credit lines permitting borrowings of up to
$200,000,000 under a 364-day revolving credit facility and up to
$150,000,000 under a three-year revolving credit facility. Both
credit facilities expire in July 2001. MichCon issues
commercial paper in lieu of an equivalent amount of borrowings
under these lines of credit. Commercial paper outstanding at
December 31, 2000 and 1999 totaled $277,716,000 and
$235,870,000 and was at weighted average interest rates of 7.2%
and 6.4%, respectively. This debt is classified as short term.
Fees are paid to compensate banks for lines of credit.

In 2000, MichCon repaid $12,320,000 of a non-utility
subsidiarys term debt that was scheduled to mature in 2006.

In 1999, MichCon issued $55,000,000 of 6.85% senior secured
notes, due June 2038, and $55,000,000 of 6.85% senior secured
notes, due June 2039. These notes are fall-away
mortgage debt and, as such, are secured debt as long as
MichCons other first mortgage bonds are outstanding and
become senior unsecured debt thereafter. The notes are insured
by a financial guaranty insurance policy and are rated AAA or
its equivalent by the major rating agencies. The notes are
redeemable at par on or after June 1, 2004.

80



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


In 1999, MichCon redeemed $18,000,000 of 9.125% first mortgage
bonds, which were due September 2004.

In 1998, MichCon issued a total of $150,000,000 of remarketable
debt securities with various interest rates. These securities
are fall-away mortgage debt and are structured such
that the interest rates of the issues can be reset at various
remarketing dates over the life of the debt. The initial
remarketing dates are in June 2003 and 2008. MichCon
received option premiums in return for granting options to
underwriters to reset the interest rate for a period of ten
years at the initial remarketing dates. The option premiums
received, net of financing costs incurred, totaled $3,052,000
and are being amortized to income over the initial interest and
corresponding option periods. If the underwriters elect not to
exercise their reset options, the securities become subject to
the remarketing feature or may be redeemed by MichCon at par. If
MichCon and the remarketing agent cannot agree on an interest
rate or the remarketing agent is unable to remarket the
securities, MichCon will be required to repurchase the
securities at their principal amounts.

Non-utility subsidiaries of MichCon have amounts outstanding
under a nonrecourse credit agreement. Under the terms of the
agreement, certain alternative variable interest rates are
available at the borrowers option during the life of the
agreement. Quarterly principal payments are made, with a final
installment due November 2005. The loan is secured by a
pledge of stock of the borrowers and a security interest in
certain of their assets. MichCon may be required to support the
credit agreement through limited capital contributions to the
subsidiaries if certain cash flow and operating targets are not
met. At December 31, 2000 and 1999, $15,190,000 and
$21,900,000 were outstanding at weighted average interest rates
of 7.1% and 6.6%, respectively.

MichCon has variable interest rate swap agreements with notional
principal amounts aggregating $80,000,000 in connection with its
first mortgage bonds. Swap agreements of $40,000,000 through
May 2002 have reduced the average cost of the related debt
from 7.3% to 7.0% for the year ended December 31, 2000.
Swap agreements of $40,000,000 through May 2005 have
reduced the average cost of the related debt from 7.1% to 6.6%
for the year ended December 31, 2000.

11.  PREFERRED AND HYBRID
SECURITIES

a.  MCN-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiaries



81



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Summarized information for MCN-obligated mandatorily redeemable
preferred securities of subsidiaries holding solely debentures
of MCN is as follows:




|                                                    |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |      |  | 
|--------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------- | ----------- |  | ----------- | ------- | ---------- |  | ---- | - | -- |  |  |  | ---- |  |  |  | ---- |  | 
|                                                    |                                                              |                                                                                          |         |             |  |             |         |           
|                                                    |                                                              | December 31,                                                                             |         | Liquidation |  | Maturity of |         | Earliest  
|                                                    |                                                              |                                                                                          |         | Value       |  | Underlying  |         | Redemption
|                                                    |                                                              | 2000                                                                                     |         | 1999        |  | Per Share   |         | Security   |  | Date
|(in Thousands of Dollars, Except Per Share Amounts) |                                                              |                                                                                          |         |             |  |             |         |            |  |     
|MCN Financing I                                     |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | 8 5/8% Trust Originated Preferred Securities                 |                                                                                          | $       | 77,222      |  |             | $       | 77,145     |  |      | $ | 25 |  |  |  | 2036 |  |  |  | 2001 | 
|                                                    |                                                              | (3,200,000 preferred securities)
	Dividends payable quarterly                            |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |      |  | 
|MCN Financing II                                    |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | 8 5/8% Trust Preferred Securities                            |                                                                                          |         | 96,668      |  |             |         | 96,585     |  |      |   | 25 |  |  |  | 2038 |  |  |  | 2003 | 
|                                                    |                                                              | (4,000,000 preferred securities)
	Dividends payable quarterly                            |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |      |  | 
|MCN Michigan Ltd. Partnership                       |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | 9 3/8% Redeemable Cumulative Preferred Securities,
	Series A |                                                                                          |         | 97,065      |  |             |         | 96,942     |  |      |   | 25 |  |  |  | 2024 |  |  |  | 1999 | 
|                                                    |                                                              | (4,000,000 preferred securities)
	Dividends payable monthly                              |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |      |  | 
|MCN Financing III                                   |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | 7.25% preferred securities and 8% FELINE PRIDES              |                                                                                          |         | 1,529       |  |             |         | 132,250    |  |      |   | 50 |  |  |  | 2002 |  |  |  | 2002 | 
|                                                    |                                                              | (30,600 and 2,645,000 securities outstanding, respectively)
	Dividends payable quarterly |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |      |  | 
|                                                    |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                    |                                                              | $                                                                                        | 272,484 |             |  | $           | 402,922 |            |  |      |   |    |  |  |  |      |  |  |  |     
|                                                    |                                                              |                                                                                          |         |             |  |             |         |            |  |      |   |    |  |  |  |      |  |  |  |     






The preferred securities allow MCN the right to extend interest
payment periods on the debentures and, as a consequence,
dividend payments on the preferred securities can be deferred by
the trusts and partnership during any such interest payment
period. In the event that MCN exercises this right, MCN may not
declare dividends on its common stock.

In the event of default, holders of the preferred securities
will be entitled to exercise and enforce the trusts and
partnerships creditor rights against MCN, which may
include acceleration of the principal amount due on the
debentures. MCN has issued guaranties with respect to payments
on the preferred securities. These guaranties, when taken
together with MCNs obligations under the debentures, the
related indenture, and the trusts and partnership documents,
provide full and unconditional guaranties of the trusts
and partnerships obligations under the preferred
securities to the extent of the funds available therefor.

Financing costs for these issuances were deferred and are
reflected as a reduction in the carrying value of the preferred
securities. These costs are being amortized using the
straight-line method over the estimated lives of the related
securities.

In addition to the similar provisions previously discussed, the
8% FELINE PRIDES securities matured on May 16, 2000. Each
security initially represented a stock purchase contract and a
7.25%

82



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


preferred security. Under each stock purchase contract, MCN was
obligated to sell, and the FELINE PRIDES holder was obligated to
purchase between 1.4132 and 1.7241 shares of MCN common stock
for $50. The FELINE PRIDES holders put $130,721,000 of preferred
securities to satisfy the stock purchase commitment. MCN also
received $1,529,000 of cash from FELINE PRIDES holders who chose
to retain the preferred securities. The 30,600 preferred
securities outstanding at December 31, 2000 mature on
May 16, 2002. MCN issued 4,557,000 shares of common stock
in 2000 in connection with the FELINE PRIDES.

MCN redeemed $100,000,000 of 6.85% Single Point Remarketed Reset
Capital Securities during 1999.

b.  Preferred Securities



c.  Enhanced PRIDES



12.  COMMON STOCK AND EARNINGS PER
SHARE

a.  Common Stock



MCN has traditionally issued new shares of common stock pursuant
to its Direct Stock Purchase and Dividend Reinvestment Plan and
various employee benefit plans. Beginning in 1999, shares issued
under these plans are acquired by MCN through open market
purchases. There were no issuances of common stock under these
plans in 2000. The number of shares issued was approximately
67,000 in 1999 and 1,190,000 in 1998, generating net proceeds of
$1,200,000 and $20,200,000, respectively.

b.  Stock Incentive Plan



83



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


As a result of MCN shareholders approving the pending merger
with DTE (Note 2) in December 1999, provisions of the
Stock Incentive Plan provided for the immediate vesting of all
performance units and stock options outstanding. The performance
unit grants outstanding vested at no less than 100%, and were
based on MCNs total shareholder return relative to its
peer group at the date of the shareholders vote. Subject
to stock ownership guidelines, participants had a one-time
choice to have the value of their options and performance units
paid in cash at a weighted value of $25.00 per share.

No awards were made under the Plan in 2000 as a result of the
proposed merger. However, certain MCN executives received
letters from DTE detailing a grant of DTE stock options and
performance shares to be made upon merger closing. During 1999
and 1998, MCN granted 83,950 and 293,116 performance units,
respectively, with a weighted-average grant date fair value of
$17.25 and $37.00 per unit, respectively. The performance units
were denominated in shares of MCN common stock and were
determined based on MCNs total shareholder return relative
to the peer group. Participants received dividend equivalents on
the units granted. Participants must retain 50% of any common
shares paid until certain stock ownership guidelines are met.

During 1999, in lieu of participating in the cash bonus plan,
certain employees of MCN were granted a total of 158,539 special
performance units, with an average grant date fair value of
$18.875 per unit. The special award was made in order to better
focus the employees on the need to rebuild shareholder value and
to address retention concerns.

In 1999, MCN granted 650,410 stock options with a grant date
fair value of $2.67 per option. Each option allows the
participant to purchase one share of MCN common stock at $17.25,
which was the market price of MCNs common shares on the
grant date. The options were set to vest ratably over the three
years following date of grant and expire in the tenth year
following date of grant. During 2000, participants elected to
have the value of 324,660 options paid in cash. Additionally,
8,435 options were exercised in 2000 resulting in 239,615
options outstanding at December 31, 2000. During 1999,
64,820 options were forfeited and 12,880 options were exercised
resulting in 572,710 options outstanding at December 31,
1999.

MCN accounts for stock-based compensation awards under the fair
value-based method as prescribed under SFAS No. 123,
Accounting for Stock-Based Compensation.
Accordingly, the costs of performance units and stock options
awarded, generally measured at their fair value on the grant
date, are recorded as compensation expense and Additional
Paid-in Capital over their vesting period.

There was no stock-based compensation cost recognized in 2000.
Stock-based compensation cost recognized during 1999 for all
awards outstanding totaled $24,537,000. MCNs 1999
stock-based compensation expense includes the effect of the
accelerated vesting of all awards outstanding. A stock-based
compensation benefit of $3,625,000 was recognized during 1998
for all awards outstanding as a result of a reduction in the
number of performance units expected to vest. At
December 31, 2000, there were 5,143,730 shares available to
be issued under the Stock Incentive Plan.

84



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


c.  Shareholders Rights Plan



d.  Earnings Per Share



A reconciliation of both calculations for 2000 is shown below.
In 1999 and 1998, potentially dilutive securities have been
excluded from the diluted EPS calculation since their inclusion
would have been antidilutive.




|                                         |                                |               |          |               |  |            |        |     |  |   |       |   | 
|---------------------------------------- | ------------------------------ | ------------- | -------- | ------------- |  | ---------- | ------ | --- |  | - | ----- | - | 
|                                         |                                | Income (Loss) |          | Weighted      |  | Earnings  
|                                         |                                | Before Acctg. |          | Average       |  | (Loss) Per
|                                         |                                | Change        |          | Common Shares |  | Share     
|(in Thousands, Except Per Share Amounts) |                                |               |          |               |  |           
|2000                                     |                                |               |          |               |  |            |        |     |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|Basic Earnings Per Share                 |                                | $             | 108,868  |               |  |            | 88,398 |     |  | $ | 1.23  |  
|                                         |                                |               |          |               |  |            |        |     |  |   |       |  
|                                         | Stock-based compensation plans |               |          |              |  |            |        | 709 |  |   |       |   | 
|                                         |                                |               |          |               |  |            |        |     |  |   |       |  
|Diluted Earnings Per Share               |                                | $             | 108,868  |               |  |            | 89,107 |     |  | $ | 1.22  |  
|                                         |                                |               |          |               |  |            |        |     |  |   |       |  
|1999                                     |                                |               |          |               |  |            |        |     |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|Basic and Dilutive Loss Per Share        |                                | $             | (16,057  | )             |  |            | 83,407 |     |  | $ | (.19  | )
|                                         |                                |               |          |               |  |            |        |     |  |   |       |  
|1998                                     |                                |               |          |               |  |            |        |     |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|Basic and Dilutive Loss Per Share        |                                | $             | (298,872 | )             |  |            | 78,823 |     |  | $ | (3.79 | )
|                                         |                                |               |          |               |  |            |        |     |  |   |       |  




13.  CAPITAL AND OPERATING
LEASES

Lessee  MCN leases certain property
(principally a warehouse, office buildings and parking
structure) under capital lease arrangements expiring at various
dates to 2006, with renewal options extending beyond that date.
Portions of the office buildings and parking structure are
subleased to various tenants. Long-term capital lease
obligations are not significant.

Minimum rental commitments related to non-cancelable operating
leases outstanding at December 31, 2000 are $5,385,000 in
2001, $4,612,000 in 2002, $2,956,000 in 2003, $2,754,000 in
2004, $2,411,000 in 2005 and $146,000 thereafter.

Total minimum lease payments for operating leases have not been
reduced by future minimum sublease rentals totaling $4,028,000
under non-cancelable subleases.

85



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Operating lease payments for the years ended December 31,
2000, 1999 and 1998 were $4,736,000, $5,351,000 and $6,774,000,
respectively.

Lessor  MichCon leases a portion of its
pipeline system to the Vector Pipeline Partnership through a
capital lease arrangement that expires in 2020, with renewal
options extending for five years. The components of the net
investment in the capital lease at December 31 follows:




|                                    |  |      |          |  
|----------------------------------- |  | ---- | -------- | -
|                                    |  | 2000
|(in Thousands)                      |  |     
|2001                                |  | $    | 9,000    |  
|                                   
|                                   
|                                   
|                                   
|2002                                |  |      | 9,000    |  
|                                   
|                                   
|                                   
|                                   
|2003                                |  |      | 9,000    |  
|                                   
|                                   
|                                   
|                                   
|2004                                |  |      | 9,000    |  
|                                   
|                                   
|                                   
|                                   
|2005                                |  |      | 9,000    |  
|                                   
|                                   
|                                   
|                                   
|Thereafter                          |  |      | 134,250  |  
|                                    |  |      |          |  
|Total minimum future lease receipts |  |      | 179,250  |  
|                                   
|                                   
|                                   
|                                   
|Residual value of leased pipeline   |  |      | 39,741   |  
|                                   
|                                   
|                                   
|                                   
|Less  unearned income              |  |      | (133,596 | )
|                                    |  |      |          |  
|Net investment in capital lease     |  |      | 85,395   |  
|                                   
|                                   
|                                   
|                                   
|Less  current portion              |  |      | (9,000   | )
|                                    |  |      |          |  
|                                    |  | $    | 76,395   |  
|                                    |  |      |          |  




14.  COMMITMENTS AND
CONTINGENCIES

a.  Personal Property Taxes



Additionally, MichCon and other Michigan utilities have asserted
that Michigans valuation tables result in the substantial
overvaluation of utility personal property. Valuation tables
established by the Michigan State Tax Commission (STC) are used
to estimate the reduction in value of personal property based on
the propertys age. In November 1999, the STC approved new
valuation tables that more accurately recognize the value of a
utilitys personal property. The new tables became
effective in 2000 and are being used for current year
assessments in most jurisdictions. However, several local taxing
jurisdictions have taken legal action attempting to prevent the
STC from implementing the new valuation tables and have
continued to prepare assessments based on the superceded tables.
The legal actions regarding the appropriateness of the new
tables are currently before the Michigan Tax Tribunal (MTT)
which issued an order in June 2000 stating that the tables are
presumed to be correct, thus assigning the burden of proving
otherwise to the taxing jurisdictions. The trial being heard
before the MTT began in December 2000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


MichCon will seek to apply the new tables retroactively and to
ultimately settle the pending tax appeals related to prior
periods. This is a solution supported by the STC in the past.
The legal action, along with possible additional appeals by
local taxing jurisdictions, is expected to delay recoveries
related to the new valuation tables.

b.  Environmental Matters

Former manufactured gas plant sites


During the mid-1980s, MCN conducted preliminary environmental
investigations at former MGP sites, and some contamination
related to the by-products of gas manufacturing was discovered
at each site. The existence of these sites and the results of
the environmental investigations have been reported to the
Michigan Department of Environmental Quality (MDEQ). None of
these former MGP sites is on the National Priorities List
prepared by the U.S. Environmental Protection Agency (EPA).

MCN is involved in an administrative proceeding before the EPA
regarding one of the former MGP sites. MCN has executed an order
with the EPA, pursuant to which MCN is legally obligated to
investigate and remediate the MGP site. MCN is remediating five
of the former MGP sites and conducting more extensive
investigations at six other former MGP sites. In 1998, MCN
received state closure of one of the former MGP sites.
Additionally, the MDEQ has determined with respect to one other
former MGP site that MCN is not a responsible party for the
purpose of assessing remediation expenditures. MCN and the MDEQ
are in discussions on whether MCN is a responsible party for one
other former MGP site.

In 1984, MCN established an $11,700,000 reserve for
environmental investigation and remediation. During 1993,
MichCon received MPSC approval of a cost deferral and rate
recovery mechanism for investigation and remediation costs
incurred at former MGP sites in excess of this reserve.

MCN employed outside consultants to evaluate remediation
alternatives for these sites, to assist in estimating its
potential liabilities and to review its archived insurance
policies. The findings of these investigations indicate that the
estimated total expenditures for investigation and remediation
activities for these sites could range from $30,000,000 to
$170,000,000 based on undiscounted 1995 costs. As a result of
these studies, MCN accrued an additional liability and a
corresponding regulatory asset of $35,000,000 during 1995.

MCN notified more than 50 current and former insurance carriers
of the environmental conditions at these former MGP sites. MCN
concluded settlement negotiations with certain carriers in 1996
and 1997 and has received payments from several carriers. In
October 1997, MCN filed suit against major nonsettling carriers
seeking recovery of incurred costs and a declaratory judgment of
the carriers liability for future costs of environmental
investigation and remediation costs at former MGP sites.
Settlements were reached with a number of carriers with payments
received during 2000.

During 2000, 1999 and 1998, MCN spent $1,618,000, $724,000 and
$1,649,000, respectively, investigating and remediating these
former MGP sites. At December 31, 2000, the reserve balance

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was $32,750,000 of which $4,500,000 was classified as current.
Any significant change in assumptions, such as remediation
techniques, nature and extent of contamination and regulatory
requirements, could impact the estimate of remedial action costs
for the sites and, therefore, have an effect on MCNs
financial position and cash flows. However, management believes
that the cost deferral and rate recovery mechanism approved by
the MPSC will prevent environmental costs from having a material
adverse impact on MCNs results of operations.

Mercury regulators  As a result of the
increasing public concern regarding mercury contamination in
homes served by other utilities, and because new more sensitive
mercury detection equipment exists, MichCon initiated a
two-phase testing program in September 2000 to ensure its
mercury handling procedures are safe, effective and protect
public health. During the years 1936 to 1959, some of the
regulators MichCon installed in customer homes contained a small
amount of mercury, which is used to help measure the pressure of
gas flowing into a meter. Less than 15% of MichCons more
than one million residential customers have ever had this type
of regulator.

The regulators operate safely, however when a regulator is
removed there is a potential for an accidental release of
mercury. To minimize this risk, MichCon employees are trained in
the safe removal of these regulators, which are disposed of
through an environmental recycling and waste disposal company.

MichCon implemented the two-phase testing program in conjunction
with the EPA and the Michigan Department of Community Health
(MDCH). The new mercury detection equipment made available by
the EPA allowed MichCon to re-test 39 homes where an accidental
release of mercury occurred during the 1990s. MichCon completed
this phase I testing in December 2000 with additional
cleanup undertaken at 13 homes to the satisfaction of the EPA
and the MDCH. In February 2001, phase II of the testing
program was implemented, which involves the statistical sampling
of up to 4,000 customer homes in which mercury regulators may
have once existed. Management believes the possibility is remote
that customers have been exposed to unsafe levels of mercury
from MichCons equipment. Through December 31, 2000,
MichCon had accrued approximately $3,500,000 in costs related to
the mercury regulators, of which $2,500,000 had been incurred
during phase I testing. Management cannot predict the final
disposition of this matter, but does not believe it will have a
material adverse impact on MCNs financial statements.

Formerly owned storage field  In 1998, MichCon
received written notification from ANR Pipeline Company (ANR),
alleging that MichCon has responsibility for a portion of the
costs associated with responding to environmental conditions
present at a natural gas storage field in Michigan currently
owned and operated by an affiliate of ANR. At least some portion
of the natural gas storage field was formerly owned by MichCon.
ANRs allegations are being evaluated to determine whether
and to what extent, if any, MichCon may have legal
responsibility for these costs. Management does not believe this
matter will have a material adverse impact on MCNs
financial statements.

c.  Guaranties



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


reimburse MCN for 50% of any payments made as a result of this
guaranty. Borrowings outstanding under the loan totaled
$29,000,000 at December 31, 2000.

A subsidiary of MichCon and an unaffiliated corporation have
formed a series of partnerships engaged in the construction and
development of a residential community on the Detroit riverfront
(Harbortown). One of the partnerships obtained $12,000,000 of
tax-exempt financing due June 2004 through the Michigan State
Housing Development Authority. Both partners and their parent
corporations have issued guaranties for the full amount of this
financing, and each parent corporation has agreed to reimburse
the other for 50% of any payments made as a result of these
guaranties.

d.  Commitments



To ensure a reliable supply of natural gas at competitive
prices, MCN has entered into long-term purchase and
transportation contracts with various suppliers and producers.
In general, purchases are under fixed price and volume contracts
or formulas based on market prices. MCN has firm purchase
commitments through 2009 for approximately 621 Bcf of gas,
approximately 168 Bcf of which are Gas Distribution purchase
commitments. MCN expects that sales, based on warmer-than-normal
weather, will exceed its minimum purchase commitments. MCN has
long-term transportation and storage contracts with various
companies expiring on various dates through the year 2016. MCN
is also committed to pay demand charges of approximately
$111,900,000 during 2001 related to firm purchase and
transportation agreements. Of this total, approximately
$43,800,000 relates to Gas Distribution.

Capital investments for 2001 are expected to approximate
$160,000,000. Certain commitments have been made in connection
with such capital investments.

e.  Other



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




|    |                                                                 
|--- | ----------------------------------------------------------------
|15. | RISK MANAGEMENT ACTIVITIES AND DERIVATIVE
	FINANCIAL INSTRUMENTS

MCN manages commodity price and interest rate risk through the
use of various derivative instruments. If MCN did not use
derivative instruments, its exposure to such risks would be
higher. Although this strategy reduces risk, it also limits
potential gains from favorable changes in commodity prices and
interest rates. Derivative instruments also give rise to credit
risks due to nonperformance by counterparties. MCNs
control procedures are designed to minimize overall exposure to
credit risk. MCN closely monitors the financial condition and
credit ratings of counterparties, diversifies its risk by having
a significant number of counterparties, and limits its
counterparties to investment grade institutions. MCN generally
requires cash collateral when exposure to each counterparty
exceeds certain limits, and its agreements with each
counterparty generally allow for the netting of positive and
negative positions.

Commodity price and interest rate risks are actively monitored
by a risk control group to ensure compliance with MCNs
risk management policies at both the corporate and subsidiary
levels. These policies, including related risk limits, are
regularly assessed to ensure their appropriateness given
MCNs objectives, strategies and current market conditions.
MCN closely monitors and manages its exposure to commodity price
risk through a variety of risk management techniques. MCNs
objective is to manage its exposure to commodity price risk to
increase the likelihood of achieving targeted rates of return.

Derivative instruments are reviewed periodically to ensure they
continue to effectively reduce exposure to commodity price and
interest rate risks, and therefore, high correlation is
maintained between changes in the fair value of derivative
instruments and the underlying items or transactions being
hedged. In the event that a derivative is no longer deemed
effective or does not qualify for hedge accounting, the
instruments are recorded as an asset or liability at fair value,
with changes in fair value recorded to income.

In addition to managing commodity price risk, derivative
instruments are used to manage price risk related to physical
assets that support marketing activities. These physical assets
include oil and gas production, pipeline transportation capacity
and storage capacity. Energy Marketing uses a risk-based
approach that includes both transactional and portfolio hedging
strategies to minimize price risk. The intent of this
disciplined approach is to maximize the value of the physical
assets while minimizing associated risks.

The following table of natural gas and oil swap agreements
outstanding at December 31 is summarized by fixed or
variable prices to be received. Notional amounts represent the
volume of transactions valued at the fixed or variable price
that MCN has contracted to obtain. Notional

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


amounts do not represent the amounts exchanged by the parties to
the swaps, and therefore do not reflect MCNs exposure to
commodity price or credit risks.




|                          |                          |      |   |           |  |  |   |           | 
|------------------------- | ------------------------ | ---- | - | --------- |  |  | - | --------- | 
|                          |                          | 2000 |   | 1999     
|(in Thousands of Dollars) |                          |      |   |          
|Fixed Price Receiver      |                          |      |   |           |  |  |   |          
|                         
|                         
|                         
|                         
|                          | Volumes (Bcf equivalent) |      |   | 261.4     |  |  |   | 379.5     | 
|                         
|                         
|                         
|                         
|                          | Notional value           |      | $ | 696,240   |  |  | $ | 930,213   | 
|                         
|                         
|                         
|                         
|                          | Latest maturity          |      |   | 2013      |  |  |   | 2013      | 
|Variable Price Receiver   |                          |      |   |           |  |  |   |          
|                         
|                         
|                         
|                         
|                          | Volumes (Bcf equivalent) |      |   | 538.2     |  |  |   | 512.9     | 
|                         
|                         
|                         
|                         
|                          | Notional value           |      | $ | 2,841,027 |  |  | $ | 1,331,560 | 
|                         
|                         
|                         
|                         
|                          | Latest maturity          |      |   | 2013      |  |  |   | 2013      | 




At December 31, 2000, collateral in the form of cash
totaling $132,830,000 was paid under derivative contracts and
cash totaling $299,240,000 was received under derivative
contracts.

a.  Commodity Price Hedging Activities



The following assets and liabilities related to the use of gas
and oil swap agreements are reflected in the Consolidated
Statement of Financial Position at December 31.




|                                     |                        |      |         |         |  |   |        |        | 
|------------------------------------ | ---------------------- | ---- | ------- | ------- |  | - | ------ | ------ | 
|                                     |                        | 2000 |         | 1999   
|(in Thousands)                       |                        |      |         |        
|Deferred Swap Losses and Receivables |                        |      |         |         |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized losses      |      | $       | 61,457  |  |   | $      | 13,884 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables            |      |         | 327,231 |  |   |        | 40,089 | 
|                                     |                        |      |         |         |  |   |        |       
|                                     |                        |      | 388,688 |         |  |   | 53,973 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  current portion |      |         | 215,016 |  |   |        | 10,066 | 
|                                     |                        |      |         |         |  |   |        |       
|                                     |                        | $    | 173,672 |         |  | $ | 43,907 |       
|                                     |                        |      |         |         |  |   |        |       
|Deferred Swap Gains and Payables     |                        |      |         |         |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized gains       |      | $       | 155,764 |  |   | $      | 29,596 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Payables               |      |         | 246,012 |  |   |        | 48,066 | 
|                                     |                        |      |         |         |  |   |        |       
|                                     |                        |      | 401,776 |         |  |   | 77,662 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  current portion |      |         | 162,569 |  |   |        | 12,700 | 
|                                     |                        |      |         |         |  |   |        |       
|                                     |                        | $    | 239,207 |         |  | $ | 64,962 |       
|                                     |                        |      |         |         |  |   |        |       




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


In addition, at December 31, 2000, MCN had futures
contracts that permit settlement by delivery of the underlying
commodity of 22.2 Bcf with net unrealized gains of
$31,400,000. At December 31, 1999, MCN had futures
contracts of 71.6 Bcf with net unrealized losses of $87,000.

b.  Commodity Price Non-Hedging Activities



During 1999, MCN sold its Western, Midcontinent/ Gulf Coast and
Appalachia E&P properties. At the time of the sales, MCN had
not yet fully exited the natural gas and oil swap agreements and
futures contracts that served as hedges of the price risk
associated with the gas and oil produced from these properties.
As a result, these natural gas and oil swap agreements and
futures contracts were no longer considered hedges under
definitions prescribed by the SEC and generally accepted
accounting principles. Accordingly, these swap agreements and
futures contracts were accounted for using the mark-to-market
method, with unrealized gains and losses recorded in earnings.
The swap agreements and futures contracts associated with the
sold E&P properties did not significantly affect 1999
results and were effectively closed out in January 2000.

The average fair value of trading assets and liabilities during
2000 was $12,377,000 and $56,928,000, respectively.

c.  Interest Rate Hedging Activities



At December 31, 2000, MCN had interest rate swap agreements
with notional principal amounts totaling $160,000,000 (Note 10)
and a weighted average remaining life of 1.9 years. At
December 31, 1999, MCN had interest rate swap agreements
with notional principal amounts totaling $184,333,000. The
notional principal amounts are used solely to calculate amounts
to be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


paid or received under the interest rate swap agreements and
approximate the principal amount of the underlying debt being
hedged.

d.  New Accounting Pronouncement

Accounting For Derivative Instruments and Hedging
Activities.


MCN has identified interest rate swaps, options embedded in
certain debt instruments, commodity forward contracts, commodity
futures and swaps, and certain transportation contracts as
derivatives. The cumulative effect of adopting SFAS No. 133
is expected to be an approximate $150,000,000 pre-tax
($100,000,000 net of taxes) decrease in earnings, and an
approximate $100,000,000 pre-tax ($65,000,000 net of taxes)
increase in other comprehensive income. The adoption will also
impact assets and liabilities recorded in the statement of
financial position.

The Derivatives Implementation Group (DIG), a committee created
by the Financial Accounting Standards Board, is expected to
continue providing guidance and clarification on SFAS
No. 133 issues in 2001. It is possible the DIG could
conclude on issues that would have a material impact on how MCN
accounts for derivatives.

16.  FAIR VALUE OF FINANCIAL AND OTHER
SIMILAR INSTRUMENTS

MCN has estimated the fair value of its financial instruments
using available market information and appropriate valuation
methodologies. Considerable judgment is required in developing
the estimates of the fair value of financial instruments and,
therefore, the values are not necessarily indicative of the
amounts that MCN could realize in a current market exchange. The
carrying amounts of certain financial instruments, such as notes
payable, customer deposits and notes receivable approximate fair
value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The carrying amount and fair value of other financial
instruments consist of the following:




|                               |                                                     |                                                            |                        |           |          |          |   |           |          |          |   |           |        |         |   |           |        |         |  
|------------------------------ | --------------------------------------------------- | ---------------------------------------------------------- | ---------------------- | --------- | -------- | -------- | - | --------- | -------- | -------- | - | --------- | ------ | ------- | - | --------- | ------ | ------- | -
|                               |                                                     |                                                            |                        |          
|                               |                                                     | 2000                                                       |                        | 1999     
|                               |                                                     |                                                            |                        |          
|                               |                                                     |                                                            |                        | Estimated |          |          |   | Estimated
|                               |                                                     | Carrying                                                   |                        | Fair      |          | Carrying |   | Fair     
|                               |                                                     | Amount                                                     |                        | Value     |          | Amount   |   | Value    
|(in Thousands)                 |                                                     |                                                            |                        |           |          |          |   |          
|Assets                         |                                                     |                                                            |                        |           |          |          |   |           |          |          |   |           |        |         |   |          
|                              
|                              
|                              
|                              
|                               | Investment in debt and equity securities            |                                                            | $                      | 186,772   |          |          | $ | 186,772   |          |          | $ | 72,077    |        |         | $ | 72,077    |       
|                              
|                              
|                              
|                              
|Liabilities and Capitalization |                                                     |                                                            |                        |           |          |          |   |           |          |          |   |           |        |         |   |          
|                              
|                              
|                              
|                              
|                               | Long-term debt, excluding capital lease obligations |                                                            |                        | 1,054,565 |          |          |   | 1,037,390 |          |          |   | 1,454,135 |        |         |   | 1,406,957 |       
|                              
|                              
|                              
|                              
|                               | Redeemable preferred securities                     |                                                            |                        | 272,484   |          |          |   | 277,130   |          |          |   | 402,922   |        |         |   | 356,153   |       
|                              
|                              
|                              
|                              
|Derivative Financial and Other |                                                     |                                                            |                        |           |          |          |   |           |          |          |   |           |        |         |   |          
|                              
|                              
|                              
|                              
|                               | Similar Instruments(Note 15)                        |                                                            |                        |           |          |          |   |           |          |          |   |           |        |         |   |           |       
|                              
|                              
|                              
|                              
|                               |                                                     | Natural gas and oil swaps and futures with  realized gains |                        |           | 173,645  |          |   |           | 173,645  |          |   |           | 20,310 |         |   |           | 20,310 |        
|                              
|                              
|                              
|                              
|                               |                                                     |                                                            | with realized losses   |           |          | (183,667 | ) |           |          | (183,667 | ) |           |        | (40,423 | ) |           |        | (40,423 | )
|                              
|                              
|                              
|                              
|                               |                                                     |                                                            | with unrealized gains  |           |          | 187,164  |   |           |          | 187,164  |   |           |        | 29,596  |   |           |        | 29,596  |  
|                              
|                              
|                              
|                              
|                               |                                                     |                                                            | with unrealized losses |           |          | (61,457  | ) |           |          | (61,457  | ) |           |        | (13,971 | ) |           |        | (13,971 | )
|                              
|                              
|                              
|                              
|                               |                                                     | Trading assets                                             |                        |           | 25,953   |          |   |           | 25,953   |          |   |           |       |         |   |           |       |        
|                              
|                              
|                              
|                              
|                               |                                                     | Trading liabilities                                        |                        |           | (108,523 | )        |   |           | (108,523 | )        |   |           |       |         |   |           |       |        
|                               |                                                     | Interest rate swaps                                        |                        |           |          |          |   |           |          |          |   |           |        |         |   |           |        |        
|                              
|                              
|                              
|                              
|                               |                                                     |                                                            | with unrealized gains  |           |          |         |   |           |          | 1,859    |   |           |        |        |   |           |        | 165     |  
|                              
|                              
|                              
|                              
|                               |                                                     |                                                            | with unrealized losses |           |          |         |   |           |          |         |   |           |        |        |   |           |        | (723    | )








|  |                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Investment in debt and equity securities 
	carrying amount approximates fair value taking into
	consideration interest rates available to MCN for investments
	with similar assumptions.                                                                                                                                                                                        
| 
| | Long-term debt  interest rates available to
	MCN for issuance of debt with similar terms and remaining
	maturities.                                                                                                                                                                                                                                                             
| 
| | Redeemable cumulative preferred securities 
	quoted market prices on the New York Stock Exchange and interest
	rates available to MCN for issuance of preferred securities with
	similar terms.                                                                                                                                                                                 
| 
| | Natural gas and oil swaps and futures, and interest rate
	swaps  estimated amounts that MCN would receive
	or pay to terminate the swap agreements and futures, taking into
	account current gas and oil prices, interest rates and the
	creditworthiness of the counterparties.                                                                                                
| 
| | Trading assets and liabilities (Note 4) 
	estimated amounts that MCN would receive or pay to terminate the
	natural gas swap, futures or forward agreements, taking into
	account current gas prices and the creditworthiness of the
	counterparties. These amounts also include the estimated value
	of storage capacity contracts used in connection with trading
	activities.
| 
| | Guaranties (Note 14c) Management is
	unable to practicably estimate the fair value of the Southern
	Missouri and Harbortown guaranties due to the nature of the
	transactions.                                                                                                                                                                                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The fair value estimates presented herein are based on
information available to management as of December 31, 2000
and 1999. Management is not aware of any subsequent factors that
would significantly affect the estimated fair value amounts.

17.  RETIREMENT BENEFITS AND TRUSTEED
ASSETS

a.  Pension Plan Benefits



Net pension credit for the years ended December 31 includes
the following components:




|                               |                      |      |         |         |   |      |         |        |   |   |         |        |  
|------------------------------ | -------------------- | ---- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                               |                      | 2000 |         | 1999    |   | 1998
|(in Thousands)                 |                      |      |         |         |   |     
|Service Cost                   |                      | $    | 10,887  |         |   | $    | 13,413  |        |   | $ | 10,993  |       
|                              
|                              
|                              
|                              
|Interest Cost                  |                      |      | 37,575  |         |   |      | 36,562  |        |   |   | 38,046  |       
|                              
|                              
|                              
|                              
|Expected Return on Plan Assets |                      |      | (89,321 | )       |   |      | (81,455 | )      |   |   | (74,383 | )     
|Amortization of                |                      |      |         |         |   |      |         |        |   |   |         |       
|                              
|                              
|                              
|                              
|                               | Net gain             |      |         | (11,401 | ) |      |         | (5,477 | ) |   |         | (6,572 | )
|                              
|                              
|                              
|                              
|                               | Prior service cost   |      |         | 1,724   |   |      |         | 1,724  |   |   |         | 1,044  |  
|                              
|                              
|                              
|                              
|                               | Net transition asset |      |         | (4,905  | ) |      |         | (4,905 | ) |   |         | (5,023 | )
|                              
|                              
|                              
|                              
|Special Termination Benefits   |                      |      |        |         |   |      |        |        |   |   | 5,054   |       
|                              
|                              
|                              
|                              
|Settlements                    |                      |      | (2,756  | )       |   |      | (4,363  | )      |   |   | (7,300  | )     
|                               |                      |      |         |         |   |      |         |        |   |   |         |       
|Net Pension Credit             |                      | $    | (58,197 | )       |   | $    | (44,501 | )      |   | $ | (38,141 | )     
|                               |                      |      |         |         |   |      |         |        |   |   |         |       




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The following table sets forth a reconciliation of the
obligations, assets and funded status of the plans as well as
the amounts recognized as prepaid pension cost in the
Consolidated Statement of Financial Position:




|                                                            |                      |      |             |          |   |   |             |          |  
|----------------------------------------------------------- | -------------------- | ---- | ----------- | -------- | - | - | ----------- | -------- | -
|                                                            |                      | 2000 |             | 1999    
|(in Thousands)                                              |                      |      |             |         
|Measurement Date                                            |                      |      | October  31 |          |   |   | October  31 |         
|                                                           
|                                                           
|                                                           
|                                                           
|Accumulated Benefit Obligation at the End of the Period     |                      | $    | 431,498     |          |   | $ | 436,041     |         
|                                                            |                      |      |             |          |   |   |             |         
|Projected Benefit Obligation at the Beginning of the Period |                      | $    | 501,009     |          |   | $ | 562,500     |         
|                                                           
|                                                           
|                                                           
|                                                           
|Service Cost                                                |                      |      | 10,887      |          |   |   | 13,413      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Interest Cost                                               |                      |      | 37,575      |          |   |   | 36,562      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Actuarial (Gain) Loss                                       |                      |      | (4,692      | )        |   |   | (68,247     | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Settlements Due to Lump Sums                                |                      |      | (8,509      | )        |   |   | (12,319     | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Regular Benefits                                            |                      |      | (30,817     | )        |   |   | (30,900     | )       
|                                                            |                      |      |             |          |   |   |             |         
|Projected Benefit Obligation at the End of the Period       |                      | $    | 505,453     |          |   | $ | 501,009     |         
|                                                            |                      |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the Beginning of the Period    |                      | $    | 959,130     |          |   | $ | 905,292     |         
|                                                           
|                                                           
|                                                           
|                                                           
|Actual Return on Plan Assets                                |                      |      | 94,677      |          |   |   | 93,931      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Settlements Due to Lump Sums                                |                      |      | (5,591      | )        |   |   | (9,193      | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Regular Benefits                                            |                      |      | (30,817     | )        |   |   | (30,900     | )       
|                                                            |                      |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the End of the Period          |                      | $    | 1,017,399   |          |   | $ | 959,130     |         
|                                                            |                      |      |             |          |   |   |             |         
|Funded Status of the Plans                                  |                      | $    | 511,946     |          |   | $ | 458,121     |         
|Unrecognized                                                |                      |      |             |          |   |   |             |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net gain             |      |             | (294,437 | ) |   |             | (295,499 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Prior service cost   |      |             | 16,000   |   |   |             | 17,724   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net transition asset |      |             | (19,036  | ) |   |             | (24,070  | )
|                                                            |                      |      |             |          |   |   |             |         
|Prepaid Pension Cost                                        |                      | $    | 214,473     |          |   | $ | 156,276     |         
|                                                            |                      |      |             |          |   |   |             |         




In determining the actuarial present value of the projected
benefit obligation, the weighted average discount rate was 7.5%
for 2000 and 1999, and 6.5% for 1998. The rate of increase in
future compensation levels used was 5% for 2000, 1999 and 1998.
The expected long-term rate of return on plan assets, which are
invested primarily in equity and fixed income securities, was
9.5% for 2000, 1999 and 1998.

In 1998, MichCon implemented an early retirement program under
which approximately 6% of its workforce retired in 1998 with
incentives. The program increased the projected benefit
obligation and 1998 pension costs by $5,054,000.

MCN also sponsors defined contribution retirement savings plans.
Participation in one of these plans is available to
substantially all union and nonunion employees. MCN matches
employee contributions up to certain predefined limits based
upon salary and years of credited service. The cost of these
plans was $5,600,000 in 2000, $5,800,000 in 1999 and $5,600,000
in 1998.

96



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


b.  Other Postretirement Benefits

Employers Accounting for Postretirement Benefits
Other Than Pensions,


MCNs policy is to fund certain trusts to meet its
postretirement benefit obligations related to Gas Distribution.
Separate qualified Voluntary Employees Beneficiary
Association (VEBA) trusts exist for union and nonunion
employees. There were no contributions made to the VEBA trusts
in 2000 or 1999. Funding to the VEBA trusts totaled $2,200,000
in 1998. The expected long-term rate of return on plan assets
that are invested in life insurance policies, equity securities
and fixed income securities, was 9.8% for 2000, 1999 and 1998.

Net postretirement cost for the years ended December 31
includes the following components:




|                               |                           |      |         |        |   |      |         |        |   |   |         |        |  
|------------------------------ | ------------------------- | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                               |                           | 2000 |         | 1999   |   | 1998
|(in Thousands)                 |                           |      |         |        |   |     
|Service Cost                   |                           | $    | 4,470   |        |   | $    | 4,721   |        |   | $ | 4,044   |       
|                              
|                              
|                              
|                              
|Interest Cost                  |                           |      | 19,390  |        |   |      | 16,648  |        |   |   | 16,891  |       
|                              
|                              
|                              
|                              
|Expected Return on Plan Assets |                           |      | (16,467 | )      |   |      | (14,914 | )      |   |   | (13,570 | )     
|Amortization of                |                           |      |         |        |   |      |         |        |   |   |         |       
|                              
|                              
|                              
|                              
|                               | Net gain                  |      |         | (5,403 | ) |      |         | (4,511 | ) |   |         | (5,723 | )
|                              
|                              
|                              
|                              
|                               | Net transition obligation |      |         | 12,898 |   |      |         | 12,898 |   |   |         | 12,898 |  
|                              
|                              
|                              
|                              
|Special Termination Benefits   |                           |      |        |        |   |      |        |        |   |   | 1,186   |       
|                               |                           |      |         |        |   |      |         |        |   |   |         |       
|Total Postretirement Cost      |                           |      | 14,888  |        |   |      | 14,842  |        |   |   | 15,726  |       
|                              
|                              
|                              
|                              
|Regulatory Adjustment          |                           |      | 43      |        |   |      | 44      |        |   |   | 43      |       
|                               |                           |      |         |        |   |      |         |        |   |   |         |       
|Net Postretirement Cost        |                           | $    | 14,931  |        |   | $    | 14,886  |        |   | $ | 15,769  |       
|                               |                           |      |         |        |   |      |         |        |   |   |         |       




97



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The following table sets forth a reconciliation of the
obligations, assets and funded status of the plans as well as
the amounts recorded as accrued postretirement cost in the
Consolidated Statement of Financial Position:




|                                                                              |                           |      |             |          |   |   |             |          |  
|----------------------------------------------------------------------------- | ------------------------- | ---- | ----------- | -------- | - | - | ----------- | -------- | -
|                                                                              |                           | 2000 |             | 1999    
|(in Thousands)                                                                |                           |      |             |         
|Measurement Date                                                              |                           |      | October  31 |          |   |   | October  31 |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Accumulated Postretirement Benefit Obligation at the Beginning
	of the Period |                           | $    | 258,522     |          |   | $ | 256,147     |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Service Cost                                                                  |                           |      | 4,470       |          |   |   | 4,721       |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Interest Cost                                                                 |                           |      | 19,390      |          |   |   | 16,648      |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Actuarial (Gain) Loss                                                         |                           |      | (22,225     | )        |   |   | (6,514      | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Benefits Paid                                                                 |                           |      | (13,259     | )        |   |   | (12,480     | )       
|                                                                              |                           |      |             |          |   |   |             |         
|Accumulated Postretirement Benefit Obligation at the End of the
	Period       |                           | $    | 246,898     |          |   | $ | 258,522     |         
|                                                                              |                           |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the Beginning of the Period                      |                           | $    | 191,108     |          |   | $ | 174,279     |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Actual Return on Plan Assets                                                  |                           |      | 15,205      |          |   |   | 26,349      |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Company Contributions                                                         |                           |      |            |          |   |   | 2,200       |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Regular Benefits                                                              |                           |      | (11,945     | )        |   |   | (11,720     | )       
|                                                                              |                           |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the End of the Period                            |                           | $    | 194,368     |          |   | $ | 191,108     |         
|                                                                              |                           |      |             |          |   |   |             |         
|Funded Status of the Plans                                                    |                           | $    | (52,530     | )        |   | $ | (67,414     | )       
|Unrecognized                                                                  |                           |      |             |          |   |   |             |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net gain                  |      |             | (144,989 | ) |   |             | (129,429 | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net transition obligation |      |             | 164,980  |   |   |             | 177,843  |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Regular Benefits Made After Measurement Date                                  |                           |      | (528        | )        |   |   |            |         
|                                                                              |                           |      |             |          |   |   |             |         
|Accrued Postretirement Liability                                              |                           | $    | (33,067     | )        |   | $ | (19,000     | )       
|                                                                              |                           |      |             |          |   |   |             |         




The rate at which healthcare costs are assumed to increase is
the most significant factor in estimating MCNs
postretirement benefit obligation. MCN used a rate of 8% for
2001, and a rate that gradually declines each year until it
stabilizes at 5% in 2006. A one percentage point increase in the
assumed rates would increase the accumulated postretirement
benefit obligation at December 31, 2000 by $29,174,000
(12%) and increase the sum of the service and interest rate cost
by $2,911,000 (12%) for the year then ended. A one percentage
point decrease in the assumed rates would decrease the
accumulated postretirement benefit obligation at
December 31, 2000 by $25,799,000 (10%) and decrease the sum
of the service and interest rate cost by $2,533,000 (11%) for
the year then ended.

The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 2000 and 1999, and
6.5% in 1998.

In 1998, MichCon implemented an early retirement program under
which approximately 6% of its workforce retired in 1998 with
incentives. The program increased the postretirement benefit
obligation and 1998 postretirement costs by $1,186,000.

98



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


c.  Grantor Trust



18.  SEGMENT INFORMATION

MCN is a diversified energy holding company with natural gas
markets and investments primarily in North America. MCN reports
through two major business groups: Diversified Energy and Gas
Distribution. These groups operate five major business segments
as described in the Summary of Significant Accounting
Policies  Company Description (Note 1).

Information as to MCNs segments is set forth in the
following tables. The segments were determined based on the
nature of their products and services and how management reviews
operating results. MCN evaluates segment performance based on
several factors, of which the primary measure is income or loss
before accounting changes. Inter-segment sales are based on
long-term, fixed-price or indexed-price contracts.

99



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




---

|                                              |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |           | 
|--------------------------------------------- | ----------------------------------------- | ------------------ | ------- | -------- |  | --------- | ------ | ------------- |  | ----------- | --------- | ------------ | - | - | ------- | ------ |  | - | ------- | ------ | - | - | --------- | --------- | 
|                                              |                                           |                    |         |         
|                                              |                                           | Diversified Energy |         |         
|                                              |                                           |                    |         |         
|                                              |                                           | Pipelines &        |         | Electric |  | Energy    |        | Exploration & |  | Corporate & |           | Gas         
|                                              |                                           | Processing         |         | Power    |  | Marketing |        | Production    |  | Other(a)    |           | Distribution
|(in Thousands)                                |                                           |                    |         |          |  |           |        |               |  |             |           |             
|2000                                          |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                           | $                  | 35,884  |          |  | $         | 66,461 |               |  | $           | 1,514,451 |              |   | $ | 12,030  |        |  | $ |        |        |   | $ | 1,162,281 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                           |                    | 666     |          |  |           |       |               |  |             | 189,680   |              |   |   | 56,335  |        |  |   |        |        |   |   | 10,846    |          
|                                              |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|                                              | Total operating revenues                  |                    |         | 36,550   |  |           |        | 66,461        |  |             |           | 1,704,131    |   |   |         | 68,365 |  |   |         |       |   |   |           | 1,173,127 | 
|                                              |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|Depreciation, Depletion and Amortization      |                                           |                    | 2,230   |          |  |           | 36     |               |  |             | 2,979     |              |   |   | 25,338  |        |  |   | 2,009   |        |   |   | 105,034   |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                           |                    | 22,779  |          |  |           | 44,603 |               |  |             | (21,717   | )            |   |   | 22,461  |        |  |   | (4,484  | )      |   |   | 205,342   |          
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                           |                    | 19,162  |          |  |           | 4,162  |               |  |             | 2,894     |              |   |   |        |        |  |   | (181    | )      |   |   | 2,388     |          
|                                              |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|                                              | Operating and joint venture income (loss) |                    |         | 41,941   |  |           |        | 48,765        |  |             |           | (18,823      | ) |   |         | 22,461 |  |   |         | (4,665 | ) |   |           | 207,730   | 
|                                              |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|Interest Income                               |                                           |                    | 1,352   |          |  |           | 1,385  |               |  |             | 4,238     |              |   |   | 587     |        |  |   | 10,321  |        |   |   | 2,715     |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                           |                    | (20,991 | )        |  |           | (16    | )             |  |             | (13,273   | )            |   |   | (14,932 | )      |  |   | (21,281 | )      |   |   | (60,428   | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                           |                    | 6,315   |          |  |           | 17,325 |               |  |             | (9,755    | )            |   |   | 5,502   |        |  |   | (16,524 | )      |   |   | 52,310    |          
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                           |                    | 16,399  |          |  |           | 32,263 |               |  |             | (18,380   | )            |   |   | 10,251  |        |  |   | (31,247 | )      |   |   | 99,582    |          
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                           |                    | 614,161 |          |  |           | 91,541 |               |  |             | 1,277,376 |              |   |   | 504,149 |        |  |   | 211,502 |        |   |   | 2,194,146 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                           |                    | 523,864 |          |  |           | 38,776 |               |  |             | 23,158    |              |   |   |        |        |  |   | 17,377  |        |   |   | 3,383     |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                           |                    | 1,875   |          |  |           | 937    |               |  |             | 1,169     |              |   |   | 29,883  |        |  |   | 1,048   |        |   |   | 118,580   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                           |                    | 143,329 |          |  |           | 27,466 |               |  |             | 1,314     |              |   |   | 29,883  |        |  |   | 1,095   |        |   |   | 118,580   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                           |                    |         |          |  |           |        |               |  |             |           |              |   |   |         |        |  |   |         |        |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Investment in leases                      |                    |         |         |  |           |        |              |  |             |           |             |   |   |         |       |  |   |         |       |   |   |           | 76,395    | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |                                           |                |          |              |   |   |           |           | 
|--------------------------------------------- | ----------------------------------------- | -------------- | -------- | ------------ | - | - | --------- | --------- | 
|                                              |                                           | Eliminations & |          | Consolidated
|                                              |                                           | Other          |          | Total       
|(in Thousands)                                |                                           |                |          |             
|2000                                          |                                           |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                           | $              |         |              |   | $ | 2,791,107 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                           |                | (257,527 | )            |   |   |          |          
|                                              |                                           |                |          |              |   |   |           |          
|                                              | Total operating revenues                  |                |          | (257,527     | ) |   |           | 2,791,107 | 
|                                              |                                           |                |          |              |   |   |           |          
|Depreciation, Depletion and Amortization      |                                           |                |         |              |   |   | 137,626   |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                           |                |         |              |   |   | 268,984   |          
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                           |                |         |              |   |   | 28,425    |          
|                                              |                                           |                |          |              |   |   |           |          
|                                              | Operating and joint venture income (loss) |                |          |             |   |   |           | 297,409   | 
|                                              |                                           |                |          |              |   |   |           |          
|Interest Income                               |                                           |                | (8,124   | )            |   |   | 12,474    |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                           |                | 8,124    |              |   |   | (122,797  | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                           |                |         |              |   |   | 55,173    |          
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                           |                |         |              |   |   | 108,868   |          
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                           |                | (28,526  | )            |   |   | 4,864,349 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                           |                |         |              |   |   | 606,558   |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                           |                |         |              |   |   | 153,492   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                           |                |         |              |   |   | 321,667   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                           |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Investment in leases                      |                |          |             |   |   |           | 76,395    | 




|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Corporate & Other includes administrative and
	financing expenses associated with corporate activities as well
	as development and management activities of real estate
	partnerships.

|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Interest expense is allocated from Corporate
	& Other to each Diversified Energy segment based on an
	imputed debt structure reflective of the segments related
	industry.

100



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




---

|                                              |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |           | 
|--------------------------------------------- | ----------------------------------------- | ------------------ | ------- | -------- |  | --------- | ------- | ------------- |  | ----------- | --------- | ------------ |  | - | -------- | -------- | - | - | ------- | ------ | - | - | --------- | --------- | 
|                                              |                                           |                    |         |         
|                                              |                                           | Diversified Energy |         |         
|                                              |                                           |                    |         |         
|                                              |                                           | Pipelines &        |         | Electric |  | Energy    |         | Exploration & |  | Corporate & |           | Gas         
|                                              |                                           | Processing         |         | Power    |  | Marketing |         | Production    |  | Other(a)    |           | Distribution
|(in Thousands)                                |                                           |                    |         |          |  |           |         |               |  |             |           |             
|1999                                          |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                           | $                  | 24,792  |          |  | $         | 52,207  |               |  | $           | 1,141,894 |              |  | $ | 43,370   |          |   | $ |        |        |   | $ | 1,161,990 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                           |                    | 2,249   |          |  |           |        |               |  |             | 143,944   |              |  |   | 109,719  |          |   |   |        |        |   |   | 8,610     |          
|                                              |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|                                              | Total operating revenues                  |                    |         | 27,041   |  |           |         | 52,207        |  |             |           | 1,285,838    |  |   |          | 153,089  |   |   |         |       |   |   |           | 1,170,600 | 
|                                              |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|Depreciation, Depletion and Amortization      |                                           |                    | 3,037   |          |  |           | 185     |               |  |             | 2,016     |              |  |   | 57,277   |          |   |   | 2,009   |        |   |   | 100,114   |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                           |                    | (5,527  | )        |  |           | (8,717  | )             |  |             | 5,121     |              |  |   | (110,506 | )        |   |   | (9,543  | )      |   |   | 213,063   |          
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                           |                    | 24,711  |          |  |           | 26,651  |               |  |             | (677      | )            |  |   |         |          |   |   | (257    | )      |   |   | 1,958     |          
|                                              |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|                                              | Operating and joint venture income (loss) |                    |         | 19,184   |  |           |         | 17,934        |  |             |           | 4,444        |  |   |          | (110,506 | ) |   |         | (9,800 | ) |   |           | 215,021   | 
|                                              |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|Interest Income                               |                                           |                    | 1,069   |          |  |           | 1,304   |               |  |             | 1,103     |              |  |   | 352      |          |   |   | 50,264  |        |   |   | 2,310     |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                           |                    | (20,258 | )        |  |           | (1,042  | )             |  |             | (9,230    | )            |  |   | (15,169  | )        |   |   | (67,492 | )      |   |   | (56,409   | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                           |                    | 925     |          |  |           | 8,553   |               |  |             | (1,367    | )            |  |   | (45,066  | )        |   |   | (21,407 | )      |   |   | 55,076    |          
|                                             
|                                             
|                                             
|                                             
|Income (Loss) Before Accounting Change        |                                           |                    | 4,523   |          |  |           | 11,458  |               |  |             | (2,712    | )            |  |   | (87,163  | )        |   |   | (45,606 | )      |   |   | 103,443   |          
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                           |                    | 688,792 |          |  |           | 237,502 |               |  |             | 423,284   |              |  |   | 636,053  |          |   |   | 86,176  |        |   |   | 2,196,367 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                           |                    | 575,684 |          |  |           | 145,684 |               |  |             | 21,512    |              |  |   |         |          |   |   | 18,194  |        |   |   | 2,898     |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                           |                    | 3,615   |          |  |           | 52,364  |               |  |             | 905       |              |  |   | 99,962   |          |   |   | 500     |        |   |   | 136,912   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                           |                    | 120,419 |          |  |           | 130,432 |               |  |             | 8,074     |              |  |   | 99,962   |          |   |   | 580     |        |   |   | 136,912   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                           |                    |         |          |  |           |         |               |  |             |           |              |  |   |          |          |   |   |         |        |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Property write-downs                      |                    |         |         |  |           |         | 4,995         |  |             |           |             |  |   |          | 54,340   |   |   |         |       |   |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Loss on sale of E&P properties            |                    |         |         |  |           |         |              |  |             |           |             |  |   |          | 81,989   |   |   |         |       |   |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investment and contract losses            |                    |         |         |  |           |         |              |  |             |           | 2,447        |  |   |          | 7,456    |   |   |         |       |   |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounting change                         |                    |         | 866      |  |           |         | 3,505         |  |             |           | 47           |  |   |          |         |   |   |         |       |   |   |           |          | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |                                           |                |          |              |   |   |           |           | 
|--------------------------------------------- | ----------------------------------------- | -------------- | -------- | ------------ | - | - | --------- | --------- | 
|                                              |                                           | Eliminations & |          | Consolidated
|                                              |                                           | Other          |          | Total       
|(in Thousands)                                |                                           |                |          |             
|1999                                          |                                           |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                           | $              |         |              |   | $ | 2,424,253 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                           |                | (264,522 | )            |   |   |          |          
|                                              |                                           |                |          |              |   |   |           |          
|                                              | Total operating revenues                  |                |          | (264,522     | ) |   |           | 2,424,253 | 
|                                              |                                           |                |          |              |   |   |           |          
|Depreciation, Depletion and Amortization      |                                           |                |         |              |   |   | 164,638   |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                           |                |         |              |   |   | 83,891    |          
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                           |                |         |              |   |   | 52,386    |          
|                                              |                                           |                |          |              |   |   |           |          
|                                              | Operating and joint venture income (loss) |                |          |             |   |   |           | 136,277   | 
|                                              |                                           |                |          |              |   |   |           |          
|Interest Income                               |                                           |                | (49,827  | )            |   |   | 6,575     |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                           |                | 49,827   |              |   |   | (119,773  | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                           |                |         |              |   |   | (3,286    | )        
|                                             
|                                             
|                                             
|                                             
|Income (Loss) Before Accounting Change        |                                           |                |         |              |   |   | (16,057   | )        
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                           |                | (30,152  | )            |   |   | 4,238,022 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                           |                |         |              |   |   | 763,972   |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                           |                |         |              |   |   | 294,258   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                           |                |         |              |   |   | 496,379   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                           |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Property write-downs                      |                |          |             |   |   |           | 59,335    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Loss on sale of E&P properties            |                |          |             |   |   |           | 81,989    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investment and contract losses            |                |          |             |   |   |           | 9,903     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounting change                         |                |          |             |   |   |           | 4,418     | 




|                                              |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |           |  
|--------------------------------------------- | ---------------------------------------------- | ------------------ | -------- | -------- | - | --------- | ------- | ------------- | - | ----------- | ------- | ------------ | - | - | -------- | -------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                              |                                                |                    |          |         
|                                              |                                                | Diversified Energy |          |         
|                                              |                                                |                    |          |         
|                                              |                                                | Pipelines &        |          | Electric |   | Energy    |         | Exploration & |   | Corporate & |         | Gas         
|                                              |                                                | Processing         |          | Power    |   | Marketing |         | Production    |   | Other(a)    |         | Distribution
|(in Thousands)                                |                                                |                    |          |          |   |           |         |               |   |             |         |             
|1998                                          |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                                | $                  | 20,856   |          |   | $         | 47,131  |               |   | $           | 747,591 |              |   | $ | 150,504  |          |   | $ |        |         |   | $ | 1,045,139 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                                |                    | 345      |          |   |           |        |               |   |             | 105,938 |              |   |   | 56,598   |          |   |   |        |         |   |   | 6,635     |          
|                                              |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|                                              | Total operating revenues                       |                    |          | 21,201   |   |           |         | 47,131        |   |             |         | 853,529      |   |   |          | 207,102  |   |   |         |        |   |   |           | 1,051,774 |  
|                                              |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|Depreciation, Depletion and Amortization      |                                                |                    | 1,705    |          |   |           | 208     |               |   |             | 1,229   |              |   |   | 80,576   |          |   |   | 1,998   |         |   |   | 93,774    |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                                |                    | (146,264 | )        |   |           | (1,110  | )             |   |             | (19,069 | )            |   |   | (380,557 | )        |   |   | (19,162 | )       |   |   | 150,037   |          
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                                |                    | 29,987   |          |   |           | 28,546  |               |   |             | 2,401   |              |   |   |         |          |   |   | 308     |         |   |   | 983       |          
|                                              |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|                                              | Operating and joint venture income (loss)      |                    |          | (116,277 | ) |           |         | 27,436        |   |             |         | (16,668      | ) |   |          | (380,557 | ) |   |         | (18,854 | ) |   |           | 151,020   |  
|                                              |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|Interest Income                               |                                                |                    | 1,001    |          |   |           | 944     |               |   |             | 1,676   |              |   |   | 426      |          |   |   | 53,100  |         |   |   | 5,716     |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                                |                    | (14,382  | )        |   |           | (2,021  | )             |   |             | (5,726  | )            |   |   | (21,154  | )        |   |   | (62,960 | )       |   |   | (57,477   | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                                |                    | (46,893  | )        |   |           | 8,212   |               |   |             | (7,188  | )            |   |   | (160,900 | )        |   |   | (16,377 | )       |   |   | 33,000    |          
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                                |                    | (82,240  | )        |   |           | 19,271  |               |   |             | (13,441 | )            |   |   | (253,353 | )        |   |   | (40,843 | )       |   |   | 71,734    |          
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                                |                    | 575,969  |          |   |           | 300,529 |               |   |             | 371,975 |              |   |   | 988,201  |          |   |   | 72,388  |         |   |   | 2,116,173 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                                |                    | 521,711  |          |   |           | 231,668 |               |   |             | 29,435  |              |   |   |         |          |   |   | 18,939  |         |   |   | 1,478     |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                                |                    | 113,229  |          |   |           | 3,616   |               |   |             | 582     |              |   |   | 200,430  |          |   |   | 6,966   |         |   |   | 157,952   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                                |                    | 333,128  |          |   |           | 90,223  |               |   |             | 1,341   |              |   |   | 200,430  |          |   |   | 7,092   |         |   |   | 158,716   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                                |                    |          |          |   |           |         |               |   |             |         |              |   |   |          |          |   |   |         |         |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Property write-downs and restructuring charges |                    |          | (137,681 | ) |           |         | (2,470        | ) |             |         |             |   |   |          | (416,977 | ) |   |         | (10,390 | ) |   |           | (24,800   | )
|                                             
|                                             
|                                             
|                                             
|                                              | Investment losses                              |                    |          |         |   |           |         |              |   |             |         |             |   |   |          | (6,135   | ) |   |         |        |   |   |           | (8,500    | )

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |                                                |                |          |              |   |   |           |           |  
|--------------------------------------------- | ---------------------------------------------- | -------------- | -------- | ------------ | - | - | --------- | --------- | -
|                                              |                                                | Eliminations & |          | Consolidated
|                                              |                                                | Other          |          | Total       
|(in Thousands)                                |                                                |                |          |             
|1998                                          |                                                |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Unaffiliated Customers          |                                                | $              |         |              |   | $ | 2,011,221 |          
|                                             
|                                             
|                                             
|                                             
|Revenues From Affiliated Customers            |                                                |                | (169,516 | )            |   |   |          |          
|                                              |                                                |                |          |              |   |   |           |          
|                                              | Total operating revenues                       |                |          | (169,516     | ) |   |           | 2,011,221 |  
|                                              |                                                |                |          |              |   |   |           |          
|Depreciation, Depletion and Amortization      |                                                |                |         |              |   |   | 179,490   |          
|                                             
|                                             
|                                             
|                                             
|Operating Income (Loss)                       |                                                |                |         |              |   |   | (416,125  | )        
|                                             
|                                             
|                                             
|                                             
|Equity in Earnings of Joint Ventures          |                                                |                |         |              |   |   | 62,225    |          
|                                              |                                                |                |          |              |   |   |           |          
|                                              | Operating and joint venture income (loss)      |                |          |             |   |   |           | (353,900  | )
|                                              |                                                |                |          |              |   |   |           |          
|Interest Income                               |                                                |                | (51,970  | )            |   |   | 10,893    |          
|                                             
|                                             
|                                             
|                                             
|Interest Expense(b)                           |                                                |                | 51,970   |              |   |   | (111,750  | )        
|                                             
|                                             
|                                             
|                                             
|Income Taxes                                  |                                                |                |         |              |   |   | (190,146  | )        
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                                |                |         |              |   |   | (298,872  | )        
|                                             
|                                             
|                                             
|                                             
|Total Assets                                  |                                                |                | (47,279  | )            |   |   | 4,377,956 |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                                |                |         |              |   |   | 803,231   |          
|                                             
|                                             
|                                             
|                                             
|Capital Expenditures                          |                                                |                |         |              |   |   | 482,775   |          
|                                             
|                                             
|                                             
|                                             
|Capital Investments                           |                                                |                |         |              |   |   | 790,930   |          
|                                             
|                                             
|                                             
|                                             
|Significant Non-cash Items (Pretax):          |                                                |                |          |              |   |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Property write-downs and restructuring charges |                |          |             |   |   |           | (592,318  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Investment losses                              |                |          |             |   |   |           | (14,635   | )




|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Corporate & Other includes administrative and
	financing expenses associated with corporate activities as well
	as development and management activities of real estate
	partnerships.

|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Interest expense is allocated from Corporate
	& Other to each Diversified Energy segment based on an
	imputed debt structure reflective of the segments related
	industry.

101



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


19.  INVESTMENTS IN AND ADVANCES TO JOINT
VENTURES

MCN has equity interests in several joint ventures involved in
the following businesses: Pipelines & Processing 
10.5% to 90% owned; Electric Power  43% to
67 1/2% owned; Energy Marketing  50% owned; Gas
Distribution  47 1/2% owned; and Real Estate
& Other  25% to 50% owned. MCNs share of
undistributed earnings in these joint ventures totaled
$43,000,000 at December 31, 2000.

The following is the combined summarized financial information
of the joint ventures. No provision for income taxes has been
included, since income taxes are paid directly by the joint
venture participants.




|                    |  |      |           |      |  |      |           |  |  |   |           | 
|------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                    |  | 2000 |           | 1999 |  | 1998
|(in Thousands)      |  |      |           |      |  |     
|Operating Revenues  |  | $    | 1,178,968 |      |  | $    | 2,177,614 |  |  | $ | 2,628,822 | 
|                   
|                   
|                   
|                   
|Operating Income    |  |      | 84,754    |      |  |      | 294,252   |  |  |   | 385,821   | 
|                   
|                   
|                   
|                   
|Income Before Taxes |  |      | 91,850    |      |  |      | 140,644   |  |  |   | 205,961   | 




|                                       |                        |      |           |           |  |   |           |           | 
|-------------------------------------- | ---------------------- | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                       |                        | 2000 |           | 1999     
|(in Thousands)                         |                        |      |           |          
|Assets                                 |                        |      |           |           |  |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Current assets         |      | $         | 385,745   |  |   | $         | 751,546   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Noncurrent assets      |      |           | 2,156,350 |  |   |           | 3,901,363 | 
|                                       |                        |      |           |           |  |   |           |          
|                                       |                        | $    | 2,542,095 |           |  | $ | 4,652,909 |          
|                                       |                        |      |           |           |  |   |           |          
|Liabilities and Joint Ventures Equity |                        |      |           |           |  |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Current liabilities    |      | $         | 335,277   |  |   | $         | 554,218   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Noncurrent liabilities |      |           | 891,800   |  |   |           | 2,407,870 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Joint ventures equity |      |           | 1,315,018 |  |   |           | 1,690,821 | 
|                                       |                        |      |           |           |  |   |           |          
|                                       |                        | $    | 2,542,095 |           |  | $ | 4,652,909 |          
|                                       |                        |      |           |           |  |   |           |          




102



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


20.  SUMMARY OF INCOME TAXES

MCN files a consolidated federal income tax return. The income
tax provisions or benefits of MCNs subsidiaries are
determined on an individual company basis. The subsidiaries
record income tax payable to or receivable from MCN resulting
from the inclusion of its taxable income or loss in MCNs
consolidated tax return.




|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |          |  
|-------------------------------------------------------- | ---------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | -------- | -------- | -
|                                                         |                                                | 2000 |        | 1999   |   | 1998
|(in Thousands)                                           |                                                |      |        |        |   |     
|Effective Federal Income Tax Rate                        |                                                |      | 33.0   | %      |   |      | 21.9   | %      |   |   | 38.7     | %       
|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |         
|Income Taxes Consist of:                                 |                                                |      |        |        |   |      |        |        |   |   |          |         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Current                                        |      | $      | 9,890  |   |      | $      | (5,289 | ) |   | $        | 7,002    |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Deferred, net                                  |      |        | 47,221 |   |      |        | 4,037  |   |   |          | (183,673 | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Gas production tax credits                     |      |        |       |   |      |        |       |   |   |          | (10,485  | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Tax credits, net                               |      |        | (1,938 | ) |      |        | (2,034 | ) |   |          | (2,990   | )
|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |         
|                                                         |                                                | $    | 55,173 |        |   | $    | (3,286 | )      |   | $ | (190,146 | )       
|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |         
|Reconciliation Between Statutory and Actual Income Taxes |                                                |      |        |        |   |      |        |        |   |   |          |         
|                                                        
|                                                        
|                                                        
|                                                        
|Statutory Federal Income Taxes at a Rate of 35%          |                                                | $    | 57,414 |        |   | $    | (6,771 | )      |   | $ | (171,155 | )       
|Adjustments to Federal Taxes                             |                                                |      |        |        |   |      |        |        |   |   |          |         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Book over tax depreciation                     |      |        | 3,150  |   |      |        | 2,018  |   |   |          | 1,071    |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Adjustments to taxes provided in prior periods |      |        | (1,278 | ) |      |        | 1,486  |   |   |          | (412     | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Merger expenses                                |      |        |       |   |      |        | 2,192  |   |   |          |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Stock-related benefits                         |      |        | (762   | ) |      |        | (832   | ) |   |          | (1,095   | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Gas production tax credits                     |      |        |       |   |      |        |       |   |   |          | (10,485  | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Tax credits                                    |      |        | (1,938 | ) |      |        | (2,034 | ) |   |          | (2,990   | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Allowance for funds used during construction   |      |        | (2,233 | ) |      |        | (1,444 | ) |   |          | (1,900   | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Impairment of assets                           |      |        | 1,170  |   |      |        |       |   |   |          |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Foreign earnings, distributed (undistributed)  |      |        |       |   |      |        | 1,244  |   |   |          | (1,244   | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Other, net                                     |      |        | (350   | ) |      |        | 855    |   |   |          | (1,936   | )
|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |         
|                                                         |                                                | $    | 55,173 |        |   | $    | (3,286 | )      |   | $ | (190,146 | )       
|                                                         |                                                |      |        |        |   |      |        |        |   |   |          |         




No provision was made for federal, state or foreign income taxes
in 1998 related to approximately $3,553,000 of undistributed
earnings of foreign subsidiaries that were intended to be
permanently reinvested. In 1999, federal, state and foreign
income taxes, totaling approximately $1,244,000, were provided
on the previously untaxed foreign earnings.

Deferred tax assets and liabilities are recognized for the
estimated future tax effect of temporary differences between the
tax basis of assets or liabilities and the reported amounts in
the financial statements. Deferred tax assets and liabilities
are classified as current or noncurrent according to the
classification of the related assets or liabilities. Deferred
tax assets and liabilities not related to assets or liabilities
are classified according to the expected reversal date of the
temporary differences. The alternative minimum tax credits may
be carried forward indefinitely.

103



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The tax effect of temporary differences that gave rise to
MCNs deferred tax assets and liabilities consisted of the
following:




|                                                |                                                                |      |         |         |  |   |         |        | 
|----------------------------------------------- | -------------------------------------------------------------- | ---- | ------- | ------- |  | - | ------- | ------ | 
|                                                |                                                                | 2000 |         | 1999   
|(in Thousands)                                  |                                                                |      |         |        
|Deferred Tax Assets                             |                                                                |      |         |         |  |   |         |       
|                                               
|                                               
|                                               
|                                               
|                                                | Alternative minimum tax credit carry-forward                   |      | $       | 66,102  |  |   | $       | 68,337 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Vacation and other benefits                                    |      |         | 15,496  |  |   |         | 17,265 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Postretirement benefits                                        |      |         | 8,683   |  |   |         | 6,478  | 
|                                               
|                                               
|                                               
|                                               
|                                                | Uncollectibles                                                 |      |         | 9,552   |  |   |         | 6,331  | 
|                                               
|                                               
|                                               
|                                               
|                                                | Unusual items                                                  |      |         | 615     |  |   |         | 4,139  | 
|                                               
|                                               
|                                               
|                                               
|                                                | Storage valuation                                              |      |         | 30,537  |  |   |         |       | 
|                                               
|                                               
|                                               
|                                               
|                                                | Net operating loss                                             |      |         | 104,480 |  |   |         | 84,151 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                          |      |         | 13,677  |  |   |         | 15,592 | 
|                                                |                                                                |      |         |         |  |   |         |       
|                                                |                                                                |      | 249,142 |         |  |   | 202,293 |       
|                                                |                                                                |      |         |         |  |   |         |       
|Deferred Tax Liabilities                        |                                                                |      |         |         |  |   |         |       
|                                               
|                                               
|                                               
|                                               
|                                                | Depreciation and other property-related basis differences, net |      |         | 53,745  |  |   |         | 64,331 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Inventory valuation                                            |      |         | 74,778  |  |   |         | 216    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Pensions                                                       |      |         | 71,193  |  |   |         | 51,004 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Property taxes                                                 |      |         | 13,899  |  |   |         | 17,819 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                          |      |         | 33,831  |  |   |         | 21,866 | 
|                                                |                                                                |      |         |         |  |   |         |       
|                                                |                                                                |      | 247,446 |         |  |   | 155,236 |       
|                                                |                                                                |      |         |         |  |   |         |       
|Net Deferred Tax Asset                          |                                                                |      | 1,696   |         |  |   | 47,057  |       
|                                               
|                                               
|                                               
|                                               
|Less: Net Deferred Tax Asset  Current          |                                                                |      | 31,538  |         |  |   | 32,508  |       
|                                                |                                                                |      |         |         |  |   |         |       
|Net Deferred Tax Asset (Liability)  Noncurrent |                                                                | $    | (29,842 | )       |  | $ | 14,549  |       
|                                                |                                                                |      |         |         |  |   |         |       




21.  CONSOLIDATING FINANCIAL
STATEMENTS

Debt securities issued by MCNEE are subject to a full and
unconditional guaranty between MCN and MCNEE. The following MCN
consolidating financial statements are presented and include
separately MCN Corporate, MCNEE and all other subsidiaries. The
other subsidiaries represent MichCon Holdings, Citizens, MCN
Michigan Limited Partnership and various MCN Financing companies.

104



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | --------- | ------------ | - | ------------ | --------- | --------- | ------ | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                      |                                       
|                                                                |                                                      | December 31, 2000                     
|                                                                |                                                      |                                       
|                                                                |                                                      |                                        |           | Eliminations |   |             
|                                                                |                                                      | MCN                                    |           |              |   | Other        |           | and       |        | Consolidated
|                                                                |                                                      | Corporate                              |           | MCNEE        |   | Subsidiaries |           | Reclasses |        | Total       
|(in Thousands)                                                  |                                                      |                                        |           |              |   |              |           |           |        |             
|ASSETS                                                          |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                   |                                        | $         | 8,230        |   |              | $         | 50,419    |        |              | $         | 12,952    |        |   | $          | (8,212   | ) |   | $         | 63,389    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                  |                                        |           | 14,156       |   |              |           | 866,785   |        |              |           | 180,137   |        |   |            | (21,262  | ) |   |           | 1,039,816 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less  Allowance for doubtful accounts |           |              |  |              |           |           | 14,465 |              |           |           | 19,139 |   |            |          |  |   |           |           | 33,604 | 
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                             |                                        |           | 14,156       |   |              |           | 852,320   |        |              |           | 160,998   |        |   |            | (21,262  | ) |   |           | 1,006,212 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                            |                                        |           |             |   |              |           |          |        |              |           | 137,473   |        |   |            |         |   |   |           | 137,473   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                     |                                        |           |             |   |              |           | 240,013   |        |              |           | 13,586    |        |   |            |         |   |   |           | 253,599   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods |                                        |           |             |   |              |           | 2,313     |        |              |           | 54,790    |        |   |            |         |   |   |           | 57,103    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 38,494    |        |              |           | (1,126    | )      |   |            | (5,830   | ) |   |           | 31,538    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from trading activities                       |                                        |           |             |   |              |           | 25,953    |        |              |           |          |        |   |            |         |   |   |           | 25,953    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | 5,803        |   |              |           | 19,789    |        |              |           | 28,186    |        |   |            | (1,118   | ) |   |           | 52,660    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 28,189    |              |   |              | 1,229,301 |           |        |              | 406,859   |           |        |   | (36,422    | )        |   |   | 1,627,927 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 104,592   |        |              |           |          |        |   |            | (104,592 | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities            |                                        |           |             |   |              |           | 103,393   |        |              |           | 83,379    |        |   |            |         |   |   |           | 186,772   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in leases                                |                                        |           |             |   |              |           |          |        |              |           | 76,395    |        |   |            |         |   |   |           | 76,395    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap losses and receivables                 |                                        |           |             |   |              |           | 173,672   |        |              |           |          |        |   |            |         |   |   |           | 173,672   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                         |                                        |           |             |   |              |           |          |        |              |           | 28,675    |        |   |            |         |   |   |           | 28,675    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                |                                        |           | 4,100        |   |              |           |          |        |              |           | 215,519   |        |   |            | (5,146   | ) |   |           | 214,473   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | (542         | ) |              |           | 32,340    |        |              |           | 345,264   |        |   |            | (294,773 | ) |   |           | 82,289    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 3,558     |              |   |              | 413,997   |           |        |              | 749,232   |           |        |   | (404,511   | )        |   |   | 762,276   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures
	and Subsidiaries |                                                      |                                        | 1,238,919 |              |   |              | 583,108   |           |        |              | 20,067    |           |        |   | (1,235,536 | )        |   |   | 606,558   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment                                   |                                                      |                                        | 16,223    |              |   |              | 645,550   |           |        |              | 3,008,216 |           |        |   |           |          |   |   | 3,669,989 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion        |                                        |           | 9,264        |   |              |           | 243,267   |        |              |           | 1,549,870 |        |   |            |         |   |   |           | 1,802,401 |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 6,959     |              |   |              | 402,283   |           |        |              | 1,458,346 |           |        |   |           |          |   |   | 1,867,588 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      | $                                      | 1,277,625 |              |   | $            | 2,628,689 |           |        | $            | 2,634,504 |           |        | $ | (1,676,469 | )        |   | $ | 4,864,349 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          

105



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |           | 
|-------------------------------------- | --------------------------------------------------------------- | ----------------- | --------- | ------------ | - | ------------ | --------- | --------- |  | ------------ | --------- | ------- |  | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                       |                                                                 |                  
|                                       |                                                                 | December 31, 2000
|                                       |                                                                 |                  
|                                       |                                                                 |                   |           | Eliminations |   |             
|                                       |                                                                 | MCN               |           |              |   | Other        |           | and       |  | Consolidated
|                                       |                                                                 | Corporate         |           | MCNEE        |   | Subsidiaries |           | Reclasses |  | Total       
|(in Thousands)                         |                                                                 |                   |           |              |   |              |           |           |  |             
|LIABILITIES AND CAPITALIZATION         |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|Current Liabilities                    |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                                                |                   | $         | 3,704        |   |              | $         | 778,628   |  |              | $         | 101,842 |  |   | $          | (23,735    | ) |   | $         | 860,439   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Notes payable                                                   |                   |           |             |   |              |           | 297,662   |  |              |           | 286,804 |  |   |            | (8,074     | ) |   |           | 576,392   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Current portion of long-term debt and capital lease obligations |                   |           |             |   |              |           | 160,000   |  |              |           | 24,652  |  |   |            |           |   |   |           | 184,652   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Federal income, property and other taxes payable                |                   |           | (4,294       | ) |              |           | 9,124     |  |              |           | 65,815  |  |   |            |           |   |   |           | 70,645    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Gas payable                                                     |                   |           |             |   |              |           | 60,195    |  |              |           | 2,232   |  |   |            |           |   |   |           | 62,427    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Liabilities from trading activities                             |                   |           |             |   |              |           | 108,523   |  |              |           |        |  |   |            |           |   |   |           | 108,523   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Customer deposits                                               |                   |           |             |   |              |           |          |  |              |           | 17,708  |  |   |            |           |   |   |           | 17,708    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                           |                   |           | 6,373        |   |              |           | 72,734    |  |              |           | 54,013  |  |   |            | (1,145     | ) |   |           | 131,975   | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 5,783     |              |   |              | 1,486,866 |           |  |              | 553,066   |         |  |   | (32,954    | )          |   |   | 2,012,761 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                                           |                   |           | (6,147       | ) |              |           |          |  |              |           | 146,411 |  |   |            | (110,422   | ) |   |           | 29,842    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Unamortized investment tax credit                               |                   |           |             |   |              |           |          |  |              |           | 26,084  |  |   |            |           |   |   |           | 26,084    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Tax benefits amortizable to customers                           |                   |           |             |   |              |           |          |  |              |           | 138,161 |  |   |            |           |   |   |           | 138,161   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred swap gains and payables                                |                   |           |             |   |              |           | 239,207   |  |              |           |        |  |   |            |           |   |   |           | 239,207   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued environmental costs                                     |                   |           |             |   |              |           |          |  |              |           | 28,250  |  |   |            |           |   |   |           | 28,250    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Minority interest                                               |                   |           |             |   |              |           | 531       |  |              |           | 635     |  |   |            |           |   |   |           | 1,166     | 
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                           |                   |           | 307,203      |   |              |           | 23,577    |  |              |           | 55,648  |  |   |            | (297,431   | ) |   |           | 88,997    | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 301,056   |              |   |              | 263,315   |           |  |              | 395,189   |         |  |   | (407,853   | )          |   |   | 551,707   |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|Capitalization                         |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Long-term debt, including capital lease obligations             |                   |           |             |   |              |           | 415,456   |  |              |           | 641,369 |  |   |            |           |   |   |           | 1,056,825 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Redeemable preferred securities of subsidiaries                 |                   |           |             |   |              |           |          |  |              |           | 272,484 |  |   |            |           |   |   |           | 272,484   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Common shareholders equity                                     |                   |           | 970,786      |   |              |           | 463,052   |  |              |           | 772,396 |  |   |            | (1,235,662 | ) |   |           | 970,572   | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 970,786   |              |   |              | 878,508   |           |  |              | 1,686,249 |         |  |   | (1,235,662 | )          |   |   | 2,299,881 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 | $                 | 1,277,625 |              |   | $            | 2,628,689 |           |  | $            | 2,634,504 |         |  | $ | (1,676,469 | )          |   | $ | 4,864,349 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          

106



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | --------- | ------------ | - | ------------ | --------- | --------- | ----- | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                      |                                       
|                                                                |                                                      | December 31, 1999                     
|                                                                |                                                      |                                       
|                                                                |                                                      |                                        |           | Eliminations |   |             
|                                                                |                                                      | MCN                                    |           |              |   | Other        |           | and       |       | Consolidated
|                                                                |                                                      | Corporate                              |           | MCNEE        |   | Subsidiaries |           | Reclasses |       | Total       
|(in Thousands)                                                  |                                                      |                                        |           |              |   |              |           |           |       |             
|ASSETS                                                          |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                   |                                        | $         | 6,727        |   |              | $         | 49,191    |       |              | $         | 10,141    |        |   | $          | (6,693   | ) |   | $         | 59,366    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                  |                                        |           | 20,550       |   |              |           | 404,299   |       |              |           | 169,099   |        |   |            | (26,539  | ) |   |           | 567,409   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less  Allowance for doubtful accounts |           |              |  |              |           |           | 2,767 |              |           |           | 17,953 |   |            |          |  |   |           |           | 20,720 | 
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                             |                                        |           | 20,550       |   |              |           | 401,532   |       |              |           | 151,146   |        |   |            | (26,539  | ) |   |           | 546,689   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                            |                                        |           |             |   |              |           |          |       |              |           | 100,439   |        |   |            |         |   |   |           | 100,439   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                     |                                        |           |             |   |              |           | 105,676   |       |              |           | 74,150    |        |   |            |         |   |   |           | 179,826   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods |                                        |           | 243          |   |              |           | 1,785     |       |              |           | 60,623    |        |   |            |         |   |   |           | 62,651    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 44,024    |       |              |           | (316      | )      |   |            | (11,200  | ) |   |           | 32,508    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from trading activities                       |                                        |           |             |   |              |           |          |       |              |           |          |        |   |            |         |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | 6,283        |   |              |           | 17,458    |       |              |           | 28,554    |        |   |            | (1,252   | ) |   |           | 51,043    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 33,803    |              |   |              | 619,666   |           |       |              | 424,737   |           |        |   | (45,684    | )        |   |   | 1,032,522 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 114,754   |       |              |           |          |        |   |            | (100,205 | ) |   |           | 14,549    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities            |                                        |           |             |   |              |           | 4,242     |       |              |           | 67,835    |        |   |            |         |   |   |           | 72,077    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in leases                                |                                        |           |             |   |              |           |          |       |              |           |          |        |   |            |         |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap losses and receivables                 |                                        |           |             |   |              |           | 43,907    |       |              |           |          |        |   |            |         |   |   |           | 43,907    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                         |                                        |           |             |   |              |           |          |       |              |           | 31,173    |        |   |            |         |   |   |           | 31,173    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                |                                        |           |             |   |              |           |          |       |              |           | 156,276   |        |   |            |         |   |   |           | 156,276   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | (535         | ) |              |           | 30,647    |       |              |           | 498,992   |        |   |            | (420,816 | ) |   |           | 108,288   |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | (535      | )            |   |              | 193,550   |           |       |              | 754,276   |           |        |   | (521,021   | )        |   |   | 426,270   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                      |                                        | 1,426,159 |              |   |              | 741,960   |           |       |              | 19,114    |           |        |   | (1,423,261 | )        |   |   | 763,972   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment                                   |                                                      |                                        | 16,227    |              |   |              | 680,011   |           |       |              | 3,016,232 |           |        |   |           |          |   |   | 3,712,470 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion        |                                        |           | 7,172        |   |              |           | 215,359   |       |              |           | 1,474,681 |        |   |            |         |   |   |           | 1,697,212 |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 9,055     |              |   |              | 464,652   |           |       |              | 1,541,551 |           |        |   |           |          |   |   | 2,015,258 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      | $                                      | 1,468,482 |              |   | $            | 2,019,828 |           |       | $            | 2,739,678 |           |        | $ | (1,989,966 | )        |   | $ | 4,238,022 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          

107



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |           | 
|-------------------------------------- | --------------------------------------------------------------- | ----------------- | --------- | ------------ | - | ------------ | --------- | --------- |  | ------------ | --------- | ------- |  | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                       |                                                                 |                  
|                                       |                                                                 | December 31, 1999
|                                       |                                                                 |                  
|                                       |                                                                 |                   |           | Eliminations |   |             
|                                       |                                                                 | MCN               |           |              |   | Other        |           | and       |  | Consolidated
|                                       |                                                                 | Corporate         |           | MCNEE        |   | Subsidiaries |           | Reclasses |  | Total       
|(in Thousands)                         |                                                                 |                   |           |              |   |              |           |           |  |             
|LIABILITIES AND CAPITALIZATION         |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|Current Liabilities                    |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                                                |                   | $         | 8,652        |   |              | $         | 215,228   |  |              | $         | 87,506  |  |   | $          | (15,247    | ) |   | $         | 296,139   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Notes payable                                                   |                   |           | 200,000      |   |              |           | 179,249   |  |              |           | 254,133 |  |   |            | (15,627    | ) |   |           | 617,755   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Current portion of long-term debt and capital lease obligations |                   |           |             |   |              |           | 118       |  |              |           | 27,984  |  |   |            |           |   |   |           | 28,102    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Federal income, property and other taxes payable                |                   |           | (4,614       | ) |              |           | 3,428     |  |              |           | 70,752  |  |   |            | (1,066     | ) |   |           | 68,500    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Gas payable                                                     |                   |           |             |   |              |           | 19,824    |  |              |           | 3,598   |  |   |            |           |   |   |           | 23,422    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Liabilities from trading activities                             |                   |           |             |   |              |           |          |  |              |           |        |  |   |            |           |   |   |           |          | 
|                                      
|                                      
|                                      
|                                      
|                                       | Customer deposits                                               |                   |           |             |   |              |           |          |  |              |           | 17,707  |  |   |            |           |   |   |           | 17,707    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                           |                   |           | 18,512       |   |              |           | 73,910    |  |              |           | 66,481  |  |   |            | (11,954    | ) |   |           | 146,949   | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 222,550   |              |   |              | 491,757   |           |  |              | 528,161   |         |  |   | (43,894    | )          |   |   | 1,198,574 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                                           |                   |           | (6,849       | ) |              |           |          |  |              |           | 106,521 |  |   |            | (99,672    | ) |   |           |          | 
|                                      
|                                      
|                                      
|                                      
|                                       | Unamortized investment tax credit                               |                   |           |             |   |              |           |          |  |              |           | 28,022  |  |   |            |           |   |   |           | 28,022    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Tax benefits amortizable to customers                           |                   |           |             |   |              |           |          |  |              |           | 136,236 |  |   |            |           |   |   |           | 136,236   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred swap gains and payables                                |                   |           |             |   |              |           | 64,962    |  |              |           |        |  |   |            |           |   |   |           | 64,962    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued environmental costs                                     |                   |           |             |   |              |           |          |  |              |           | 28,068  |  |   |            |           |   |   |           | 28,068    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Minority interest                                               |                   |           |             |   |              |           | 2,380     |  |              |           | 8,716   |  |   |            |           |   |   |           | 11,096    | 
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                           |                   |           | 433,713      |   |              |           | 33,639    |  |              |           | 47,268  |  |   |            | (423,007   | ) |   |           | 91,613    | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 426,864   |              |   |              | 100,981   |           |  |              | 354,831   |         |  |   | (522,679   | )          |   |   | 359,997   |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|Capitalization                         |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                      
|                                      
|                                      
|                                      
|                                       | Long-term debt, including capital lease obligations             |                   |           |             |   |              |           | 776,708   |  |              |           | 680,909 |  |   |            |           |   |   |           | 1,457,617 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Redeemable preferred securities of subsidiaries                 |                   |           |             |   |              |           |          |  |              |           | 402,922 |  |   |            |           |   |   |           | 402,922   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Common shareholders equity                                     |                   |           | 819,068      |   |              |           | 650,382   |  |              |           | 772,855 |  |   |            | (1,423,393 | ) |   |           | 818,912   | 
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 |                   | 819,068   |              |   |              | 1,427,090 |           |  |              | 1,856,686 |         |  |   | (1,423,393 | )          |   |   | 2,679,451 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          
|                                       |                                                                 | $                 | 1,468,482 |              |   | $            | 2,019,828 |           |  | $            | 2,739,678 |         |  | $ | (1,989,966 | )          |   | $ | 4,238,022 |          
|                                       |                                                                 |                   |           |              |   |              |           |           |  |              |           |         |  |   |            |            |   |   |           |          

108



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------- | ------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- | - | - | -------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   |                                      
|                                                             |                                                   | Twelve Months Ended December 31, 2000
|                                                             |                                                   |                                      
|                                                             |                                                   |                                       |         | Eliminations |   |             
|                                                             |                                                   | MCN                                   |         |              |   | Other        |           | and       |   | Consolidated
|                                                             |                                                   | Corporate                             |         | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                               |                                                   |                                       |         |              |   |              |           |           |   |             
|Operating Revenues                                           |                                                   | $                                     |        |              |   | $            | 1,713,918 |           |   | $            | 1,173,127 |         |   | $ | (95,938  | )       |   | $ | 2,791,107 |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                       |         |             |   |              |           | 1,589,186 |   |              |           | 526,465 |   |   |          | (93,881 | ) |   |           | 2,021,770 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                       |         | (3,592       | ) |              |           | 109,037   |   |              |           | 260,936 |   |   |          | (2,115  | ) |   |           | 364,266   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                       |         | 2,092        |   |              |           | 30,500    |   |              |           | 105,034 |   |   |          |        |   |   |           | 137,626   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                       |         | 609          |   |              |           | 8,859     |   |              |           | 61,900  |   |   |          |        |   |   |           | 71,368    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs                              |                                       |         |             |   |              |           |          |   |              |           | 9,651   |   |   |          |        |   |   |           | 9,651     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses from sale of assets, net         |                                       |         |             |   |              |           | (77,069   | ) |              |           | (301    | ) |   |          |        |   |   |           | (77,370   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                       |         |             |   |              |           | (11,493   | ) |              |           |        |   |   |          |        |   |   |           | (11,493   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                       |         |             |   |              |           | 2,205     |   |              |           | 4,100   |   |   |          |        |   |   |           | 6,305     |  
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                             |                                                   |                                       | (891    | )            |   |              | 1,651,225 |           |   |              | 967,785   |         |   |   | (95,996  | )       |   |   | 2,522,123 |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Operating Income (Loss)                                      |                                                   |                                       | 891     |              |   |              | 62,693    |           |   |              | 205,342   |         |   |   | 58       |         |   |   | 268,984   |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Equity in Earnings of Joint Ventures                         |                                                   |                                       | 109,905 |              |   |              | 26,037    |           |   |              | 3,453     |         |   |   | (110,970 | )       |   |   | 28,425    |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Other Income and (Deductions)                                |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                       |         | 576          |   |              |           | 9,734     |   |              |           | 32,159  |   |   |          | (29,995 | ) |   |           | 12,474    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                       |         | (153         | ) |              |           | (44,388   | ) |              |           | (48,366 | ) |   |          |        |   |   |           | (92,907   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                       |         | (1,529       | ) |              |           | (46,294   | ) |              |           | (12,062 | ) |   |          | 29,995  |   |   |           | (29,890   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                       |         |             |   |              |           |          |   |              |           |        |   |   |          | (28,565 | ) |   |           | (28,565   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment gains                                  |                                       |         |             |   |              |           | 7,638     |   |              |           |        |   |   |          |        |   |   |           | 7,638     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                       |         |             |   |              |           | (775      | ) |              |           | (485    | ) |   |          |        |   |   |           | (1,260    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                       |         | (1,391       | ) |              |           | (1,491    | ) |              |           | 2,360   |   |   |          | (336    | ) |   |           | (858      | )
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                             |                                                   |                                       | (2,497  | )            |   |              | (75,576   | )         |   |              | (26,394   | )       |   |   | (28,901  | )       |   |   | (133,368  | )        
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Income (Loss) Before Income Taxes                            |                                                   |                                       | 108,299 |              |   |              | 13,154    |           |   |              | 182,401   |         |   |   | (139,813 | )       |   |   | 164,041   |          
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                       | (569    | )            |   |              | 3,060     |           |   |              | 52,682    |         |   |   |         |         |   |   | 55,173    |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                       | 108,868 |              |   |              | 10,094    |           |   |              | 129,719   |         |   |   | (139,813 | )       |   |   | 108,868   |          
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                       |        |              |   |              |          |           |   |              |          |         |   |   |         |         |   |   |          |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                       | 108,868 |              |   |              | 10,094    |           |   |              | 129,719   |         |   |   | (139,813 | )       |   |   | 108,868   |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                       |        |              |   |              |          |           |   |              | 28,565    |         |   |   | (28,565  | )       |   |   |          |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                     | 108,868 |              |   | $            | 10,094    |           |   | $            | 101,154   |         |   | $ | (111,248 | )       |   | $ | 108,868   |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |          |         |   |   |           |          

109



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------- | ------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   |                                      
|                                                             |                                                   | Twelve Months Ended December 31, 1999
|                                                             |                                                   |                                      
|                                                             |                                                   |                                       |         | Eliminations |   |             
|                                                             |                                                   | MCN                                   |         |              |   | Other        |           | and       |   | Consolidated
|                                                             |                                                   | Corporate                             |         | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                               |                                                   |                                       |         |              |   |              |           |           |   |             
|Operating Revenues                                           |                                                   | $                                     |        |              |   | $            | 1,343,025 |           |   | $            | 1,170,673 |         |   | $ | (89,445 | )       |   | $ | 2,424,253 |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                       |         |             |   |              |           | 1,118,593 |   |              |           | 507,381 |   |   |         | (86,133 | ) |   |           | 1,539,841 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                       |         | (14,042      | ) |              |           | 150,158   |   |              |           | 278,419 |   |   |         | (3,312  | ) |   |           | 411,223   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                       |         | 1,899        |   |              |           | 62,626    |   |              |           | 100,113 |   |   |         |        |   |   |           | 164,638   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                       |         | 955          |   |              |           | 10,346    |   |              |           | 45,896  |   |   |         |        |   |   |           | 57,197    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                       |         |             |   |              |           | 61,782    |   |              |           |        |   |   |         |        |   |   |           | 61,782    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses from sale of assets, net         |                                       |         |             |   |              |           | 81,989    |   |              |           |        |   |   |         |        |   |   |           | 81,989    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                       |         |             |   |              |           | (11,164   | ) |              |           |        |   |   |         |        |   |   |           | (11,164   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                       |         |             |   |              |           | 9,055     |   |              |           | 25,801  |   |   |         |        |   |   |           | 34,856    |  
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                       | (11,188 | )            |   |              | 1,483,385 |           |   |              | 957,610   |         |   |   | (89,445 | )       |   |   | 2,340,362 |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                       | 11,188  |              |   |              | (140,360  | )         |   |              | 213,063   |         |   |   |        |         |   |   | 83,891    |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                       | (18,094 | )            |   |              | 50,428    |           |   |              | 1,976     |         |   |   | 18,076  |         |   |   | 52,386    |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                       |         | 451          |   |              |           | 4,238     |   |              |           | 43,536  |   |   |         | (41,650 | ) |   |           | 6,575     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                       |         | 808          |   |              |           | (42,974   | ) |              |           | (47,265 | ) |   |         |        |   |   |           | (89,431   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                       |         | (11,552      | ) |              |           | (51,262   | ) |              |           | (9,176  | ) |   |         | 41,648  |   |   |           | (30,342   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                       |         |             |   |              |           |          |   |              |           |        |   |   |         | (40,139 | ) |   |           | (40,139   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                       |         |             |   |              |           | (7,456    | ) |              |           |        |   |   |         |        |   |   |           | (7,456    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                       |         |             |   |              |           | (592      | ) |              |           | (1,020  | ) |   |         |        |   |   |           | (1,612    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                       |         | 1,506        |   |              |           | 6,960     |   |              |           | (1,681  | ) |   |         |        |   |   |           | 6,785     |  
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                       | (8,787  | )            |   |              | (91,086   | )         |   |              | (15,606   | )       |   |   | (40,141 | )       |   |   | (155,620  | )        
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                       | (15,693 | )            |   |              | (181,018  | )         |   |              | 199,433   |         |   |   | (22,065 | )       |   |   | (19,343   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                       | 3,236   |              |   |              | (61,598   | )         |   |              | 55,076    |         |   |   |        |         |   |   | (3,286    | )        
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                       | (18,929 | )            |   |              | (119,420  | )         |   |              | 144,357   |         |   |   | (22,065 | )       |   |   | (16,057   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                       |        |              |   |              | (2,872    | )         |   |              |          |         |   |   |        |         |   |   | (2,872    | )        
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                       | (18,929 | )            |   |              | (122,292  | )         |   |              | 144,357   |         |   |   | (22,065 | )       |   |   | (18,929   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                       |        |              |   |              |          |           |   |              | 40,139    |         |   |   | (40,139 | )       |   |   |          |          
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                     | (18,929 | )            |   | $            | (122,292  | )         |   | $            | 104,218   |         |   | $ | 18,074  |         |   | $ | (18,929   | )        
|                                                             |                                                   |                                       |         |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          

110



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------- | -------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   |                                      
|                                                             |                                                   | Twelve Months Ended December 31, 1998
|                                                             |                                                   |                                      
|                                                             |                                                   |                                       |          | Eliminations |   |             
|                                                             |                                                   | MCN                                   |          |              |   | Other        |           | and       |   | Consolidated
|                                                             |                                                   | Corporate                             |          | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                               |                                                   |                                       |          |              |   |              |           |           |   |             
|Operating Revenues                                           |                                                   | $                                     |         |              |   | $            | 973,746   |           |   | $            | 1,051,920 |         |   | $ | (14,445 | )       |   | $ | 2,011,221 |          
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                       |          |             |   |              |           | 752,207   |   |              |           | 462,235 |   |   |         | (9,063  | ) |   |           | 1,205,379 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                       |          | (14,434      | ) |              |           | 152,607   |   |              |           | 256,624 |   |   |         | (5,382  | ) |   |           | 389,415   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                       |          | 2,314        |   |              |           | 83,401    |   |              |           | 93,775  |   |   |         |        |   |   |           | 179,490   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                       |          | 1,205        |   |              |           | 12,396    |   |              |           | 55,952  |   |   |         |        |   |   |           | 69,553    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and restructuring charges    |                                       |          | 17,169       |   |              |           | 558,849   |   |              |           | 24,800  |   |   |         |        |   |   |           | 600,818   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses from sale of assets, net         |                                       |          |             |   |              |           | (9,911    | ) |              |           |        |   |   |         |        |   |   |           | (9,911    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                       |          |             |   |              |           | (7,398    | ) |              |           |        |   |   |         |        |   |   |           | (7,398    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                       |          |             |   |              |           |          |   |              |           |        |   |   |         |        |   |   |           |          |  
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                       | 6,254    |              |   |              | 1,542,151 |           |   |              | 893,386   |         |   |   | (14,445 | )       |   |   | 2,427,346 |          
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                       | (6,254   | )            |   |              | (568,405  | )         |   |              | 158,534   |         |   |   |        |         |   |   | (416,125  | )        
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                       | (293,060 | )            |   |              | 61,242    |           |   |              | 1,946     |         |   |   | 292,097 |         |   |   | 62,225    |          
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                       |          | 517          |   |              |           | 6,609     |   |              |           | 42,579  |   |   |         | (38,812 | ) |   |           | 10,893    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                       |          | (629         | ) |              |           | (41,821   | ) |              |           | (44,896 | ) |   |         |        |   |   |           | (87,346   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                       |          | (2,450       | ) |              |           | (48,630   | ) |              |           | (12,137 | ) |   |         | 38,813  |   |   |           | (24,404   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                       |          |             |   |              |           |          |   |              |           |        |   |   |         | (36,370 | ) |   |           | (36,370   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                       |          |             |   |              |           | (6,135    | ) |              |           |        |   |   |         |        |   |   |           | (6,135    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                       |          |             |   |              |           | 265       |   |              |           | 5,727   |   |   |         |        |   |   |           | 5,992     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                       |          | (319         | ) |              |           | 3,039     |   |              |           | (468    | ) |   |         |        |   |   |           | 2,252     |  
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                       | (2,881   | )            |   |              | (86,673   | )         |   |              | (9,195    | )       |   |   | (36,369 | )       |   |   | (135,118  | )        
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                       | (302,195 | )            |   |              | (593,836  | )         |   |              | 151,285   |         |   |   | 255,728 |         |   |   | (489,018  | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                       | (3,323   | )            |   |              | (223,134  | )         |   |              | 36,311    |         |   |   |        |         |   |   | (190,146  | )        
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                       | (298,872 | )            |   |              | (370,702  | )         |   |              | 114,974   |         |   |   | 255,728 |         |   |   | (298,872  | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                       |         |              |   |              |          |           |   |              |          |         |   |   |        |         |   |   |          |          
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                       | (298,872 | )            |   |              | (370,702  | )         |   |              | 114,974   |         |   |   | 255,728 |         |   |   | (298,872  | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                       |         |              |   |              |          |           |   |              | 36,370    |         |   |   | (36,370 | )       |   |   |          |          
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                     | (298,872 | )            |   | $            | (370,702  | )         |   | $            | 78,604    |         |   | $ | 292,098 |         |   | $ | (298,872  | )        
|                                                             |                                                   |                                       |          |              |   |              |           |           |   |              |           |         |   |   |         |         |   |   |           |          

111



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------ | -------- | ------------ | ------- | --------- | -------- | ------------ | ------- | -------- | -------- | - | -------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Twelve Months Ended December 31, 2000                 
|                                                     |                                                                              |                                                       
|                                                     |                                                                              |                                                        |        | Eliminations |          |             
|                                                     |                                                                              | MCN                                                    |        |              |          | Other        |         | and       |          | Consolidated
|                                                     |                                                                              | Corporate                                              |        | MCNEE        |          | Subsidiaries |         | Reclasses |          | Total       
|(in Thousands)                                       |                                                                              |                                                        |        |              |          |              |         |           |          |             
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 93,489 |              |          | $            | (12,961 | )         |          | $            | 264,395 |          |          | $ | (121,840 | )        |          | $ | 223,083 |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        | (200,000     | )        |              |         | (61,733   | )        |              |         | 32,671   |          |   |          | 7,553    |          |   |         | (221,509 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |        |             |          |              |         | (197,365  | )        |              |         |         |          |   |          | 197,365  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (90,047      | )        |              |         |          |          |              |         | (100,000 | )        |   |          | 100,000  |          |   |         | (90,047  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        |             |          |              |         |          |          |              |         | (28,565  | )        |   |          | 28,565   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        | 4,877        |          |              |         |          |          |              |         |         |          |   |          |         |          |   |         | 4,877    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        | (2,564       | )        |              |         |          |          |              |         |         |          |   |          |         |          |   |         | (2,564   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |             |          |              |         | (19,854   | )        |              |         |         |          |   |          |         |          |   |         | (19,854  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        |             |          |              |         | (808      | )        |              |         | (42,740  | )        |   |          |         |          |   |         | (43,548  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | (336         | )        |              |         |          |          |              |         | (1,330   | )        |   |          | 1,543    |          |   |         | (123     | )       
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |              | (288,070 | )            |         |           | (279,760 | )            |         |          | (139,964 | ) |          |          | 335,026  |   |         |          | (372,768 | )
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        | (4           | )        |              |         | (34,908   | )        |              |         | (118,580 | )        |   |          |         |          |   |         | (153,492 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |             |          |              |         | (69,729   | )        |              |         |         |          |   |          | (13,532  | )        |   |         | (83,261  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |        | 195,815      |          |              |         | (73,199   | )        |              |         | 300      |          |   |          | (197,365 | )        |   |         | (74,449  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |             |          |              |         | 469,532   |          |              |         | (3,104   | )        |   |          | 41       |          |   |         | 466,469  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | 273          |          |              |         | 2,253     |          |              |         | (236     | )        |   |          | (3,849   | )        |   |         | (1,559   | )       
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |              | 196,084  |              |         |           | 293,949  |              |         |          | (121,620 | ) |          |          | (214,705 | ) |         |          | 153,708  |  
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | 1,503  |              |          |              | 1,228   |           |          |              | 2,811   |          |          |   | (1,519   | )        |          |   | 4,023   |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 6,727  |              |          |              | 49,191  |           |          |              | 10,141  |          |          |   | (6,693   | )        |          |   | 59,366  |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         
|Cash and Cash Equivalents, December 31               |                                                                              | $                                                      | 8,230  |              |          | $            | 50,419  |           |          | $            | 12,952  |          |          | $ | (8,212   | )        |          | $ | 63,389  |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |          |          |          |   |         |         

112



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------ | -------- | ------------ | ------ | --------- | -------- | ------------ | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Twelve Months Ended December 31, 1999                 
|                                                     |                                                                              |                                                       
|                                                     |                                                                              |                                                        |        | Eliminations |          |             
|                                                     |                                                                              | MCN                                                    |        |              |          | Other        |        | and       |          | Consolidated
|                                                     |                                                                              | Corporate                                              |        | MCNEE        |          | Subsidiaries |        | Reclasses |          | Total       
|(in Thousands)                                       |                                                                              |                                                        |        |              |          |              |        |           |          |             
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 16,300 |              |          | $            | 16,001 |           |          | $            | 156,197 |          |          | $ | (58,211 | )        |          | $ | 130,287 |         
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        | (60,000      | )        |              |        | 41,487    |          |              |         | 22,299   |          |   |         | (4,882   | )        |   |         | (1,096   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |        |             |          |              |        | (101,657  | )        |              |         |         |          |   |         | 101,657  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (86,256      | )        |              |        |          |          |              |         | (17,500  | )        |   |         | 17,500   |          |   |         | (86,256  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        |             |          |              |        |          |          |              |         | (40,139  | )        |   |         | 40,139   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        | 136,145      |          |              |        |          |          |              |         |         |          |   |         |         |          |   |         | 136,145  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        | (6,745       | )        |              |        |          |          |              |         |         |          |   |         |         |          |   |         | (6,745   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                                                   |                                                        |        |             |          |              |        |          |          |              |         | 106,535  |          |   |         |         |          |   |         | 106,535  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |             |          |              |        | 92,344    |          |              |         |         |          |   |         |         |          |   |         | 92,344   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        | (103,093     | )        |              |        | (213,599  | )        |              |         | (182,190 | )        |   |         | 103,093  |          |   |         | (395,789 | )       
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |              | (119,949 | )            |        |           | (181,425 | )            |         |          | (110,995 | ) |         |          | 257,507  |   |         |          | (154,862 | )
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        | (266         | )        |              |        | (157,080  | )        |              |         | (136,912 | )        |   |         |         |          |   |         | (294,258 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                 |                                                        |        |             |          |              |        | (29,551   | )        |              |         |         |          |   |         |         |          |   |         | (29,551  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |             |          |              |        | (2,479    | )        |              |         | 103,093  |          |   |         | (104,771 | )        |   |         | (4,157   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |        | 100,218      |          |              |        | (76,090   | )        |              |         | 102      |          |   |         | (101,657 | )        |   |         | (77,427  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |             |          |              |        | 472,007   |          |              |         |         |          |   |         | (1,103   | )        |   |         | 470,904  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | 3,561        |          |              |        | (1,228    | )        |              |         | (8,548   | )        |   |         | 7,606    |          |   |         | 1,391    |         
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |              | 103,513  |              |        |           | 205,579  |              |         |          | (42,265  | ) |         |          | (199,925 | ) |         |          | 66,902   |  
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (136   | )            |          |              | 40,155 |           |          |              | 2,937   |          |          |   | (629    | )        |          |   | 42,327  |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 6,863  |              |          |              | 9,036  |           |          |              | 7,204   |          |          |   | (6,064  | )        |          |   | 17,039  |         
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash and Cash Equivalents, December 31               |                                                                              | $                                                      | 6,727  |              |          | $            | 49,191 |           |          | $            | 10,141  |          |          | $ | (6,693  | )        |          | $ | 59,366  |         
|                                                     |                                                                              |                                                        |        |              |          |              |        |           |          |              |         |          |          |   |         |          |          |   |         |         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONCLUDED)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------- | ------------ | -------- | ------------ | ------- | --------- | -------- | ------------ | ------- | -------- | ------- | - | ------- | -------- | ------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Twelve Months Ended December 31, 1998                 
|                                                     |                                                                              |                                                       
|                                                     |                                                                              |                                                        |         | Eliminations |          |             
|                                                     |                                                                              | MCN                                                    |         |              |          | Other        |         | and       |          | Consolidated
|                                                     |                                                                              | Corporate                                              |         | MCNEE        |          | Subsidiaries |         | Reclasses |          | Total       
|(in Thousands)                                       |                                                                              |                                                        |         |              |          |              |         |           |          |             
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 149,647 |              |          | $            | (68,749 | )         |          | $            | 150,711 |          |         | $ | (78,887 | )        |         | $ | 152,722 |         
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |         | 260,000      |          |              |         | 65,006    |          |              |         | (15,040  | )       |   |         | (2,484   | )       |   |         | 307,482  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |         | -            |          |              |         | 236,851   |          |              |         | -        |         |   |         | (236,851 | )       |   |         | -        |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |         | (82,239      | )        |              |         | -         |          |              |         | (41,174  | )       |   |         | 41,174   |         |   |         | (82,239  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |         | -            |          |              |         | -         |          |              |         | (36,730  | )       |   |         | 36,730   |         |   |         | -        |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |         | 20,192       |          |              |         | -         |          |              |         | -        |         |   |         | -        |         |   |         | 20,192   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of preferred securities                                             |                                                        |         | -            |          |              |         | -         |          |              |         | 96,850   |         |   |         | -        |         |   |         | 96,850   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                                                   |                                                        |         | -            |          |              |         | 305,709   |          |              |         | 153,052  |         |   |         | -        |         |   |         | 458,761  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |         | -            |          |              |         | 17,299    |          |              |         | -        |         |   |         | -        |         |   |         | 17,299   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |         | (100,000     | )        |              |         | (102,153  | )        |              |         | (226,657 | )       |   |         | 100,000  |         |   |         | (328,810 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |         | -            |          |              |         | 8,243     |          |              |         | -        |         |   |         | -        |         |   |         | 8,243    |         
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |         |              | 97,953   |              |         |           | 530,955  |              |         |          | (69,699 | ) |         |          | (61,431 | ) |         |          | 497,778  |  
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |         | (6,547       | )        |              |         | (318,276  | )        |              |         | (157,952 | )       |   |         | -        |         |   |         | (482,775 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                 |                                                        |         | -            |          |              |         | (42,429   | )        |              |         | -        |         |   |         | -        |         |   |         | (42,429  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |         | -            |          |              |         | 48,527    |          |              |         | 69,554   |         |   |         | (100,250 | )       |   |         | 17,831   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |         | (238,951     | )        |              |         | (187,423  | )        |              |         | 214      |         |   |         | 236,851  |         |   |         | (189,309 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |         | -            |          |              |         | 49,463    |          |              |         | -        |         |   |         | (2,278   | )       |   |         | 47,185   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |         | (363         | )        |              |         | (28,151   | )        |              |         | -        |         |   |         | 5,055    |         |   |         | (23,459  | )       
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |         |              | (245,861 | )            |         |           | (478,289 | )            |         |          | (88,184 | ) |         |          | 139,378 |   |         |          | (672,956 | )
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | 1,739   |              |          |              | (16,083 | )         |          |              | (7,172  | )        |         |   | (940    | )        |         |   | (22,456 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 5,124   |              |          |              | 25,119  |           |          |              | 14,376  |          |         |   | (5,124  | )        |         |   | 39,495  |         
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         
|Cash and Cash Equivalents, December 31               |                                                                              | $                                                      | 6,863   |              |          | $            | 9,036   |           |          | $            | 7,204   |          |         | $ | (6,064  | )        |         | $ | 17,039  |         
|                                                     |                                                                              |                                                        |         |              |          |              |         |           |          |              |         |          |         |   |         |          |         |   |         |         

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RESPONSIBILITIES FOR FINANCIAL
STATEMENTS

The consolidated financial statements of MCN Energy Group Inc.
were prepared by management which is responsible for their
integrity and objectivity. The statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America and, as such, include amounts based on
judgments of management. Financial information elsewhere in this
Annual Report is consistent with that in the consolidated
financial statements.

Management is further responsible for maintaining a system of
internal accounting controls, designed to provide reasonable
assurance that the books and records reflect the transactions of
MCN and its subsidiaries and that established policies and
procedures are carefully followed. Perhaps the most important
feature in the system of internal control is that it is
continually reviewed for its effectiveness and is augmented by a
strong internal audit program.

Deloitte & Touche LLP, independent auditors, is engaged to
audit the consolidated financial statements of MCN and issue
reports thereon. Their audit is conducted in accordance with
auditing standards generally accepted in the United States of
America which comprehends gaining an understanding of internal
accounting controls.

MCNs Board of Directors, through its Audit Committee, is
responsible for: (i) assuring that management fulfills
its responsibilities in the preparation of the consolidated
financial statements, and (ii) engaging the independent
public accountants. The Committee reviews the scope of the
audits and the accounting principles being applied in financial
reporting. The independent auditors, representatives of
management and the internal auditors meet regularly (separately
and jointly) with the Committee to review the activities of each
and to ensure that each is properly discharging its
responsibilities.

/s/ ALFRED R. GLANCY III






Chairman and Chief Executive Officer


/s/ STEPHEN E. EWING






President, Chief Operating Officer and Director


/s/ HOWARD L. DOW III






Executive Vice President, Chief Financial Officer and
Treasurer


/s/ GERARD KABZINSKI






Vice President and Controller


115



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors of MCN Energy Group Inc.:

We have audited the accompanying consolidated statements of
financial position of MCN Energy Group Inc. and subsidiaries,
(the Company) as of December 31, 2000 and 1999,
and the related consolidated statements of operations, cash
flows and common shareholders equity for each of the three
years in the period ended December 31, 2000. Our audits
also included the consolidated financial statement schedule
listed in Item 8. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2000 and 1999,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information shown therein.

As discussed in Note 3 to the consolidated financial
statements, in 2000 the Company changed its method of accounting
for gas in inventory held by the Companys Energy Marketing
segment from the last in, first out method of inventory
valuation to the fair value method. The financial statements for
the prior periods have been restated to apply the new inventory
accounting method retroactively. In addition, as discussed in
Note 5 to the consolidated financial statements, the
Company changed its method of accounting for costs of start-up
activities in 1999.

DELOITTE & TOUCHE LLP





116



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##### Table of Contents



SUPPLEMENTARY FINANCIAL INFORMATION

Quarterly Operating Results
(Unaudited)

Due to the seasonal nature of MCNs Gas Distribution
operations, revenues, net income and earnings per share tend to
be higher in the first and fourth quarters of the calendar year.
Quarterly earnings per share may not total for the years, since
quarterly computations are based on weighted average common
shares outstanding during each quarter. There were 19,095 and
20,755 holders of record of MCN common shares at
December 31, 2000 and 1999, respectively.

|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |         | 
|---------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- |  | ------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | - | - | --------- | ------- | 
|                                                     |                                       | First   |         | Second  |  | Third   |         | Fourth  |   |     
|                                                     |                                       | Quarter |         | Quarter |  | Quarter |         | Quarter |   | Year
|                                                     |                                       |         |         |         |  |         |         |         |   |     
|                                                     |                                       |         |         |         |  |         |         |        
|(in Thousands of Dollars  Except Per Share Amounts) |                                       |         |         |         |  |         |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|2000                                                 |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|Operating Revenues                                   |                                       | $       | 913,504 |         |  | $       | 462,656 |         |   | $    | 465,419 |         |   | $ | 949,528 |         |   | $ | 2,791,107 |        
|Operating Income (Loss)                              |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Before unusual items and merger costs |         | $       | 122,527 |  |         | $       | (1,524  | ) |      | $       | (1,253  | ) |   | $       | 88,975  |   |   | $         | 208,725 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unusual items and merger costs        |         |         | 10,464  |  |         |         | 64,700  |   |      |         | (11,585 | ) |   |         | (3,320  | ) |   |           | 60,259  | 
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                     |                                       | $       | 132,991 |         |  | $       | 63,176  |         |   | $    | (12,838 | )       |   | $ | 85,655  |         |   | $ | 268,984   |        
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|Operating and Joint Venture Income (Loss)            |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Before unusual items and merger costs |         | $       | 133,306 |  |         | $       | 3,634   |   |      | $       | 5,449   |   |   | $       | 94,761  |   |   | $         | 237,150 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unusual items and merger costs        |         |         | 10,464  |  |         |         | 64,700  |   |      |         | (11,585 | ) |   |         | (3,320  | ) |   |           | 60,259  | 
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                     |                                       | $       | 143,770 |         |  | $       | 68,334  |         |   | $    | (6,136  | )       |   | $ | 91,441  |         |   | $ | 297,409   |        
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|Net Income (Loss)                                    |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Before unusual items and merger costs |         | $       | 62,710  |  |         | $       | (19,876 | ) |      | $       | (17,410 | ) |   | $       | 40,980  |   |   | $         | 66,404  | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unusual items and merger costs        |         |         | 6,801   |  |         |         | 42,055  |   |      |         | (7,529  | ) |   |         | 1,137   |   |   |           | 42,464  | 
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                     |                                       | $       | 69,511  |         |  | $       | 22,179  |         |   | $    | (24,939 | )       |   | $ | 42,117  |         |   | $ | 108,868   |        
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|Basic Earnings (Loss) Per Share                      |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Before unusual items and merger costs |         | $       | .73     |  |         | $       | (.23    | ) |      | $       | (.19    | ) |   | $       | .45     |   |   | $         | .75     | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unusual items and merger costs        |         |         | .08     |  |         |         | .48     |   |      |         | (.09    | ) |   |         | .02     |   |   |           | .48     | 
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                     |                                       | $       | .81     |         |  | $       | .25     |         |   | $    | (.28    | )       |   | $ | .47     |         |   | $ | 1.23      |        
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|Diluted Earnings (Loss) Per Share                    |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Before unusual items and merger costs |         | $       | .71     |  |         | $       | (.23    | ) |      | $       | (.19    | ) |   | $       | .45     |   |   | $         | .75     | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unusual items and merger costs        |         |         | .07     |  |         |         | .48     |   |      |         | (.09    | ) |   |         | .01     |   |   |           | .47     | 
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                     |                                       | $       | .78     |         |  | $       | .25     |         |   | $    | (.28    | )       |   | $ | .46     |         |   | $ | 1.22      |        
|                                                     |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|Dividends Paid Per Share                             |                                       | $       | .2550   |         |  | $       | .2550   |         |   | $    | .2550   |         |   | $ | .2550   |         |   | $ | 1.0200    |        
|                                                    
|                                                    
|                                                    
|                                                    
|Average Daily Trading Volume                         |                                       |         | 286,837 |         |  |         | 525,602 |         |   |      | 378,462 |         |   |   | 500,651 |         |   |   | 422,888   |        
|Price Per Share                                      |                                       |         |         |         |  |         |         |         |   |      |         |         |   |   |         |         |   |   |           |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | High                                  |         | $       | 26.9375 |  |         | $       | 26.4375 |   |      | $       | 26.9375 |   |   | $       | 27.7500 |   |   | $         | 27.7500 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Low                                   |         | $       | 22.7500 |  |         | $       | 20.4375 |   |      | $       | 20.1250 |   |   | $       | 23.5625 |   |   | $         | 20.1250 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Close                                 |         | $       | 25.0000 |  |         | $       | 21.3906 |   |      | $       | 25.6445 |   |   | $       | 27.6875 |   |   | $         | 27.6875 | 

117



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##### Table of Contents



SUPPLEMENTARY FINANCIAL INFORMATION(CONCLUDED)

Quarterly Operating Results
(Unaudited)

|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |          |  
|----------------------------------------------------------- | -------------------------------------- | ------------------- | ------- | ------- | - | ------- | ------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | - | - | --------- | -------- | -
|                                                            |                                        | First               |         | Second  |   | Third   |         | Fourth   |   |     
|                                                            |                                        | Quarter             |         | Quarter |   | Quarter |         | Quarter  |   | Year
|                                                            |                                        |                     |         |         |   |         |         |          |   |     
|                                                            |                                        |                    
|                                                            |                                        | As Restated, Note 3
|                                                           
|                                                           
|                                                           
|                                                           
|1999                                                        |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                        | $                   | 784,177 |         |   | $       | 476,823 |          |   | $    | 454,650 |         |   | $ | 708,603 |         |   | $ | 2,424,253 |         
|Operating Income (Loss)                                     |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 162,037 |   |         | $       | 31,078   |   |      | $       | (3,044  | ) |   | $       | 72,447  |   |   | $         | 262,518  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (120,798 | ) |      |         | (5,877  | ) |   |         | (51,952 | ) |   |           | (178,627 | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 162,037 |         |   | $       | (89,720 | )        |   | $    | (8,921  | )       |   | $ | 20,495  |         |   | $ | 83,891    |         
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|Operating and Joint Venture Income (Loss)                   |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 174,495 |   |         | $       | 43,244   |   |      | $       | 12,352  |   |   | $       | 84,813  |   |   | $         | 314,904  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (120,798 | ) |      |         | (5,877  | ) |   |         | (51,952 | ) |   |           | (178,627 | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 174,495 |         |   | $       | (77,554 | )        |   | $    | 6,475   |         |   | $ | 32,861  |         |   | $ | 136,277   |         
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|Income (Loss) Before Cumulative Effect of Accounting Change |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 91,739  |   |         | $       | 4,721    |   |      | $       | (19,426 | ) |   | $       | 27,863  |   |   | $         | 104,897  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (83,365  | ) |      |         | (3,820  | ) |   |         | (33,769 | ) |   |           | (120,954 | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 91,739  |         |   | $       | (78,644 | )        |   | $    | (23,246 | )       |   | $ | (5,906  | )       |   | $ | (16,057   | )       
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|Net Income (Loss)                                           |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 88,867  |   |         | $       | 4,721    |   |      | $       | (19,426 | ) |   | $       | 27,863  |   |   | $         | 102,025  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (83,365  | ) |      |         | (3,820  | ) |   |         | (33,769 | ) |   |           | (120,954 | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 88,867  |         |   | $       | (78,644 | )        |   | $    | (23,246 | )       |   | $ | (5,906  | )       |   | $ | (18,929   | )       
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|Basic Earnings (Loss) Per Share                             |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 1.16    |   |         | $       | .06      |   |      | $       | (.22    | ) |   | $       | .33     |   |   | $         | 1.26     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (1.00    | ) |      |         | (.05    | ) |   |         | (.40    | ) |   |           | (1.45    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cumulative effect of accounting change |                     |         | (.04    | ) |         |         |         |   |      |         |        |   |   |         |        |   |   |           | (.03     | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 1.12    |         |   | $       | (.94    | )        |   | $    | (.27    | )       |   | $ | (.07    | )       |   | $ | (.22      | )       
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|Diluted Earnings (Loss) Per Share                           |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Before unusual items and merger costs  |                     | $       | 1.10    |   |         | $       | .06      |   |      | $       | (.22    | ) |   | $       | .33     |   |   | $         | 1.26     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Unusual items and merger costs         |                     |         |        |   |         |         | (1.00    | ) |      |         | (.05    | ) |   |         | (.40    | ) |   |           | (1.45    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cumulative effect of accounting change |                     |         | (.04    | ) |         |         |         |   |      |         |        |   |   |         |        |   |   |           | (.03     | )
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                            |                                        | $                   | 1.06    |         |   | $       | (.94    | )        |   | $    | (.27    | )       |   | $ | (.07    | )       |   | $ | (.22      | )       
|                                                            |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|Dividends Paid Per Share                                    |                                        | $                   | .2550   |         |   | $       | .2550   |          |   | $    | .2550   |         |   | $ | .2550   |         |   | $ | 1.0200    |         
|                                                           
|                                                           
|                                                           
|                                                           
|Average Daily Trading Volume                                |                                        |                     | 265,050 |         |   |         | 306,259 |          |   |      | 326,253 |         |   |   | 565,749 |         |   |   | 367,264   |         
|Price Per Share                                             |                                        |                     |         |         |   |         |         |          |   |      |         |         |   |   |         |         |   |   |           |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | High                                   |                     | $       | 19.5625 |   |         | $       | 22.6250  |   |      | $       | 22.2500 |   |   | $       | 25.6250 |   |   | $         | 25.6250  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Low                                    |                     | $       | 15.8125 |   |         | $       | 15.9375  |   |      | $       | 17.0000 |   |   | $       | 17.0000 |   |   | $         | 15.8125  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Close                                  |                     | $       | 16.0625 |   |         | $       | 20.7500  |   |      | $       | 17.1875 |   |   | $       | 23.7500 |   |   | $         | 23.7500  |  

118



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##### Table of Contents



SCHEDULE II

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(Thousands of Dollars)


|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |        |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | -------------------- | - | --------------------- | ----- | -------------- | - | ------------- | ----- | --------- | - | --- | --- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |              
|Column A                                                                                                                                              |                                           | Column B             |   | Column C              |       | Column D       |   | Column E     
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |              
|                                                                                                                                                      |                                           |                      |   | Additions             |       |                |   |              
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |              
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |              
|                                                                                                                                                      |                                           |                      |   | Provisions charged to |       | Deductions     |   |              
|                                                                                                                                                      |                                           |                      |   |                       |       | for Purposes   |   |              
|                                                                                                                                                      |                                           | Balance at           |   |                       |       | Utility Plant/ |   | for Which the |       | Balance  
|                                                                                                                                                      |                                           | Beginning            |   |                       |       | Regulatory     |   | Reserves Were |       | at End   
|Description                                                                                                                                           |                                           | of Period            |   | Income                |       | Asset          |   | Provided      |       | of Period
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |          
|Year Ended December 31, 2000                                                                                                                          |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                                        |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Allowance for doubtful accounts           |                      | $ | 20,720                |       |                | $ | 33,417        |       |           | $ |    |     |  | $ | 20,533 |       |  | $ | 33,604 |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and
	Deferred Credits and Other Liabilities  Other in
	Consolidated Statement of Financial Position: |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Restructuring charge(1)                   |                      | $ | 3,803                 |       |                | $ |              |       |           | $ |    |     |  | $ | 2,109  |       |  | $ | 1,694  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position:                 |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Environmental testing(2)                  |                      | $ | 34,368                |       |                | $ |              |       |           | $ | 350 |     |  | $ | 1,618  |       |  | $ | 33,100 |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                                |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      |                                           | Injuries and damages |   | $                     | 2,726 |                |   | $             | 2,341 |           |   | $   | 627 |  |   | $      | 3,084 |  |   | $      | 2,610 | 
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Year Ended December 31, 1999                                                                                                                          |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                                        |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Allowance for doubtful accounts           |                      | $ | 9,665                 |       |                | $ | 15,882        |       |           | $ |    |     |  | $ | 4,827  |       |  | $ | 20,720 |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                      | Deferred charges and other assets  other |                      | $ |                      |       |                | $ | 1,332         |       |           | $ |    |     |  | $ | 1,332  |       |  | $ |       |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and
	Deferred Credits and Other Liabilities  Other in
	Consolidated Statement of Financial Position: |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Restructuring charge(1)                   |                      | $ | 9,730                 |       |                | $ |              |       |           | $ |    |     |  | $ | 5,927  |       |  | $ | 3,803  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position:                 |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Environmental testing(2)                  |                      | $ | 35,092                |       |                | $ |              |       |           | $ |    |     |  | $ | 724    |       |  | $ | 34,368 |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                                |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Injuries and damages                      |                      | $ | 2,515                 |       |                | $ | 1,716         |       |           | $ | 416 |     |  | $ | 1,921  |       |  | $ | 2,726  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Year Ended December 31, 1998                                                                                                                          |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                                        |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Allowance for doubtful accounts           |                      | $ | 15,711                |       |                | $ | 13,302        |       |           | $ |    |     |  | $ | 19,348 |       |  | $ | 9,665  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and
	Deferred Credits and Other Liabilities  Other in
	Consolidated Statement of Financial Position: |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Restructuring charge(1)                   |                      | $ |                      |       |                | $ | 10,390        |       |           | $ |    |     |  | $ | 660    |       |  | $ | 9,730  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position:                 |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Environmental testing(2)                  |                      | $ | 36,741                |       |                | $ |              |       |           | $ |    |     |  | $ | 1,649  |       |  | $ | 35,092 |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                                |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Injuries and damages                      |                      | $ | 4,838                 |       |                | $ | (328          | )     |           | $ | 438 |     |  | $ | 2,433  |       |  | $ | 2,515  |      
|                                                                                                                                                      |                                           |                      |   |                       |       |                |   |               |       |           |   |     |     |  |   |        |       |  |   |       

NOTES:


|    |                                                                         
|--- | ------------------------------------------------------------------------
|(1) | Reference is made to Note 6e to the
	Consolidated Financial Statements. 
|(2) | Reference is made to Note 14b to the
	Consolidated Financial Statements.

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|        |                                                  
|------- | -------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
	ON

ACCOUNTING AND FINANCIAL DISCLOSURE


None.

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PART III







ITEM 10.  DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT


Directors of MCN

James G. Berges, 53, Director since 1998, Term expires in
2001:



Mr. Berges is a Director of PPG Industries Inc. He is a
Board Member of the St. Louis Regional Housing Alliance and has
been active in various roles with the United Way of Greater St.
Louis.

Thomas H. Jeffs II, 62, Director since 1991, Term expires in
2001:



Mr. Jeffs is a Trustee of New Detroit, Inc. and a Director
of Intermet Corporation. He serves as Vice Chairman and a member
of the Executive Committee of the Detroit Symphony Orchestra,
Inc.

Bill M. Thompson, 68, Director since 1996, Term expires in
2001:



Mr. Thompson serves on the Board of Directors of The
University of Texas College of Engineering Foundation Advisory
Council. He is a past member of the Board of Directors of the
American Petroleum Institute, The National Association of
Manufacturers, and The Chemical Manufacturers Association.

Stephen E. Ewing, 57, Director since 1988, Term expires in
2002:



Mr. Ewing is Chairman of the Board of Trustees of Oakwood
Healthcare, Inc. and Chairman of the Japan America Society of
Detroit. He is a board member of the Interstate Natural Gas
Association of America, the Gas Technology Institute, the
American Gas Association, the Detroit Regional Chamber, the
Detroit Economic Growth Corporation, the Detroit Zoological
Society, the Michigan

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|         |                                         
|-------- | ----------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF
	THE

REGISTRANT(CONTINUED)


Development Corporation, the Skillman Foundation and AAA
Michigan. Mr. Ewing is a member of Leadership Detroit and
the executive board of Boy Scouts of Americas Detroit Area
Council. He serves as a member of the executive committee of
United Way Community Services Board in Detroit. Mr. Ewing
is past Chairman of the 1997 United Way Community Services Torch
Drive, the Midwest Gas Association, the Natural Gas Vehicle
Coalition, the Greater Detroit Area Health Council and the
Metropolitan Affairs Corporation.

Roger Fridholm, 59, Director since 1988, Term expires in
2002:



Mr. Fridholm serves as a Director of The Stroh Companies,
Comerica Inc. and Outsource Holdings, Inc.

Helen O. Petrauskas, 56, Director since 1990, Term expires in
2002:



Ms. Petrauskas is a Director of The Sherwin-Williams
Company and La-Z-Boy Inc. She serves on the Boards of the World
Environment Center and the Environmental Law Institute.
Ms. Petrauskas is also on the Advisory Boards of the Center
for Risk Analysis, Harvard School of Public Health, and
Resources for the Future in Washington, D.C.

Alfred R. Glancy III, 63, Director since 1988, Term expires
in 2003:



Mr. Glancy is Chairman Emeritus of Detroit Symphony
Orchestra Inc., and past Chairman of The Detroit Medical Center,
Detroit Renaissance, Detroit Economic Growth Corporation and New
Detroit, Inc. He is a Director of the Detroit Symphony Orchestra
Inc., Detroit Institute of Arts, Detroit Renaissance, United Way
Community Services, Community Foundation for Southeastern
Michigan, Morton Industrial Group, Greater Downtown Partnership,
New Detroit Inc. and the Hudson-Webber Foundation.
Mr. Glancy is the Chairman of UNICO Investment in Seattle,
Washington.

Frank M. Hennessey, 62, Director since 1988, Term expires in
2003:



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|         |                                         
|-------- | ----------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF
	THE

REGISTRANT(CONCLUDED)


Vice Chairman of the Board and Chief Executive Officer of
MascoTech, Inc., Executive Vice President of Masco Corporation,
Vice President for Strategic Planning at Masco Corporation, and
President and Chief Executive Officer for Emco Limited.

Mr. Hennessey is a Director of New Detroit, Inc. and a
Director and Treasurer of United Way Community Services. He is a
Trustee of the Hudson-Webber Foundation and the Citizens
Research Council of Michigan as well as past Chairman of the
Japan America Society of Detroit. Mr. Hennessey is Chairman
of the Detroit Regional Economic Partnership and first Vice
Chairman of the Detroit Regional Chamber.

Howard F. Sims, 67, Director since 1988, Term expires in
2003:



Mr. Sims is a Director of Comerica Inc. He is a Trustee of
Citizens Research Council of Michigan, the W.K. Kellogg
Foundation, The Community Foundation of Southeast Michigan and
the Karmanos Cancer Institute. Mr. Sims is a member of the
Executive Board of the Detroit Area Council, Boy Scouts of
America and United Way Community Services of Southeast Michigan.

Executive Officers of MCN

Alfred R. Glancy III, 63, Chairman and Chief Executive
Officer:



Stephen E. Ewing, 57, President and Chief Operating
Officer:



Howard L. Dow III, 45, Executive Vice President, Chief
Financial Officer and Treasurer:



Daniel L. Schiffer, 57, Senior Vice President, General
Counsel and Secretary:



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ITEM 11.  EXECUTIVE
COMPENSATION

Directors Compensation

As of April 1, 1997, non-officer directors receive an
annual fee of $30,000. Additionally, each year non-officer
directors receive performance shares worth approximately
$30,000, calculated at the beginning of the fiscal year and
rounded to the nearest 100 shares. Each performance share is
equivalent to one share of MCN common stock. Non-officer
directors are permitted to defer all or a portion of their cash
retainer fee in performance shares. The performance shares will
be credited to deferral accounts established for each
non-officer director. The value of the performance shares held
in each non-officer directors account will increase/
decrease as the value of the underlying MCN common stock
increases/ decreases and the account will be credited with
dividend equivalents equal to one-half of the common stock
dividend rate. Upon the non-officer directors termination
from the board, the value of the performance shares will be paid
out in cash over a period of one-to-fifteen years as elected by
the non-officer director. Based on the current elections of the
non-officer directors, 100% of their compensation will be in the
form of performance shares, further aligning the interests of
each non-officer director and shareholders by tying compensation
to the value of MCN common stock.

Executives Compensation

The following table sets forth the aggregate compensation paid
or awarded for performance from 1998 through 2000 to the
Companys chief executive officer and its three other
executive officers in 2000 (collectively, the Named
Executive Officers).

Summary Compensation Table

|                            |                                           |      |      |                        |  |             |         |              |  |              |         |         |  |  |   |         |  |  |   |           |  |  |         |           | 
|--------------------------- | ----------------------------------------- | ---- | ---- | ---------------------- |  | ----------- | ------- | ------------ |  | ------------ | ------- | ------- |  |  | - | ------- |  |  | - | --------- |  |  | ------- | --------- | 
|                            |                                           |      |      |                        |  |             |         |              |  |             
|                            |                                           |      |      |                        |  |             |         | Long-Term    |  |             
|                            |                                           |      |      |                        |  |             |         | Compensation |  |             
|                            |                                           |      |      |                        |  |             |         |              |  |             
|                            |                                           |      |      |                        |  | Securities  |         |              |  |             
|                            |                                           |      |      | Annual Compensation(1) |  | Underlying  |         | LTIP         |  | All Other   
|                            |                                           |      |      |                        |  | Options     |         | Payout       |  | Compensation
|Name and Principal Position |                                           | Year |      | Salary($)              |  | Bonus($)(2) |         | (#)(3)       |  | ($)(1)(4)    |         | ($)(5) 
|                            |                                           |      |      |                        |  |             |         |              |  |              |         |        
|Alfred R. Glancy III        |                                           |      | 2000 |                        |  |             | 675,000 |              |  |              | 498,260 |         |  |  |  |         |  |  |  |           |  |  | 116,357 |          
|                            | Chairman & Chief Executive Officer        |      |      | 1999                   |  |             |         | 675,000      |  |              |         | 994,781 |  |  |   |        |  |  |   | 2,339,578 |  |  |         | 3,646,947 | 
|                            |                                           |      |      | 1998                   |  |             |         | 667,800      |  |              |         |        |  |  |   | 100,000 |  |  |   |          |  |  |         | 66,326    | 
|                           
|                           
|                           
|                           
|                           
|Stephen E. Ewing            |                                           |      | 2000 |                        |  |             | 466,154 |              |  |              | 413,333 |         |  |  |  |         |  |  |  |           |  |  | 59,283  |          
|                            | President & Chief Operating Officer       |      |      | 1999                   |  |             |         | 445,192      |  |              |         | 550,000 |  |  |   |        |  |  |   | 939,516   |  |  |         | 41,928    | 
|                            |                                           |      |      | 1998                   |  |             |         | 412,500      |  |              |         | 450,000 |  |  |   | 48,300  |  |  |   |          |  |  |         | 39,229    | 
|                           
|                           
|                           
|                           
|                           
|Howard L. Dow III           |                                           |      | 2000 |                        |  |             | 300,000 |              |  |              | 222,188 |         |  |  |  |         |  |  |  |           |  |  | 25,011  |          
|                            | Executive Vice President, Chief Financial |      |      | 1999                   |  |             |         | 266,346      |  |              |         | 388,364 |  |  |   |        |  |  |   | 254,836   |  |  |         | 18,024    | 
|                            | Officer & Treasurer                       |      |      | 1998                   |  |             |         | 211,539      |  |              |         | 180,000 |  |  |   | 14,000  |  |  |   |          |  |  |         | 13,312    | 
|                           
|                           
|                           
|                           
|                           
|Daniel L. Schiffer          |                                           |      | 2000 |                        |  |             | 250,000 |              |  |              | 128,600 |         |  |  |  |         |  |  |  |           |  |  | 26,085  |          
|                            | Senior Vice President, General            |      |      | 1999                   |  |             |         | 248,077      |  |              |         | 235,800 |  |  |   |        |  |  |   | 315,628   |  |  |         | 20,542    | 
|                            | Counsel & Secretary                       |      |      | 1998                   |  |             |         | 240,000      |  |              |         |        |  |  |   | 12,950  |  |  |   |          |  |  |         | 19,496    | 

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ITEM 11.  EXECUTIVE COMPENSATION(CONTINUED)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts received or deferred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | Amounts under the MCN Energy Group Inc. Annual
	Performance Plan are shown for the year upon which performance
	is measured. The bonuses for 2000 were determined per provisions
	contained in the officers change of control employment
	agreements. Mr. Dows bonus for 1999 includes $100,000
	for his efforts in negotiating the merger. Messrs. Ewing
	and Dow earned bonuses for 1998 based upon MichCons
	performance.                                                                                                                                                                                 
|   
|(3) | Stock options were granted in the February
	subsequent to the fiscal year indicated in the table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Amounts shown in this column represent the dollar
	value of final payouts of performance shares awarded pursuant to
	the Performance Share Plan. The initial number of performance
	shares granted is based on total shareholder return relative to
	the peer group during the previous three-year period. The
	initial grants are adjusted upward or downward based on total
	shareholder return relative to the peer group for the subsequent
	three-year period. Pursuant to the change of control provisions
	in the Performance Share Plan, the 1999 payout was for all three
	of the outstanding tranches.
|   
|(5) | Amounts shown in this column represent
	(i) the Companys contributions to defined
	contribution plans, (ii) the Companys payment of life
	insurance premiums and (iii)  payments made by the Company
	in lieu of dividend equivalents related to the Companys
	long-term incentive plan. In addition, Mr.  Glancys
	amount for 1999 includes a change of control payment of
	$3,519,781 due to his retirement upon the completion of the
	merger.                                                                                                                                                           

Long-Term Compensation

Beginning with the 1998 performance year, the Company determined
that 50% of its long-term incentive awards should be in the form
of stock options. The options were scheduled to vest ratably
over three years following the date of grant. Pursuant to the
change of control provisions in the MCN Stock Incentive Plan,
the options vested on December 20, 1999.

Options Exercised

|                     |  |             |   |                   |  |                         |   |                      |  |  |         |  |  |  |           | 
|-------------------- |  | ----------- | - | ----------------- |  | ----------------------- | - | -------------------- |  |  | ------- |  |  |  | --------- | 
|                     |  |             |   |                   |  | Number Of Securities    |   | Value Of Unexercised
|                     |  | Shares      |   |                   |  | Underlying Unexercised  |   | In-The-Money Options
|                     |  | Acquired On |   |                   |  | Options At Fiscal       |   | At Fiscal Year-End  
|Name                 |  | Exercise(#) |   | Value Realized($) |  | Year-End Exercisable(#) |   | Exercisable($)(1)   
|                     |  |             |   |                   |  |                         |   |                     
|Alfred R. Glancy III |  |             |  |                   |  |                         |  |                      |  |  | 100,000 |  |  |  | 1,043,750 | 
|                    
|                    
|                    
|                    
|Stephen E. Ewing     |  |             |  |                   |  |                         |  |                      |  |  | 48,300  |  |  |  | 504,131   | 
|                    
|                    
|                    
|                    
|Howard L. Dow III    |  |             |  |                   |  |                         |  |                      |  |  | 14,000  |  |  |  | 146,125   | 
|                    
|                    
|                    
|                    
|Daniel L. Schiffer   |  |             |  |                   |  |                         |  |                      |  |  | 12,950  |  |  |  | 135,166   | 



|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Based upon a price of $27.6875, the year-end
	closing price of MCN common stock, less the exercise price of
	$17.25.

No long-term awards have been made since the merger with DTE was
announced, however, payments in lieu of dividend equivalents
have been paid to participating employees.

Change Of Control Employment
Agreements

MCN entered into Change of Control Employment Agreements with
its Named Executive Officers and certain other officers of MCN
and its two principal subsidiaries on the later of
(i) March 1, 1990 or (ii) when the individual
became an officer. Change of control is defined in the
agreements as any of the following: (i) the acquisition of
beneficial ownership of 20% or more of the outstanding

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ITEM 11.  EXECUTIVE COMPENSATION(CONTINUED)


voting securities of the Company, (ii) the appointment or
election of new directors to the Companys Board which
causes the existing directors to no longer constitute at least a
majority of the Companys Board, (iii) shareholder
approval of a reorganization, merger or consolidation in which
the beneficial owners of the outstanding voting securities will
have a beneficial interest of less than 60% of the common stock
or outstanding voting securities of the corporation resulting
from such reorganization, merger or consolidation, or
(iv) a complete liquidation or dissolution of the Company.
The agreements generally have a term of three years beginning
with the later of the change of control or the consummation of a
change of control transaction. The agreements obligate the
officer to continue to serve MCN in the officers then
current capacity, require MCN to compensate the officer in an
amount at least equal to the officers base salary plus the
average annual bonus paid to the officer during the preceding
three years and provide for the vesting of various unfunded
benefits. These unfunded benefits include the Supplemental
Retirement Plan, the Supplemental Death Benefit and Retirement
Income Plan and the Supplemental Savings Plan, which permits
certain key executives to defer income and be credited with
matching contributions to the extent that would otherwise be
permitted under the Savings Plan but for limitations imposed by
Federal tax law on tax-qualified savings plans. The agreements
also provide for the grossed-up payment of any Federal excise
taxes due from the executive as a result of any payments
received under the agreement and provide three years of
continued participation in MCNs benefit and retirement
programs. If the officers employment is terminated by MCN
for other than good cause or by the officer with
good reason both as defined in the agreements, or by
death or disability, the officer is entitled to a severance
payment equal to three times the officers base salary plus
the average annual bonus paid to the officer during the
preceding three years.

On December 20, 1999, more than 74% of MCNs
outstanding shares eligible to be voted, were cast in favor of
the Companys proposed merger with DTE, which resulted in a
change of control. Messrs. Ewing and Dow and certain other
officers of MCN have negotiated new employment agreements with
DTE in which they have given up certain of their rights under
their Change of Control Employment Agreements. Mr. Glancy
and certain other officers of MCN exercised their rights under
their Change of Control Employment Agreements. They received all
or a portion of their change of control payments in December
1999, with any remainder payable upon the closing of the merger
with DTE. DTE has agreed to reimburse MCN for the change of
control payments if the merger is not completed.

126



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##### Table of Contents



ITEM 11.  EXECUTIVE COMPENSATION(CONTINUED)


Retirement Plans

Pension Plan Table

|                                                                  |  |       |         |       |  |       |         |       |  |       |         |       |  |   |         |  |  |   |         |  |  |   |         | 
|----------------------------------------------------------------- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                 
|Annual Retirement Benefit At Age 65 For Years Of Credited Service
|                                                                 
|Final Average                                                     |  | 20    |         | 25    |  | 30    |         | 35    |  | 40    |         | 45   
|Annual Earnings                                                   |  | Years |         | Years |  | Years |         | Years |  | Years |         | Years
|                                                                  |  |       |         |       |  |       |         |       |  |       |         |      
|$200,000.                                                         |  | $     | 73,000  |       |  | $     | 91,300  |       |  | $     | 109,500 |       |  | $ | 127,800 |  |  | $ | 141,000 |  |  | $ | 154,300 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|250,000.                                                          |  |       | 91,300  |       |  |       | 114,100 |       |  |       | 137,000 |       |  |   | 159,800 |  |  |   | 176,400 |  |  |   | 193,000 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|300,000.                                                          |  |       | 109,600 |       |  |       | 137,000 |       |  |       | 164,400 |       |  |   | 191,800 |  |  |   | 211,700 |  |  |   | 231,600 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|350,000.                                                          |  |       | 127,900 |       |  |       | 159,900 |       |  |       | 191,900 |       |  |   | 223,800 |  |  |   | 247,100 |  |  |   | 270,300 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|400,000.                                                          |  |       | 146,200 |       |  |       | 182,800 |       |  |       | 219,300 |       |  |   | 255,900 |  |  |   | 282,400 |  |  |   | 309,000 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|450,000.                                                          |  |       | 164,500 |       |  |       | 205,600 |       |  |       | 246,800 |       |  |   | 287,900 |  |  |   | 317,800 |  |  |   | 347,700 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|500,000.                                                          |  |       | 182,800 |       |  |       | 228,500 |       |  |       | 274,200 |       |  |   | 319,900 |  |  |   | 353,100 |  |  |   | 386,300 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|550,000.                                                          |  |       | 241,800 |       |  |       | 276,100 |       |  |       | 301,600 |       |  |   | 351,900 |  |  |   | 388,500 |  |  |   | 425,000 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|600,000.                                                          |  |       | 263,800 |       |  |       | 301,300 |       |  |       | 329,100 |       |  |   | 383,900 |  |  |   | 423,800 |  |  |   | 463,700 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|650,000.                                                          |  |       | 285,800 |       |  |       | 326,400 |       |  |       | 356,500 |       |  |   | 415,900 |  |  |   | 459,100 |  |  |   | 502,400 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|700,000.                                                          |  |       | 307,800 |       |  |       | 351,500 |       |  |       | 384,000 |       |  |   | 447,900 |  |  |   | 494,500 |  |  |   | 541,000 | 

Salaried employees of MCN and certain of its subsidiaries (the
Participating Companies) may participate in a
noncontributory, defined benefit retirement plan (the
Retirement Plan), under which benefits have been
based upon the final average salary. Specifically, the monthly
pension at normal retirement (age 65) is calculated using a
formula providing a single life monthly benefit equal to
(i) 1.33% of final average monthly earnings multiplied by
the number of total Years of Credited Service (as defined in the
plan) with the Participating Companies; plus (ii) 0.5% of
final average monthly earnings that exceed a 35-year average
Social Security wage base multiplied by the number of Years of
Credited Service up to 35 years. Early retirement benefits
(at a reduced benefit if such retirement is before the
participant attains age 62) are permitted under the plan,
(i) on or after the date a participant attains age 55,
if the participants age plus Years of Credited Service
equals or exceeds 70, or (ii) when the participant has
attained 30 Years of Credited Service. An employees final
average monthly earnings is defined as his or her highest
average monthly earnings for a consecutive 60-month period
during the participants last 15 years of employment.
Average monthly earnings are calculated based on an
individuals base salary only. An employee is not vested
under the Retirement Plan until he or she has completed five
Years of Credited Service or has attained age 65.

The previous table illustrates the total estimated annual normal
retirement pension benefits including the Supplemental
Retirement Plan amounts (discussed below), if applicable, that
will be payable upon normal retirement at age 65 to
participants for the specified remuneration and Years of
Credited Service classifications. Retirement benefits are not
subject to any deduction for social security or other offset
amounts. The table does not reflect any reductions in retirement
benefits that would result from the selection of one of various
available survivorship options or the election to retire prior
to age 62. Benefit amounts are computed on a straight life
annuity basis.

As of December 31, 2000, the Years of Service (rounded to
the nearest whole year) for the Named Executive Officers
participating in the final average salary plan are as follows:
Mr. Ewing, 29 years, Mr. Dow, 22 years and
Mr. Schiffer, 24 years.

127



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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION(CONCLUDED)


In 1998, the Company adopted a cash balance plan feature within
its defined benefit plan to better attract and retain employees.
The cash balance plan is the defined benefit plan for all new
hires at MCN and MCNEE and was offered as a one-time option to
all current employees of MCN and MCNEE. For employees electing
to switch from the final average salary to the cash balance
plan, a retirement annuity as of January 1, 1998 was
calculated under the traditional defined benefit
plan formula described above and present-valued using a 6.11%
interest rate, the average interest rate on 30-year Treasury
Bills for November 1997. This amount represented the
opening account balance under the cash balance feature. Under
the cash balance plan, at the beginning of each year, each
participants account is credited with 8% of the
individuals salary and bonus plus an additional 5% of such
compensation over the Social Security wage base. In addition,
each participants account is credited with interest based
on the 30-year Treasury Bill rate as of November of the prior
year. All vested participants in the cash balance plan are
entitled to receive a lump sum payment in lieu of monthly
pension annuities. Mr. Glancy and 248 other incumbent
employees out of an eligible group of 330 opted to participate
in the cash balance plan. Had Mr. Glancy retired effective
January 1, 2001, he could have elected to receive an
immediate annual annuity under the cash balance plan of $501,000.

The Company also maintains the Supplemental Retirement Plan,
which provides for the payment of benefits that would otherwise
be payable under the Retirement Plan but for limitations imposed
by Federal tax law on benefits paid by qualified plans.

The Companys Named Executive Officers and certain other
officers of the Participating Companies currently participate in
a Supplemental Death Benefit and Retirement Income Plan. Under
this plan, the pre-retirement death benefits payable to an
employees surviving spouse are 50% of the employees
final salary until such time as the employee would have reached
age 65. Thereafter, payments are 20% of salary until the
employee would have reached age 75. At retirement an
employee may elect to receive (i) annual supplemental
retirement income equal to 20% of the employees final
annual salary payable for a period of 10 years after
age 62; or (ii) other available post retirement
benefits that are actuarially equivalent to the 10-year payment
option.

Compensation Committee Interlocks and Insider
Participation

Mr. Thomas H. Jeffs II, Mr. Roger Fridholm,
Mr. Howard Sims and Mr. Bill M. Thompson serve on
the Compensation Committee of MCN. There are no Compensation
Committee interlocks, nor do any officer directors participate
on this committee.

128



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##### Table of Contents



ITEM 12.  SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT





Security Ownership of Executive Officers
and Directors

The following table includes MCN Common Stock and stock-based
holdings, as of February 28, 2001, of the Companys
Named Executive Officers and its directors.

Common Stock And Total Stock-Based Holdings

|                                 |  |              |         |         |  |                |    |       |  |  |         |  |  |  |         | 
|-------------------------------- |  | ------------ | ------- | ------- |  | -------------- | -- | ----- |  |  | ------- |  |  |  | ------- | 
|                                 |  |              |         |         |  |               
|                                 |  | Common Stock |         |         |  |               
|                                 |  | Ownership    |         |         |  |               
|                                 |  |              |         | Stock   |  |               
|Name                             |  | Amount(1)    |         | Percent |  | Equivalents(2) |    | Total
|                                 |  |              |         |         |  |                |    |      
|Alfred R. Glancy III             |  |              | 449,063 | (3)     |  |                | .5 | %     |  |  | 169,674 |  |  |  | 618,737 | 
|                                
|                                
|                                
|                                
|                                
|Stephen E. Ewing                 |  |              | 36,906  | (3)     |  |                | *  |       |  |  | 113,806 |  |  |  | 150,712 | 
|                                
|                                
|                                
|                                
|                                
|Daniel L. Schiffer               |  |              | 50,030  | (3)     |  |                | .1 | %     |  |  | 13,000  |  |  |  | 63,030  | 
|                                
|                                
|                                
|                                
|                                
|Howard L. Dow III                |  |              | 34,843  | (3)     |  |                | *  |       |  |  |        |  |  |  | 34,843  | 
|                                
|                                
|                                
|                                
|                                
|James G. Berges                  |  |              | 100     |         |  |                | *  |       |  |  | 8,189   |  |  |  | 8,289   | 
|                                
|                                
|                                
|                                
|                                
|Roger Fridholm                   |  |              | 10,100  | (4)     |  |                | *  |       |  |  | 11,519  |  |  |  | 21,619  | 
|                                
|                                
|                                
|                                
|                                
|Frank M. Hennessey               |  |              | 11,346  |         |  |                | *  |       |  |  | 16,935  |  |  |  | 28,281  | 
|                                
|                                
|                                
|                                
|                                
|Thomas H. Jeffs II               |  |              | 5,000   |         |  |                | *  |       |  |  | 15,248  |  |  |  | 20,248  | 
|                                
|                                
|                                
|                                
|                                
|Helen O. Petrauskas              |  |              | 3,295   |         |  |                | *  |       |  |  | 11,225  |  |  |  | 14,520  | 
|                                
|                                
|                                
|                                
|                                
|Howard F. Sims                   |  |              | 3,351   |         |  |                | *  |       |  |  | 14,891  |  |  |  | 18,242  | 
|                                
|                                
|                                
|                                
|                                
|Bill M. Thompson                 |  |              | 3,458   |         |  |                | *  |       |  |  | 11,233  |  |  |  | 14,691  | 
|                                
|Directors and executive officers |  |              |         |         |  |                |    |       |  |  |         |  |  |  |         | 
|                                
|                                
|                                
|                                
|                                
|As a group                       |  |              | 607,492 |         |  |                | .7 | %     |  |  | 385,720 |  |  |  | 993,212 | 

|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than 0.1%                                                                                                                                                                                                                                                                                                                                           
|(1) | This column lists voting securities, including
	shares of restricted stock in which the beneficial owners have
	voting power but do not have investment power until the shares
	vest. In many instances, voting power and investment power are
	shared with another as joint tenants.                                                                    
|(2) | This column includes the non-voting common stock
	equivalents, such as performance shares granted and deferred
	under the Stock Incentive Plan, deferred stock units under the
	Mandatory Deferred Compensation Plan, share equivalents under
	the Supplemental Savings Plan, and performance shares under the
	Nonemployee Directors Compensation Plan.
|(3) | Includes shares held in the MCN Energy Group
	Savings and Stock Ownership Plan (the Savings Plan).
	The beneficial owners of the shares have sole voting power on
	all shares. Beneficial owners have investment power on all
	shares except those purchased by MCN and held as restricted
	under provisions of the Savings Plan.                      
|(4) | Includes 1,900 shares held in the St. Clair
	Charitable Trust, of which Roger Fridholm is a Trustee.
	Mr. Fridholm has shared voting and investment power on
	these shares.                                                                                                                                                                              

129



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ITEM 12.  SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS


AND MANAGEMENT(CONCLUDED)


Security Ownership of Certain Beneficial
Owners

Based on a Schedule 13G for the year ended
December 31, 2000, filed with the SEC, information is set
forth below with respect to the beneficial owners of more than
five percent of MCNs common stock.

|                                                                            |  |           |           |          |  |  |     |  
|--------------------------------------------------------------------------- |  | --------- | --------- | -------- |  |  | --- | -
|                                                                            |  | Number    |           | Percent 
|Name and Address                                                            |  | of Shares |           | of Class
|                                                                            |  |           |           |         
|President and Fellows of Harvard College                                    |  |           | 5,877,733 | (1)      |  |  | 6.5 | %
|c/o Harvard Management Company, Inc.
	600 Atlantic Avenue
	Boston, MA 02210 |  |           |           |          |  |  |     |  



|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As reflected in a statement on Schedule 13G
	dated February 9, 2001, the President and Fellows of
	Harvard College has sole investment and voting power over all of
	the shares reported in Schedule 13G.




ITEM 13.  CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Indebtedness of Management

In order to encourage executives to maintain their holdings in
shares purchased under a stock option plan, which was replaced
by the MCN Stock Incentive Plan in May 1989, the Company
provided loans at an interest rate in accordance with IRS
guidelines based on the market yield of U.S. short-term
marketable securities. Pursuant to this provision,
Mr. Glancy initiated a loan in 1992 at an interest rate of
4.43%, which was renewed in 1995 and again in 1998 at the then
current interest rates of 5.65% and 5.41%, respectively. The
loan covered a maximum outstanding amount of $438,811, including
interest, during 2000. A balance of $283,252, including
interest, was outstanding as of December 31, 2000. The loan
is secured by 169,628 shares of MCN common stock with a year-end
market value of $4,696,575.

130



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##### Table of Contents






PART IV

ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND

REPORTS ON FORM 8-K





(A)  List of documents filed as part of
the report:



|   |                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | For a list of financial statements, see the section titled
	Financial Statements and Supplementary Data in
	Part II, Item 8.                                                    
|  
|2. | The Financial Statement Schedules for each of the three years in
	the period ended December 31, 2000, unless otherwise noted,
	are included herein in response to Part II, Item 8:

Schedule

II  Valuation and Qualifying Accounts

Schedules other than those referred to above are omitted as not
applicable or not required, or the required information is shown
in the financial statements or notes thereto.

131



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##### Table of Contents



ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND


REPORTS ON FORM 8-K(CONTINUED)


3.  Exhibits, including those incorporated by reference.

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 2- | 1           |  | Agreement and Plan of Merger, dated as of October 4, 1999,
	by and among MCN Energy Group Inc., DTE Energy Company and DTE
	Enterprises, Inc., as amended as of November 12, 1999, as
	further amended as of February 28, 2001 (Exhibit 2 to
	February 28, 2001 Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 3- | 1           |  | Articles of Incorporation of MCN Energy Group Inc.
	(Exhibit  3-1 to March 31, 1998 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 3- | 2           |  | By-Laws of MCN Energy Group Inc., as amended (Exhibit 3-2
	to MCNs 1997 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | 3- | 3           |  | Certificate of Limited Partnership of MCN Michigan Limited
	Partnership (Exhibit 4-6 To Registration Statement
	No.  33-55665).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 3- | 4           |  | Certificate of Trust of MCN Financing I (Exhibit 4-11
	to Registration Statement No. 333-01521).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 3- | 5           |  | Certificate of Trust of MCN Financing III
	(Exhibit 4-16 to Registration Statement No. 333-21175).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 4- | 1           |  | Rights Plan (Exhibit 28-1 to December 20, 1989
	Form 8-K, Exhibit 4 to July 23, 1997
	Form 8-K, and Exhibits 4-2 and 4.4 to October 4,
	1999 Form 8-A/A).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 4- | 2           |  | Senior Debt Securities Indenture between MCN Energy Group Inc.
	and NBD Bank, N.A., as Trustee, dated September 1, 1994
	(Exhibit 4-4 to Registration Statement No. 33-55665);
	First Supplemental Indenture, dated June 4, 1997
	(Exhibit  4-2 to MCNs 1997 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 4- | 3           |  | Subordinated Debt Securities Indenture between MCN Energy Group
	Inc. and NBD Bank, N.A., as Trustee, dated September  1,
	1994 (Exhibit 4-5 to Registration Statement No. 
	33-55665); First Supplemental Indenture, dated April 17,
	1996 (Exhibit 4-18 to Amendment No. 2 to Registration
	Statement No. 333-01521); Second Supplemental Indenture,
	dated July 24, 1996 (Exhibit 5-2 to July 24, 1996
	Form  8-K); Third Supplemental Indenture, dated
	March 19, 1997 (Exhibit 5-3 to March 19, 1997
	Form 8-K); and Fourth Supplemental Indenture dated
	November 18, 1998 (Exhibit  5-3 to November 13,
	1998 Form 8-K).                                                                                                                                                                                                                                                                    
|       
|        | 4- | 4           |  | MichCons Indenture of Mortgage and Deed of Trust dated
	March 1, 1944 (Exhibit 7-D to Registration Statement
	No.  2-5252); Twenty-ninth Supplemental Indenture, dated
	July  15, 1989 (Exhibit 4-1 to July 27, 1989
	Form 8-K); Thirtieth Supplemental Indenture, dated
	September 1, 1991 (Exhibit 4-1 to September 27,
	1991 Form 8-K); Thirty-first Supplemental Indenture, dated
	December 15, 1991 (Exhibit 4-1 to February 28,
	1992 Form 8-K); Thirty-second Supplemental Indenture, dated
	January 5, 1993 (Exhibit 4-1 to 1992 Form 10-K);
	Thirty-third Supplemental Indenture, dated May 1, 1996
	(Exhibit 4-2 to Registration Statement No. 33-59093);
	Thirty-fourth Supplemental Indenture, dated November 1,
	1996 (Exhibit 4-2 to Registration Statement
	No. 333-16285); and Thirty-fifth Supplemental Indenture,
	dated June 18, 1998 (Exhibit 4-2 to June 18, 1998
	Form 8-K).
|       
|        | 4- | 5           |  | Senior Debt Securities Indenture between Michigan Consolidated
	Gas Company and Citibank, N.A., as Trustee, dated June 1,
	1998 (Exhibit 4-1 to Amendment No. 2 to Registration
	Statement No. 333-56333); First Supplemental Indenture
	dated June 18, 1998 (Exhibit 4-1 to June 18, 1998
	Form 8-K); and Second Supplemental Indenture dated
	June 9, 1999 (Exhibit 4-1 to June 4, 1999
	Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

132



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ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND


REPORTS ON FORM 8-K(CONTINUED)


|        |     |             |  |                                                                                                                                                                                                                            
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|        | 4-  | 6           |  | Debt Securities Indenture between MCN Investment Corp.
	(currently doing business as MCN Energy Enterprises Inc.) and
	NBD Bank as Trustee, dated September 1, 1995 (Exhibit 
	4-1 to Registration Statement No. 33-63311).
|       
|        | 4-  | 7           |  | MCN hereby agrees to furnish to the SEC, upon request, a copy of
	any instruments defining the rights of holders of long-term debt
	issued by MCN or its subsidiaries.                                                     
|       
|        | 4-  | 8           |  | Form of Guarantee Agreement with Respect to Preferred Securities
	of MCN Michigan Limited Partnership (Exhibit 4-8 to
	Registration Statement No. 33-55665).                                                               
|       
|        | 4-  | 9           |  | Amended and Restated Limited Partnership Agreement of MCN
	Michigan Limited Partnership (Exhibit 4-1 to
	October 26, 1994 Form 8-K).                                                                                       
|       
|        | 4-  | 10          |  | Form of MCN Energy Group Inc. Series A Subordinated
	Deferrable Interest Debt Security for $100,000,000
	(Exhibit  4-6 to October 26, 1994 Form 8-K).                                                                      
|       
|        | 4-  | 11          |  | Form of MCN Energy Group Inc. Series A Subordinated
	Deferrable Interest Debt Security for $1,100,000 (Exhibit 
	4-7 to October 26, 1994 Form 8-K).                                                                        
|       
|        | 4-  | 12          |  | Amended and Restated Declaration of Trust of MCN Financing I,
	dated as of July 24, 1996 (Exhibit 5-1 to
	July 24, 1996 Form 8-K).                                                                                         
|       
|        | 4-  | 13          |  | Preferred Securities Guarantee Agreement, dated as of July 
	26, 1996, between MCN and Wilmington Trust Company
	(Exhibit  5-4 to July 24, 1996 Form 8-K).                                                                 
|       
|        | 4-  | 14          |  | Amended and Restated Declaration of Trust of MCN Financing 
	III, dated as of March 19, 1997 (Exhibit 5-2 to
	March 19, 1997 Form 8-K).                                                                                    
|       
|        | 4-  | 15          |  | Preferred Securities Guarantee Agreement, dated as of
	March  19, 1997, between MCN and Wilmington Trust Company
	(Exhibit  5-4 to March 19, 1997 Form 8-K).                                                               
|       
|        | 4-  | 16          |  | Form of Preferred Security of MCN Financing III
	(Annex I to the Amended and Restated Declaration of Trust
	of MCN Financing III included as Exhibit 4-14 hereto).                                                         
|       
|        | 4-  | 17          |  | Amended and Restated Declaration of Trust of MCN Financing 
	II, dated as of November 18, 1998 (Exhibit 5-2 to
	November 13, 1998 Form 8-K).                                                                               
|       
|        | 4-  | 18          |  | Preferred Securities Guarantee Agreement, dated as of
	November 18, 1998 (Exhibit 5-4 to November 13,
	1998 Form  8-K).                                                                                                    
|       
|        | 4-  | 19          |  | Form of Preferred Security of MCN Financing II
	(Annex I to the Amended and Restated Declaration of Trust
	of MCN Financing II included as Exhibit 4-17 hereto).                                                           
|       
|        | 10- | 1           |  | MCN Stock Option Plan Post-Effective Amendment No. 1
	(Registration Statement No. 33-21930-99).                                                                                                                            
|       
|        | 10- | 2           |  | Form of Employment Agreement (Exhibit 99-2 to June 30,
	1997 Form 10-Q).                                                                                                                                                   
|       
|        | 10- | 3           |  | MCN Energy Group Inc. Executive Annual Performance Plan, as
	amended (Exhibit 4-3 to MCNs 1998 Form 10-K).                                                                                                                
|       
|        | 10- | 4           |  | MCN Energy Group Inc. Stock Incentive Plan as amended
	(Exhibit 10-4 to 1999 Form 10-K).                                                                                                                                   
|       
|        | 10- | 5           |  | MichCon Supplemental Death Benefit and Retirement Income Plan,
	as amended (Exhibit 10-6 to 1999 Form 10-K).                                                                                                               
|       
|        | 10- | 6           |  | MichCon Supplemental Retirement Plan, as amended (Exhibit 
	10-7 to 1999 Form 10-K).                                                                                                                                       

133



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ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND


REPORTS ON FORM 8-K(CONTINUED)


|        |     |             |  |                                                                                                                                                                                                                                                                                                                                  
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|        | 10- | 7           |  | MCN Energy Group Inc. Mandatory Deferred Compensation Plan, as
	amended (Exhibit 10-8 to 1999 Form 10-K).                                                                                                                                                                                                                        
|       
|        | 10- | 8           |  | MCN Energy Group Inc. Long-Term Incentive Performance Share
	Plan, as amended (Exhibit 10-11 to 1999 Form 10-K).                                                                                                                                                                                                                 
|       
|        | 10- | 9           |  | MCN Energy Group Savings and Stock Ownership Plan, as amended
	(Exhibit 10-14 to 1998 Form 10-K).                                                                                                                                                                                                                                
|       
|        | 10- | 10          |  | MichCon Investment and Stock Ownership Plan, as amended
	(Exhibit 10-15 to 1998 Form 10-k).                                                                                                                                                                                                                                      
|       
|        | 10- | 11          |  | Remarketing Agreement, dated as of March 31, 1998, between
	MCN Investment Corporation, MCN Energy Group Inc. and Merrill
	Lynch, Pierce, Fenner & Smith, Incorporated with respect to
	MCN Investment Corporations 6.30% MandatOry Par Put
	Remarketed Securities due April 2, 2011 (Exhibit 10-1
	to March 31, 1998 Form 8-K).
|       
|        | 10- | 12          |  | Remarketing Agreement, dated as of March 31, 1998, between
	MCN Investment Corporation, MCN Energy Group Inc. and Merrill
	Lynch, Pierce, Fenner & Smith Incorporated with respect to
	MCN Investment Corporations 6.35% MandatOry Par Put
	Remarketed Securities due April 2, 2012 (Exhibit 10-2
	to March 31, 1998 Form 8-K). 
|       
|        | 10- | 13          |  | Reset Remarketing Agreement, dated as of June 23, 1998, by
	and between Michigan Consolidated Gas Company and Salomon
	Brothers Inc. (Exhibit 10-1 to June 18, 1998
	Form 8-K).                                                                                                                                                  
|       
|        | 10- | 14          |  | Reset Remarketing Agreement, dated as of June 23, 1998, by
	and between Michigan Consolidated Gas Company and Merrill Lynch
	& Co./ Merrill Lynch, Pierce, Fenner and Smith Incorporated
	(Exhibit 10-2 to June 18, 1998 Form 8-K).                                                                                              
|       
|        | 10- | 15          |  | MCN Executive Deferred Compensation Plan, as amended.*                                                                                                                                                                                                                                                                           
|       
|        | 10- | 16          |  | MCN Energy Group Inc. Supplemental Savings Plan, as amended.*                                                                                                                                                                                                                                                                    
|       
|        | 10- | 17          |  | MCN Energy Group Inc. Nonemployee Directors Compensation
	Plan, as amended.*                                                                                                                                                                                                                                                    
|       
|        | 10- | 18          |  | MCN Energy Group Inc. Severance Allowance Plan, as amended.*                                                                                                                                                                                                                                                                     
|       
|        | 10- | 19          |  | Guarantee Agreement Between MCN Energy Group Inc. and MCN Energy
	Enterprises Inc.*                                                                                                                                                                                                                                              
|       
|        | 12- | 1           |  | Computation of Ratio of Earnings to Fixed Charges for MCN Energy
	Group Inc.*                                                                                                                                                                                                                                                    
|       
|        | 12- | 2           |  | Computation of Ratio of Earnings to Fixed Charges for MCN Energy
	Enterprises Inc.*                                                                                                                                                                                                                                              
|       
|        | 21- | 1           |  | List of MCN Subsidiaries (Part I Nature of Business
	of Claimant and Every Subsidiary Thereof to the
	December 31, 2000 Form U-3A-2).                                                                                                                                                                                          
|       
|        | 23- | 1           |  | Independent Auditors Consent  Deloitte &
	Touche LLP.*                                                                                                                                                                                                                                                                         
|       
|        | 24- | 1           |  | Powers of Attorney.*                                                                                                                                                                                                                                                                                                             

*  Indicates document filed herewith.

References are to MCNs File No. 1-10070 for the MCN
documents incorporated by reference and MichCons File
No. 1-7310 for the MichCon documents incorporated by
reference.

134



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##### Table of Contents



ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND


REPORTS ON FORM 8-K(Concluded)


(B)  Reports on Form 8-K:

MCN filed a report on Form 8-K dated February 9, 2001,
under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that Michigan Consolidated Gas Company,
MCNs natural gas utility, filed for Michigan Public
Service Commission approval of a capacity sale to a unit of
Exelon Corp. The sale is intended to resolve concerns raised by
the staff of the Federal Trade Commission related to its review
of the proposed merger.

MCN filed a report on Form 8-K dated February 14,
2001, under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that the Michigan Public Service Commission
approved the agreement intended to resolve the concerns raised
by the Federal Trade Commission.

MCN filed a report on Form 8-K dated February 16,
2001, under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that DTE Energy Company filed a revised
U-1 Form with the Securities and Exchange Commission
seeking review of its proposed merger with MCN under the Public
Utility Holding Company Act. DTE Energy Company requested an
expedited review of the merger proposal to facilitate the
consummation of the merger.

MCN filed a report on Form 8-K dated February 28,
2001, under Item 5, announcing that it had entered into an
amended and restated Agreement and Plan of Merger dated as of
October 4, 1999, as amended as of November 12, 1999,
and as further amended as of February 28, 2001 among MCN,
DTE Energy Company, and DTE Enterprises, Inc., pursuant to which
MCN and DTE Enterprises, Inc. will merge, with DTE Enterprises,
Inc. as the surviving corporation in the merger. The Agreement
and Plan of Merger was filed as an exhibit thereto.

135



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##### Table of Contents








SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                      
| | ---------------------
| | MCN ENERGY GROUP INC.
| |                      
| | (Registrant)         



| |     |                        
| | --- | -----------------------
| | By: | /s/ GERARD F. KABZINSKI

| |                              
| | -----------------------------
| |                              
| | Gerard F. Kabzinski          
| | Vice President and Controller
| | March 14, 2001               

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.

|                                                                |  |                                                                 |  |               
|--------------------------------------------------------------- |  | --------------------------------------------------------------- |  | --------------
|                                                                |  | Title                                                           |  | Date          
|                                                                |  |                                                                 |  |               
|*Alfred R. Glancy III                                           |  | Director, Chairman and Chief Executive Officer                  |  | March 14, 2001
|                                                               
|*Stephen E. Ewing                                               |  | Director, President and Chief Operating Officer                 |  | March 14, 2001
|                                                               
|*Howard L. Dow III                                              |  | Executive Vice President, Chief Financial Officer and Treasurer |  | March 14, 2001
|                                                               
|/s/ GERARD F. KABZINSKIGerard F. Kabzinski                      |  | Vice President and Controller                                   |  | March 14, 2001
|                                                               
|*James G. Berges                                                |  | Director                                                        |  | March 14, 2001
|                                                               
|*Roger Fridholm                                                 |  | Director                                                        |  | March 14, 2001
|                                                               
|*Frank M. Hennessey                                             |  | Director                                                        |  | March 14, 2001
|                                                               
|*Thomas H. Jeffs II                                             |  | Director                                                        |  | March 14, 2001
|                                                               
|*Helen O. Petrauskas                                            |  | Director                                                        |  | March 14, 2001
|                                                               
|*Howard F. Sims                                                 |  | Director                                                        |  | March 14, 2001
|                                                               
|*Bill M. Thompson                                               |  | Director                                                        |  | March 14, 2001
|                                                               
|*By: /s/ GERARD F. KABZINSKIGerard F. KabzinskiAttorney-in-Fact |  |                                                                 |  |               

136