##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 1999, or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from
               to

Commission file number 1-10070

MCN ENERGY GROUP INC.

(Exact name of registrant as specified in its charter)

Michigan





500 Griswold Street, Detroit, Michigan



38-2820658






48226



Registrants telephone number, including area code 313-256-5500

No Changes

(Former name, former address and former fiscal
year, if changed since last report.)

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 
 [   ]

Number of shares outstanding of
each of the registrants classes of common stock, as of
November 12, 1999:

Common Stock, par value $.01 per share: 85,655,381



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TABLE OF CONTENTS



|                                                                                                |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|MCN ENERGY GROUP INC. MANAGEMENTS DISCUSSION AND ANALYSIS                                     
|MCN ENERGY GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
|SIGNATURE                                                                                      
|EXHIBIT INDEX                                                                                  



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INDEX TO FORM 10-Q

For Quarter Ended September 30, 1999

|                                                                                                |  |        |    | 
|----------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                |  | Page  
|                                                                                                |  | Number
|                                                                                                |  |       
|COVER                                                                                           |  |        | i  | 
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|                                                                                               
|                                                                                               
|INDEX                                                                                           |  |        | ii | 
|                                                                                               
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|                                                                                               
|PART I  FINANCIAL INFORMATION                                                                  |  |        |    | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Item 1. Financial Statements                                                                    |  |        | 22 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Item 2. Managements Discussion and Analysis of
	Financial
	Condition and Results of Operations |  |        | 1  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|PART II  OTHER INFORMATION                                                                     |  |        |    | 
|                                                                                               
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|                                                                                               
|                                                                                               
|Item 6. Exhibits and Reports on Form 8-K                                                        |  |        | 42 | 
|                                                                                               
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|                                                                                               
|SIGNATURE                                                                                       |  |        | 43 | 

ii



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##### Table of Contents






MCN ENERGY GROUP INC.

MANAGEMENTS DISCUSSION AND ANALYSIS

Results of Operations

Results reflect reduced Diversified Energy and Gas
Distribution contributions MCN had a net loss for
 the 1999 third quarter of $31.2 million or $.37 per share
compared with a net loss of $176.7 million or $2.24 per share in
the same 1998 quarter. MCN experienced a net loss in the 1999
nine-and twelve-month periods of $31.9 million or $.39 per share
and $7.9 million or $.10 per share, respectively, compared
with a net loss of $310.5 million or $3.95 per share and $265.6
million or $3.38 per share for the same 1998 periods. As
subsequently discussed, the comparability in earnings was
affected by non-recurring items consisting of an accounting
change and several unusual charges. The unusual charges include
losses on the sale of properties, property write-downs,
investment losses and restructuring charges.

|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |        |  
|-------------------------------------------------------------- | ------------------------- | --------------------------------------- | ----- | -------- | - | --------- | ------ | ------ | - | ---- | ------ | ----- | - | - | ------ | ------ | - | - | ------ | ----- | - | - | ------ | ------ | -
|                                                               |                           |                                         |       |          |   |          
|                                                               |                           | Quarter                                 |       | 9 Months |   | 12 Months
|                                                               |                           |                                         |       |          |   |          
|                                                               |                           | 1999                                    |       | 1998     |   | 1999      |        | 1998   |   | 1999 |        | 1998 
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |      
|                                                               |                           |                                        
|                                                               |                           | (in Millions, Except Per Share Amounts)
|                                                              
|                                                              
|                                                              
|                                                              
|Net Income (Loss)                                              |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|Diversified Energy:                                            |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         | $     | (12.7    | ) |           | $      | .2     |   |      | $      | (17.8 | ) |   | $      | 21.6   |   |   | $      | (24.6 | ) |   | $      | 33.9   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3)  |                                         |       | (3.8     | ) |           |        | (152.4 | ) |      |        | (87.2 | ) |   |        | (372.9 | ) |   |        | (87.2 | ) |   |        | (372.9 | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (16.5 | )        |   |           | (152.2 | )      |   |      | (105.0 | )     |   |   | (351.3 | )      |   |   | (111.8 | )     |   |   | (339.0 | )     
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|Gas Distribution:                                              |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         |       | (14.7    | ) |           |        | (7.8   | ) |      |        | 76.0  |   |   |        | 57.5   |   |   |        | 106.8 |   |   |        | 90.1   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3e) |                                         |       |         |   |           |        | (16.7  | ) |      |        |      |   |   |        | (16.7  | ) |   |        |      |   |   |        | (16.7  | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (14.7 | )        |   |           | (24.5  | )      |   |      | 76.0   |       |   |   | 40.8   |        |   |   | 106.8  |       |   |   | 73.4   |       
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|Total Before Accounting Change:                                |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         |       | (27.4    | ) |           |        | (7.6   | ) |      |        | 58.2  |   |   |        | 79.1   |   |   |        | 82.2  |   |   |        | 124.0  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3)  |                                         |       | (3.8     | ) |           |        | (169.1 | ) |      |        | (87.2 | ) |   |        | (389.6 | ) |   |        | (87.2 | ) |   |        | (389.6 | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (31.2 | )        |   |           | (176.7 | )      |   |      | (29.0  | )     |   |   | (310.5 | )      |   |   | (5.0   | )     |   |   | (265.6 | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes
	(Note 6) |                           |                                         |      |          |   |           |       |        |   |      | (2.9   | )     |   |   |       |        |   |   | (2.9   | )     |   |   |       |       
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           | $                                       | (31.2 | )        |   | $         | (176.7 | )      |   | $    | (31.9  | )     |   | $ | (310.5 | )      |   | $ | (7.9   | )     |   | $ | (265.6 | )     
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|Earnings (Loss) Per Share  Basic and Diluted                  |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|Diversified Energy:                                            |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         | $     | (.15     | ) |           | $      |       |   |      | $      | (.22  | ) |   | $      | .27    |   |   | $      | (.30  | ) |   | $      | .43    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3)  |                                         |       | (.05     | ) |           |        | (1.93  | ) |      |        | (1.05 | ) |   |        | (4.74  | ) |   |        | (1.07 | ) |   |        | (4.75  | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (.20  | )        |   |           | (1.93  | )      |   |      | (1.27  | )     |   |   | (4.47  | )      |   |   | (1.37  | )     |   |   | (4.32  | )     
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|Gas Distribution:                                              |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         |       | (.17     | ) |           |        | (.10   | ) |      |        | .92   |   |   |        | .73    |   |   |        | 1.31  |   |   |        | 1.15   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3e) |                                         |       |         |   |           |        | (.21   | ) |      |        |      |   |   |        | (.21   | ) |   |        |      |   |   |        | (.21   | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (.17  | )        |   |           | (.31   | )      |   |      | .92    |       |   |   | .52    |        |   |   | 1.31   |       |   |   | .94    |       
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|Total Before Accounting Change:                                |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |                                         |       | (.32     | ) |           |        | (.10   | ) |      |        | .70   |   |   |        | 1.00   |   |   |        | 1.01  |   |   |        | 1.58   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 3)  |                                         |       | (.05     | ) |           |        | (2.14  | ) |      |        | (1.05 | ) |   |        | (4.95  | ) |   |        | (1.07 | ) |   |        | (4.96  | )
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           |                                         | (.37  | )        |   |           | (2.24  | )      |   |      | (.35   | )     |   |   | (3.95  | )      |   |   | (.06   | )     |   |   | (3.38  | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change (Note 6)                |                           |                                         |      |          |   |           |       |        |   |      | (.04   | )     |   |   |       |        |   |   | (.04   | )     |   |   |       |       
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       
|                                                               |                           | $                                       | (.37  | )        |   | $         | (2.24  | )      |   | $    | (.39   | )     |   | $ | (3.95  | )      |   | $ | (.10   | )     |   | $ | (3.38  | )     
|                                                               |                           |                                         |       |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |        |       |   |   |        |       

1



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


Excluding the non-recurring items, MCN had a net loss of
$27.4 million for the 1999 quarter and earnings of
$58.2 million and $82.2 million for the 1999 nine-and
twelve-month periods, respectively, resulting in decreases of
$19.8 million, $20.9 million and $41.8 million
from the corresponding 1998 periods. The comparisons reflect
losses in the Diversified Energy group resulting from the decline
 in earnings in the Energy Marketing and Exploration &
Production (E&P) segments as well as increased financing
costs. The 1999 quarter also reflects higher seasonal losses in
the Gas Distribution segment. The decline in Diversified
Energys results in the 1999 nine- and twelve-month periods
was partially offset by increased contributions from the Gas
Distribution segment resulting from its new gas sales program and
 the favorable impact of more normal weather. Also affecting the
comparability for the nine-and twelve-month periods were gains
recorded by the Diversified Energy group in 1998 from the sale of
 certain assets.

Restatement  As discussed in Note 5
 to the Consolidated Financial Statements included herein and in
MCNs 1998 Annual Report included in the Form 8-K filed
 with the Securities and Exchange Commission (SEC) on
October 15, 1999 (Note 1), MCN conducted a special
investigation of prior years operations of CoEnergy Trading
 Company, its non-utility energy marketing subsidiary, subsequent
 to the issuance of its December 31, 1998 financial
statements. As a result of the investigation, MCN identified that
 its internal control systems had been overridden, and that
certain transactions had not been properly accounted for. The
accompanying consolidated financial statements for the 1998
periods have been restated from those originally reported to
properly account for the transactions identified. The
restatements result in a decrease in net loss of $.4 million
 for the 1998 quarter and an increase in net loss of
$3.7 million or $.05 per share and $9.1 million or $.11
 per share for the 1998 nine- and twelve-month periods,
respectively. The corrections did not have an impact on the
liquidity or cash flows of MCN. The financial information
contained in Managements Discussion and Analysis herein has
 been revised to reflect the impact of such restatement.

Strategic direction  MCN announced in
August 1999 a significantly revised strategic direction that
 includes: focusing on the Midwest-to-Northeast region rather
than on North America; emphasizing operational efficiencies and
growth through the integration of existing businesses rather than
 building a portfolio of diverse, non-operated energy
investments; retaining its natural gas producing properties in
Michigan while going forward with the sale of its other
exploration and production oil and gas properties; and reducing
capital investment levels to approximately $500 million in
1999 and to $300 million in 2000.

Pending merger  MCN and DTE Energy
Company (DTE) have signed a definitive merger agreement dated
October 4, 1999 under which DTE will acquire all outstanding
 shares of MCN common stock. The boards of directors of both
companies have unanimously approved the merger agreement. The
transaction is subject to the approval of the shareholders of
both companies, regulatory approvals and other customary merger
conditions. The transaction is expected to close in six to nine
months from the date of the merger agreement and 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. In the
1999 fourth quarter and 2000 first quarter, MCN will record
legal, accounting, employee benefit and other expenses associated
 with the merger. Further information regarding the merger
agreement is included in Note 2 to the Consolidated
Financial Statements included herein.

Unusual charges  MCN recorded several
unusual charges in the 1999 second and third quarters as well as
the 1998 second and third quarters, consisting of losses on the
sale of properties, property write-downs, investment losses and
restructuring charges (Note 3).

2



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


A discussion of each unusual charge by segment follows:

|                    |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |        |  
|------------------- | ------------------------ | --------------------------------------- | ---- | -------- | - | --------- | ------ | ----- | - | ---- | ----- | ----- | - | - | ------ | ------ | - | - | ----- | ----- | - | - | ------ | ------ | -
|                    |                          |                                         |      |          |   |          
|                    |                          | Quarter                                 |      | 9 Months |   | 12 Months
|                    |                          |                                         |      |          |   |          
|                    |                          | 1999                                    |      | 1998     |   | 1999      |        | 1998  |   | 1999 |       | 1998 
|                    |                          |                                         |      |          |   |           |        |       |   |      |       |      
|                    |                          |                                        
|                    |                          | (in Millions, Except Per Share Amounts)
|                   
|                   
|                   
|                   
|Unusual Charges     |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       
|                   
|                   
|                   
|                   
|Diversified Energy: |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       
|                   
|                   
|                   
|                   
|                    | Pipelines & Processing   |                                         | $    |         |   |           | $      | (89.5 | ) |      | $     |      |   |   | $      | (89.5  | ) |   | $     |      |   |   | $      | (89.5  | )
|                   
|                   
|                   
|                   
|                    | Electric Power           |                                         |      |         |   |           |        | (1.6  | ) |      |       |      |   |   |        | (1.6   | ) |   |       |      |   |   |        | (1.6   | )
|                   
|                   
|                   
|                   
|                    | Exploration & Production |                                         |      | (3.8     | ) |           |        | (54.5 | ) |      |       | (87.2 | ) |   |        | (275.0 | ) |   |       | (87.2 | ) |   |        | (275.0 | )
|                   
|                   
|                   
|                   
|                    | Corporate & Other        |                                         |      |         |   |           |        | (6.8  | ) |      |       |      |   |   |        | (6.8   | ) |   |       |      |   |   |        | (6.8   | )
|                    |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       
|                    |                          |                                         | (3.8 | )        |   |           | (152.4 | )     |   |      | (87.2 | )     |   |   | (372.9 | )      |   |   | (87.2 | )     |   |   | (372.9 | )     
|                   
|                   
|                   
|                   
|Gas Distribution    |                          |                                         |     |          |   |           | (16.7  | )     |   |      |      |       |   |   | (16.7  | )      |   |   |      |       |   |   | (16.7  | )     
|                    |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       
|                    |                          | $                                       | (3.8 | )        |   | $         | (169.1 | )     |   | $    | (87.2 | )     |   | $ | (389.6 | )      |   | $ | (87.2 | )     |   | $ | (389.6 | )     
|                    |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       
|Loss Per Share      |                          | $                                       | (.05 | )        |   | $         | (2.14  | )     |   | $    | (1.05 | )     |   | $ | (4.95  | )      |   | $ | (1.07 | )     |   | $ | (4.96  | )     
|                    |                          |                                         |      |          |   |           |        |       |   |      |       |       |   |   |        |        |   |   |       |       |   |   |        |       

Pipelines & Processing

Property Write-Downs:In the third quarter of 1998, MCN
recorded 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 is 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.
Although the plants were 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 sought to maximize the value of its investment in the coal
fines project, and in May 1999 filed a request with the IRS
seeking a factual determination that its coal fines plants were
in service on June 30, 1998. In September 1999, MCN
received favorable determination letters from the IRS ruling that
 four of the six plants were in service by June 30, 1998
(Note 4a).

In the third quarter of 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 Power

Restructuring Charge:In the third quarter of 1998, MCN
recorded a $2.5 million pre-tax ($1.6 million net of
taxes) restructuring charge related to certain international
power projects. The charge was incurred as a result of refocusing
 MCNs strategic plan, particularly the decision to exit
certain international power projects.

Exploration & Production

Property Write-Downs:In the second quarter of 1999, MCN
recognized 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 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 SEC, MCNs capitalized exploration and
production costs at June 30, 1999 exceeded the

3



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


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.

In the second and third quarters of 1998, MCN recognized
write-downs of its gas and oil properties totaling
$333.0 million pre-tax ($216.5 million net of taxes)
and $83.9 million pre-tax ($54.5 million net of taxes),
respectively. 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:In the second quarter of
1999, MCN recognized losses from the sale of its Western and
Midcontinent/ Gulf Coast E&P properties totaling
$68.8 million pre-tax ($44.7 million net of taxes). In
the third quarter of 1999, MCN recognized additional losses
relating to the sale of these properties totaling $5.9 million
pre-tax ($3.8 million net of taxes).

Loss on Investment:In the second quarter of 1999, MCN
recognized a $7.5 million pre-tax loss ($4.9 million
net of taxes) from the write-down of an investment in the common
stock of an E&P company. MCN had also recognized a
$6.1 million pre-tax loss ($4.0 million net of taxes)
from the write-down of this investment during the second quarter
of 1998. The losses were due to declines in the fair value of the
 securities that are not considered temporary. MCN has no
carrying value in this investment after the write-downs.

Corporate & Other

Restructuring Charge:In the third quarter of 1998, MCN
recorded a $10.4 million pre-tax ($6.8 million net of
taxes) restructuring charge related to the corporate realignment
designed to improve operating efficiencies through a more
streamlined organizational structure. The realignment included
cost saving initiatives expected to reduce future operating
expenses.

Gas Distribution

Property Write-Downs:In the third quarter of 1998, MCN
recorded 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.

Loss on Investment:In the third quarter of 1998, MCN also
 recorded an $8.5 million pre-tax loss ($5.5 million
net of taxes) from the write-down of an investment in a Missouri
gas distribution company that MCN intends to sell in 2000. The
write-down represents the amount by which the carrying value
exceeded the estimated fair value of the investment.

Diversified Energy

Results reflect reduced Energy Marketing and E&P
contributions The Diversified Energy group had a
net loss of $16.5 million for the 1999 third quarter
compared to a net loss of $152.2 million for the same 1998
period. Diversified Energy had net losses of $105.0 million
and $111.8 million in the 1999 nine- and twelve-month
periods, respectively, compared to losses of $351.3 million
and $339.0 million in the corresponding 1998 periods. As
previously discussed, results for all 1999 and 1998 periods were
impacted by the unusual charges. Excluding the unusual charges,
Diversified Energy had losses of $12.7 million,
$17.8 million and $24.6 million for the 1999 quarter,
nine-and twelve-month periods, respectively, compared to earnings
 of $.2 million, $21.6 million and $33.9 million
for the same 1998 periods. The results for all 1999 periods
reflect losses from the Energy Marketing segment due to higher
gas costs. Additionally, all 1999 periods reflect the impact of
lower E&P gas and oil production on operating and joint
venture income as well as higher financing costs. The earnings
comparisons for the nine- and twelve-month periods were also
affected by gains recorded in 1998 from the sale of certain
assets. Additionally, Diversified Energys results for the
1999 nine- and

4



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


twelve-month periods reflect the impact of lower methanol prices
and methanol production on the Pipelines & Processing
segment.

|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |         |  
|------------------------------------ | ------------------------------------------------------- | ------------- | ----- | -------- | - | --------- | ------ | ------ | - | ---- | ------ | ----- | - | - | ------- | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                     |                                                         |               |       |          |   |          
|                                     |                                                         | Quarter       |       | 9 Months |   | 12 Months
|                                     |                                                         |               |       |          |   |          
|                                     |                                                         | 1999          |       | 1998     |   | 1999      |        | 1998   |   | 1999 |        | 1998 
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |      
|                                     |                                                         |              
|                                     |                                                         | (in Millions)
|                                    
|                                    
|                                    
|                                    
|Diversified Energy Operations        |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|Operating Revenues*                  |                                                         | $             | 335.5 |          |   | $         | 228.9  |        |   | $    | 927.0  |       |   | $ | 734.0   |        |   | $ | 1,185.8 |         |   | $ | 1,039.3 |        
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Operating Expenses*                  |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-downs and restructuring charges (Note 3) |               |       |         |   |           |        | 234.5  |   |      |        | 52.0  |   |   |         | 567.5  |   |   |         | 52.0    |   |   |         | 567.5   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                   |               |       | 347.9    |   |           |        | 227.5  |   |      |        | 929.6 |   |   |         | 721.4  |   |   |         | 1,198.0 |   |   |         | 1,018.2 |  
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                     |                                                         |               | 347.9 |          |   |           | 462.0  |        |   |      | 981.6  |       |   |   | 1,288.9 |        |   |   | 1,250.0 |         |   |   | 1,585.7 |        
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Operating Loss                       |                                                         |               | (12.4 | )        |   |           | (233.1 | )      |   |      | (54.6  | )     |   |   | (554.9  | )      |   |   | (64.2   | )       |   |   | (546.4  | )      
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Equity in Earnings of Joint Ventures |                                                         |               | 15.0  |          |   |           | 17.9   |        |   |      | 38.5   |       |   |   | 46.1    |        |   |   | 53.8    |         |   |   | 59.2    |        
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Other Income & (Deductions)*         |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                         |               |       | 1.1      |   |           |        | .9     |   |      |        | 3.1   |   |   |         | 5.3    |   |   |         | 3.0     |   |   |         | 7.4     |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                        |               |       | (14.4    | ) |           |        | (16.4  | ) |      |        | (46.6 | ) |   |         | (38.1  | ) |   |         | (62.8   | ) |   |         | (43.5   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends on preferred securities of subsidiaries       |               |       | (10.3    | ) |           |        | (8.2   | ) |      |        | (31.0 | ) |   |         | (27.2  | ) |   |         | (40.2   | ) |   |         | (37.0   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Loss on sale of E&P properties (Note 3c)                |               |       | (5.9     | ) |           |        |       |   |      |        | (74.7 | ) |   |         |       |   |   |         | (74.7   | ) |   |         |        |  
|                                    
|                                    
|                                    
|                                    
|                                     | Loss on E&P investment (Note 3c)                        |               |       |         |   |           |        |       |   |      |        | (7.5  | ) |   |         | (6.1   | ) |   |         | (7.5    | ) |   |         | (6.1    | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                   |               |       | 3.8      |   |           |        | (.1    | ) |      |        | 13.8  |   |   |         | 13.1   |   |   |         | 20.9    |   |   |         | 16.0    |  
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                     |                                                         |               | (25.7 | )        |   |           | (23.8  | )      |   |      | (142.9 | )     |   |   | (53.0   | )      |   |   | (161.3  | )       |   |   | (63.2   | )      
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Loss Before Income Taxes             |                                                         |               | (23.1 | )        |   |           | (239.0 | )      |   |      | (159.0 | )     |   |   | (561.8  | )      |   |   | (171.7  | )       |   |   | (550.4  | )      
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Income Taxes                         |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current and deferred benefit                            |               |       | (6.6     | ) |           |        | (84.3  | ) |      |        | (54.0 | ) |   |         | (199.5 | ) |   |         | (59.9   | ) |   |         | (195.8  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Federal tax credits                                     |               |       |         |   |           |        | (2.5   | ) |      |        |      |   |   |         | (11.0  | ) |   |         |        |   |   |         | (15.6   | )
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                     |                                                         |               | (6.6  | )        |   |           | (86.8  | )      |   |      | (54.0  | )     |   |   | (210.5  | )      |   |   | (59.9   | )       |   |   | (211.4  | )      
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|Net Income (Loss)                    |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual charges                                  |               |       | (12.7    | ) |           |        | .2     |   |      |        | (17.8 | ) |   |         | 21.6   |   |   |         | (24.6   | ) |   |         | 33.9    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual charges (Note 3)                                |               |       | (3.8     | ) |           |        | (152.4 | ) |      |        | (87.2 | ) |   |         | (372.9 | ) |   |         | (87.2   | ) |   |         | (372.9  | )
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        
|                                     |                                                         | $             | (16.5 | )        |   | $         | (152.2 | )      |   | $    | (105.0 | )     |   | $ | (351.3  | )      |   | $ | (111.8  | )       |   | $ | (339.0  | )      
|                                     |                                                         |               |       |          |   |           |        |        |   |      |        |       |   |   |         |        |   |   |         |         |   |   |         |        




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

Operating and Joint Venture Income

Operating and joint venture results for the 1999 quarter, nine-
and twelve-month periods (excluding the unusual charges)
decreased from the comparable 1998 periods by $16.7 million,
 $22.8 million and $38.7 million, respectively. Results
 for all 1999 periods reflect reduced contributions from the
Energy Marketing, E&P and Electric Power segments. Pipelines
& Processing results improved in the 1999 quarter,

5



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


but declined in the 1999 nine- and twelve-month periods.
Additionally, lower Corporate & Other expenses in the 1999
nine- and twelve-month periods favorably impacted operating and
joint venture income.

|                                          |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |      |  
|----------------------------------------- | ------------------------ | ------- | --- | -------- | - | --------- | ------ | ---- |  | ---- | ----- | ---- | - | - | ------ | ---- | - | - | ----- | ----- | - | - | ------ | ---- | -
|                                          |                          |         |     |          |   |          
|                                          |                          | Quarter |     | 9 Months |   | 12 Months
|                                          |                          |         |     |          |   |          
|                                          |                          | 1999    |     | 1998     |   | 1999      |        | 1998 |  | 1999 |       | 1998
|                                          |                          |         |     |          |   |           |        |      |  |      |       |     
|Operating and Joint Venture Income (Loss) |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |     
|                                         
|                                         
|                                         
|                                         
|Before Unusual Charges:                   |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |     
|                                         
|                                         
|                                         
|                                         
|                                          | Pipelines & Processing   |         | $   | 4.1      |   |           | $      | 3.5  |  |      | $     | 13.7 |   |   | $      | 19.1 |   |   | $     | 16.0  |   |   | $      | 27.1 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Electric Power           |         |     | 6.6      |   |           |        | 8.6  |  |      |       | 18.0 |   |   |        | 21.0 |   |   |       | 23.0  |   |   |        | 25.8 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Energy Marketing         |         |     | (8.8     | ) |           |        | .4   |  |      |       | (6.0 | ) |   |        | .7   |   |   |       | (10.2 | ) |   |        | (1.5 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Exploration & Production |         |     | 1.8      |   |           |        | 6.5  |  |      |       | 10.0 |   |   |        | 23.4 |   |   |       | 15.6  |   |   |        | 34.5 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Corporate & Other        |         |     | (1.1     | ) |           |        | .3   |  |      |       | .2   |   |   |        | (5.5 | ) |   |       | (2.8  | ) |   |        | (5.6 | )
|                                          |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |     
|                                          |                          |         | 2.6 |          |   |           | 19.3   |      |  |      | 35.9  |      |   |   | 58.7   |      |   |   | 41.6  |       |   |   | 80.3   |     
|                                         
|                                         
|                                         
|                                         
|Unusual Charges (Note 3)                  |                          |         |    |          |   |           | (234.5 | )    |  |      | (52.0 | )    |   |   | (567.5 | )    |   |   | (52.0 | )     |   |   | (567.5 | )   
|                                          |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |     
|                                          |                          | $       | 2.6 |          |   | $         | (215.2 | )    |  | $    | (16.1 | )    |   | $ | (508.8 | )    |   | $ | (10.4 | )     |   | $ | (487.2 | )   
|                                          |                          |         |     |          |   |           |        |      |  |      |       |      |   |   |        |      |   |   |       |       |   |   |        |     

Pipelines & Processingoperating and joint venture
results (excluding the write-offs) increased $.6 million for the
1999 quarter, and decreased $5.4 million and $11.1 million for
the 1999 nine- and twelve-month periods, respectively. All 1999
periods reflect start-up expenditures associated with new
projects and a decline in the allowance for funds used
during construction (AFUDC) associated with MCNs
 16%-owned Portland Natural Gas Transmission System, as it was
placed in service in the first quarter of 1999. The 1999 nine-
and twelve-month periods also reflect reduced earnings from
MCNs 25%-owned methanol production business resulting from
lower methanol margins as well as lower methanol volumes
produced. Earnings from the methanol production business
benefited from strong methanol prices during 1997 and early 1998,
 but prices and margins have since weakened. Pipelines &
Processings average methanol sales prices declined 9% for
the 1999 nine-month period and 23% for the 1999 twelve-month
period. Methanol production declined 5.0 million gallons for the
1999 nine-month period and 5.2 million gallons for the 1999
twelve-month period due primarily to the shutdown of the methanol
 plant for scheduled maintenance in March 1999.
Additionally, Pipelines & Processing results for the 1998
periods were impacted by operating losses related to the start-up
 of the coal fines plants (Note 3a).

Pipelines & Processing operating and joint venture income was
 also affected by an increase in transportation volumes for all
1999 periods due to new gas gathering ventures and the expansion
of existing pipeline projects. Volumes transported increased for
the 1999 quarter, nine- and twelve-month periods by 7.1 billion
cubic feet (Bcf), 24.1 Bcf and 35.0 Bcf, respectively.
Pipelines & Processing results were also impacted in all 1999
 periods by an increase in gas processed to remove natural gas
liquids (NGLs). Gas processed to remove NGLs increased
11.0 Bcf, 20.0 Bcf and 23.2 Bcf in the 1999
quarter, nine- and twelve-month periods, respectively, reflecting
 volumes associated with the acquisition and development of
additional processing facilities. Pipelines & Processing
 operations include variations in the level of gas processed to
remove carbon dioxide (CO2). The volume of CO2 gas treated decreased .3 Bcf in the 1999 quarter, and
 increased 2.0 Bcf and 6.7 Bcf in the 1999 nine- and
twelve-month periods, respectively. However, earnings were not
significantly affected by these variations, since under the terms
 of Pipelines & Processings CO2
processing contracts, revenues are not volume sensitive.

In November 1999, MCN reached an agreement to sell four of
its coal fines plants to DTE in an arms-length transaction that
is independent of the pending merger (Note 4b). The sales
price will depend on total production performance of the four
plants. DTE will initially make a $45 million payment that will
be adjusted up to $152 million or down to zero based on the
results of a 36-month production test period. The sale is
expected to be finalized in December 1999. Beginning in
2001, Pipelines & Processing results are expected to

6



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


be favorably affected by the recording of gains from the sale of
the plants as increasing production levels are achieved.

|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |       |      | 
|---------------------------------- | ----------------------------------- | --------------------------- | ---- | -------- | ---- | --------- | ---- | ---- | ---- | ---- | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ----- | ----- | ---- |  | ---- | ----- | ---- | 
|                                   |                                     |                             |      |          |      |          
|                                   |                                     | Quarter                     |      | 9 Months |      | 12 Months
|                                   |                                     |                             |      |          |      |          
|                                   |                                     | 1999                        |      | 1998     |      | 1999      |      | 1998 |      | 1999 |      | 1998 
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |      
|Pipelines & Processing Statistics* |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |      
|                                  
|                                  
|                                  
|                                  
|                                   | Methanol Produced (Million Gallons) |                             |      | 15.7     |      |           |      | 15.2 |      |      |      | 40.6  |      |  |      | 45.6  |      |  |       | 55.4  |      |  |      | 60.6  |     
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |      
|                                   | Transportation (Bcf)                |                             |      | 52.4     |      |           |      | 45.3 |      |      |      | 153.5 |      |  |      | 129.4 |      |  |       | 199.5 |      |  |      | 164.5 |     
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |      
|                                   | Gas Processed (Bcf):                |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |       |     
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Carbon Dioxide Treatment    |      |          | 12.4 |           |      |      | 12.7 |      |      |       | 38.2 |  |      |       | 36.2 |  |       |       | 50.9 |  |      |       | 44.2 | 
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Natural Gas Liquids Removal |      |          | 22.6 |           |      |      | 11.6 |      |      |       | 54.1 |  |      |       | 34.1 |  |       |       | 65.1 |  |      |       | 41.9 | 
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |      
|                                   |                                     |                             | 35.0 |          |      |           | 24.3 |      |      |      | 92.3 |       |      |  | 70.3 |       |      |  | 116.0 |       |      |  | 86.1 |      
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |       |      |  |       |       |      |  |      |      




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

Pipelines & Processing has also recorded earnings from
certain joint venture investments where it is allocated income
based on its share of the ventures earnings but not less
than a predetermined fixed amount. Joint venture income recorded
from these investments through September 1999 was based on
the fixed amount. Under the joint venture agreements, the fixed
amount will be lowered or eliminated in 2000.

Pipelines & Processing has a 75% interest in an asphalt
manufacturing partnership that recently completed construction of
 a plant designed to produce up to 100,000 tons of high-quality
asphalt annually. Currently, the plant is experiencing
difficulties in producing economical quantities of asphalt, and
MCN is aggressively working to resolve the issues.

In 1998, MCN advanced approximately $18 million to a developer of
 a fertilizer project in the United Arab Emirates. The advance
was structured as an interest-bearing loan with the possibility
of being converted into an equity investment in the project. The
advance, which was due in September 1999, is being extended
for an additional year. The project is being developed more
slowly than initially anticipated, and MCNs continuing role
 in the project is under negotiation.

Electric Poweroperating and joint venture results
(excluding the restructuring charges) decreased by $2.0 million,
$3.0 million and $2.8 million in the 1999 quarter, nine- and
twelve-month periods, respectively. Results for all 1999 periods
were unfavorably affected by higher start-up expenditures
associated with new ventures as well as reduced contributions
from MCNs international power investments, specifically the
 Torrent Power Limited (TPL) venture. In August 1999,
MCN completed the sale of its 40% interest in TPL for
approximately $130 million, resulting in a small gain. TPL holds
minority interests in electric distribution companies and power
generation facilities in the state of Gujarat, India. Earnings
from TPL for 1999 were deferred due to the pending sale.
Additionally, the nine- and twelve-month periods comparison was
impacted by an uncollectible expense provision recorded in the
second quarter of 1999 associated with a customer in bankruptcy
as well as reduced contributions from the 30 megawatt
(MW) Ada cogeneration facility, reflecting the sale of a 50%
 interest in the project in the first quarter of 1998.

Electric Powers earnings comparison for the nine- and
twelve-month periods also was impacted by increased contributions
 from the 1,370 MW Midland Cogeneration Venture
(MCV) facility, reflecting an increase in MCNs
interest in the MCV partnership from 18% to 23% in
June 1998. Earnings from the MCV partnership for the 1999
nine- and twelve-month periods include a favorable $2.1 million
pre-tax adjustment for the resolution of a number of contract
issues with the electricity purchaser. Also contributing
favorably to

7



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


the 1999 results were higher earnings from MCNs 50%-owned,
123 MW Michigan Power cogeneration facility due to higher
electricity capacity payments received under its long-term power
purchase agreement.

|               |                                   |                          |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|-------------- | --------------------------------- | ------------------------ | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|               |                                   |                          |       |          |  |          
|               |                                   | Quarter                  |       | 9 Months |  | 12 Months
|               |                                   |                          |       |          |  |          
|               |                                   | 1999                     |       | 1998     |  | 1999      |       | 1998  |  | 1999 |         | 1998   
|               |                                   |                          |       |          |  |           |       |       |  |      |         |        
|               |                                   |                         
|               |                                   | (Thousands of MW hours)*
|              
|              
|              
|              
|Electric Power |                                   |                          |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|              
|              
|              
|              
|               | Electricity Sales  Domestic      |                          |       | 692.3    |  |           |       | 651.5 |  |      |         | 2,084.2 |  |  |         | 1,855.4 |  |  |         | 2,745.4 |  |  |         | 2,498.0 | 
|              
|              
|              
|              
|               | Electricity Sales  International |                          |       |         |  |           |       | 336.5 |  |      |         |        |  |  |         | 874.2   |  |  |         | 414.2   |  |  |         | 874.4   | 
|               |                                   |                          |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|               |                                   |                          | 692.3 |          |  |           | 988.0 |       |  |      | 2,084.2 |         |  |  | 2,729.6 |         |  |  | 3,159.6 |         |  |  | 3,372.4 |        
|               |                                   |                          |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        




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

Energy Marketingoperating and joint venture results
decreased $9.2 million, $6.7 million and $8.7 million for the
1999 quarter, nine- and twelve-month periods, respectively. The
1999 periods reflect the accounting effect of anticipated
temporary high gas prices on gas in inventory and cost of gas
sold. During the third quarter of each year, Energy Marketing
normally increases gas in inventory and depletes such inventories
 in the colder fourth and first quarters of the year when gas
demand and gas prices typically are at their highest. In
anticipation that third quarter inventory injections will be
withdrawn prior to year-end, Energy Marketing prices the gas
inventory injections at the estimated average purchase rate for
the calendar year. For the 1999 third quarter, the actual average
 purchase rate incurred exceeded the estimated average purchase
rate for the year. This resulted in a higher cost of gas sold in
the 1999 third quarter, the impact of which is expected to
reverse in the 1999 fourth quarter.

Results for all 1999 periods were also impacted by higher costs
for natural gas transportation and storage 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 the storage field in
time for the 1999-2000 winter heating season enhances Energy
Marketings ability to offer a reliable gas supply during
peak winter months.

|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|---------------- | ----------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                 |                         |         |       |          |  |          
|                 |                         | Quarter |       | 9 Months |  | 12 Months
|                 |                         |         |       |          |  |          
|                 |                         | 1999    |       | 1998     |  | 1999      |       | 1998  |  | 1999 |       | 1998 
|                 |                         |         |       |          |  |           |       |       |  |      |       |      
|                 |                         |        
|                 |                         | (Bcf)* 
|                
|                
|                
|                
|Energy Marketing |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|                 | Gas Sales               |         |       | 140.5    |  |           |       | 114.5 |  |      |       | 423.1 |  |  |       | 333.0 |  |  |       | 544.7 |  |  |       | 435.8 | 
|                
|                
|                
|                
|                 | Exchange Gas Deliveries |         |       |         |  |           |       |      |  |      |       | 5.6   |  |  |       | 6.8   |  |  |       | 9.9   |  |  |       | 11.9  | 
|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                         |         | 140.5 |          |  |           | 114.5 |       |  |      | 428.7 |       |  |  | 339.8 |       |  |  | 554.6 |       |  |  | 447.7 |      
|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      




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

The impact of the higher cost of gas sold as previously
discussed, as well as the higher costs for gas transportation and
 storage capacity more than offset the improved margins resulting
 from an increase in total gas sales and exchange deliveries. Gas
 sales and exchange deliveries in total increased 26.0 Bcf,
88.9 Bcf and 106.9 Bcf during the 1999 quarter, nine-
and twelve-month periods, respectively. The increase in gas sales
 is due in part to the April 1999 acquisition of existing
marketing operations that significantly increased Energy
Marketings level of sales to large commercial and
industrial customers in the Midwest. The comparisons of earnings
for the nine- and twelve-month periods were also affected by
losses recorded in 1998 associated with trading activities
(Note 5) as well as higher 1999 uncollectible expenses and
costs associated with the June 1999 dissolution of the
DTE-CoEnergy joint venture.

Exploration & Productionoperating and joint venture
results (excluding the unusual charges) decreased by $4.7
million, $13.4 million and $18.9 million for the 1999 quarter,
nine- and twelve-month periods, respectively. These results
reflect a decline in overall gas and oil production of 10.1
billion cubic feet

8



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


equivalent (Bcfe) in the 1999 quarter, 21.0 Bcfe in the 1999
 nine-month period and 25.0 Bcfe in the 1999 twelve-month
period. The decrease in gas and oil production is due primarily
to the sale of MCNs Western and Midcontinent/ Gulf Coast
E&P properties recorded in the second quarter of 1999. Gas
and oil production in future periods will also be lower due to
the expected sale of other non-Michigan E&P properties by
mid-2000.

E&P results for all 1999 periods were also impacted by an
increase in production-related expenses and variations in gas and
 oil sales prices. Production expenses increased per thousand
cubic feet (Mcf) equivalent by $.22, $.12 and $.09 for the 1999
quarter, nine- and twelve-month periods, respectively, reflecting
 the higher costs of operating the E&P properties retained.
Gas prices increased by $.17 per Mcf in the 1999 third quarter,
by $.16 per Mcf in the current nine-month period and by $.13 per
Mcf in the 1999 twelve-month period. Oil prices increased by
$1.44 per barrel (Bbl) in the 1999 quarter, but declined by $.61
per Bbl and $1.82 per Bbl in the current nine-and twelve-month
periods, respectively. The impact of fluctuations in natural gas
and oil sales prices on E&P operating and joint venture
income was mitigated by hedging with swap and futures agreements,
 as discussed in the Risk Management Strategy section
 that follows.

|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|----------------------------------------- |  | ------- | ----- | -------- |  | --------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- |  |  | - | ----- | -
|                                          |  |         |       |          |  |          
|                                          |  | Quarter |       | 9 Months |  | 12 Months
|                                          |  |         |       |          |  |          
|                                          |  | 1999    |       | 1998     |  | 1999      |       | 1998 |  | 1999 |       | 1998
|                                          |  |         |       |          |  |           |       |      |  |      |       |     
|Exploration & Production Statistics       |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|                                         
|                                         
|                                         
|                                         
|Gas Production (Bcf)                      |  |         | 12.9  |          |  |           | 21.3  |      |  |      | 48.1  |      |  |   | 62.4  |   |  |   | 67.8  |  |  |   | 83.0  |  
|                                         
|                                         
|                                         
|                                         
|Oil Production (million Bbl)              |  |         | .2    |          |  |           | .5    |      |  |      | 1.0   |      |  |   | 2.1   |   |  |   | 1.5   |  |  |   | 3.1   |  
|                                         
|                                         
|                                         
|                                         
|Gas and Oil Production (Bcf equivalent)   |  |         | 14.2  |          |  |           | 24.3  |      |  |      | 54.2  |      |  |   | 75.2  |   |  |   | 76.9  |  |  |   | 101.9 |  
|                                         
|                                         
|                                         
|                                         
|Average Gas Selling Price (per Mcf)       |  | $       | 2.59  |          |  | $         | 2.03  |      |  | $    | 2.15  |      |  | $ | 2.07  |   |  | $ | 2.13  |  |  | $ | 2.23  |  
|                                         
|                                         
|                                         
|                                         
|Effect of Hedging (per Mcf)               |  |         | (.37  | )        |  |           | .02   |      |  |      | .05   |      |  |   | (.03  | ) |  |   | .02   |  |  |   | (.21  | )
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Overall Average Gas Sales Price (per Mcf) |  | $       | 2.22  |          |  | $         | 2.05  |      |  | $    | 2.20  |      |  | $ | 2.04  |   |  | $ | 2.15  |  |  | $ | 2.02  |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|                                         
|                                         
|                                         
|                                         
|Average Oil Sales Price (per Bbl)         |  | $       | 13.20 |          |  | $         | 10.64 |      |  | $    | 11.77 |      |  | $ | 11.55 |   |  | $ | 11.27 |  |  | $ | 12.99 |  
|                                         
|                                         
|                                         
|                                         
|Effect of Hedging (per Bbl)               |  |         |      |          |  |           | 1.12  |      |  |      | .45   |      |  |   | 1.28  |   |  |   | .72   |  |  |   | .82   |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Overall Average Oil Sales Price (per Bbl) |  | $       | 13.20 |          |  | $         | 11.76 |      |  | $    | 12.22 |      |  | $ | 12.83 |   |  | $ | 11.99 |  |  | $ | 13.81 |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  

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. In late 1998, MCN began entering into offsetting
positions for existing hedges of gas and oil production from
properties that have been or were expected to be sold in 1999.
MCNs risk management strategy has been revised to reflect
the change in its business that will result from its new
strategic direction as previously discussed. Additionally, as a
result of the special investigation, MCN is taking additional
steps to ensure compliance with risk management policies that are
 periodically reviewed by the Board of Directors.

Corporate & Otheroperating and joint venture results
(excluding the restructuring charges) declined $1.4 million in
the 1999 quarter, and improved $5.7 million and $2.8 million for
the 1999 nine- and twelve-month periods, respectively. The
variations primarily reflect adjustments that reduced or
eliminated accruals for employee incentive awards based on
MCNs operating or stock price performance.

Other Income and Deductions

Other income and deductions for the 1999 quarter, nine- and
twelve-month periods reflect unfavorable changes of $1.9 million,
 $89.9 and $98.1 million, respectively. The comparability of
other income and deductions for all periods is affected by
unusual charges consisting of losses from the sale of E&P
properties and the write-down of an E&P investment. Other
income and deductions for the 1999 nine- and twelve-month periods
 reflect higher interest and preferred dividend expense due to an
 increase in debt and preferred securities required to finance
capital investments in the Diversified Energy group. The 1999
nine- and

9



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


twelve-month periods include lower interest income due to the
collection in March 1998 of a $46 million advance made to a
Philippine independent power producer.

Other income in the 1999 nine- and twelve-month periods includes
a $3.1 million pre-tax gain recorded in the 1999 second quarter
from the sale of a pipeline facility. Other income in the 1998
nine- and twelve-month periods includes $9.9 million of pre-tax
gains recorded in the 1998 first quarter from the sale of certain
 gas sales contracts and a 50% interest in the 30 MW Ada
cogeneration facility. Other income for the 1998 twelve-month
period includes a $3.2 million pre-tax gain from the
December 1997 sale of Diversified Energys 25% interest
 in a gas storage project.

Additionally, other income in all 1999 periods include income
from a third quarter 1998 tax credit sale transaction, whereby
MCN records income from such sale as the credits are generated by
 the purchaser. MCN recorded pre-tax income of $3.3 million, $9.4
 million and $13.6 million in the 1999 quarter, nine- and
twelve-month periods, respectively, from such sale.

Income Taxes

The variations in income taxes for all 1999 periods reflect
fluctuations in pre-tax results. Income tax comparisons were also
 affected by tax credits and stock-related tax benefits recorded
in 1998, as well as the generation of foreign income in 1998 that
 was not subject to U.S. or foreign tax provisions. Gas
production tax credits have not been recorded in the 1999 periods
 as a result of the 1998 tax credit sale transaction and
MCNs current net operating loss tax position.

Outlook

MCNs new strategic direction emphasizes achieving
operational efficiencies and growth through integration of
existing businesses. MCN will continue pursuing new pipeline,
electric power and energy marketing ventures, with an emphasis on
 operating projects that enhance MCN businesses within the
Midwest-to-Northeast corridor.

To achieve the operating efficiencies expected from the new
strategic direction, MCN is working to reorganize its Diversified
 Energy group into the segments detailed below:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Midstream & Supplydevelops and manages MCNs gas
	 producing, gathering, processing, storage and transmission
	facilities within the Midwest-to-Northeast target region.                                       
|
| |  | Energy Marketingconsists of MCNs non-regulated
	marketing activities to industrial, commercial and residential
	customers, both inside and outside the Gas Distribution
	segments service area.              
|
| |  | Powerdevelops and manages independent electric power
	projects.                                                                                                                                                
|
| |  | Energy Holdingsmanages and seeks to maximize the value of
	 existing ventures outside MCNs target region. It primarily
	 consists of gas gathering and processing investments in major
	U.S. producing basins.

10



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


Gas Distribution

Results reflect seasonal loss and higher operating costs
  Gas Distribution had a net loss of
$14.7 million for the 1999 third quarter compared to a net
loss of $24.5 million from the same 1998 period. The Gas
Distribution segment typically records third quarter losses due
to seasonally lower demand for natural gas during the summer
months. Gas Distribution had earnings of $76.0 million and
$106.8 million for the 1999 nine- and twelve-month periods,
respectively, resulting in increases of $35.2 million and
$33.4 million from the comparable 1998 periods. Earnings in
all three 1998 periods were unfavorably affected by
$16.7 million of unusual charges as previously discussed.
Excluding the unusual charges, Gas Distributions earnings
declined by $6.9 million for the 1999 quarter, and improved
by $18.5 million and $16.7 million in the 1999 nine- and
twelve-month periods, respectively. The 1999 quarter reflects
higher operating costs. The earnings improvements for the 1999
nine- and twelve-month periods reflect contributions from the new
 gas sales program as subsequently discussed. Additionally, all
1999 periods reflect the impact of more favorable weather.

|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |       |  
|------------------------------------ | ---------------------------------------- | ------------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                     |                                          |               |       |          |   |          
|                                     |                                          | Quarter       |       | 9 Months |   | 12 Months
|                                     |                                          |               |       |          |   |          
|                                     |                                          | 1999          |       | 1998     |   | 1999      |       | 1998  |   | 1999 |       | 1998 
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |      
|                                     |                                          |              
|                                     |                                          | (in Millions)
|                                    
|                                    
|                                    
|                                    
|Gas Distribution Operations          |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Revenues*                  |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Gas sales                                |               | $     | 74.9     |   |           | $     | 80.2  |   |      | $     | 653.5 |   |   | $     | 579.1 |   |   | $       | 913.3 |   |   | $       | 929.7 |  
|                                    
|                                    
|                                    
|                                    
|                                     | End user transportation                  |               |       | 22.4     |   |           |       | 16.7  |   |      |       | 72.6  |   |   |       | 60.0  |   |   |         | 94.9  |   |   |         | 83.1  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Intermediate transportation              |               |       | 14.2     |   |           |       | 14.5  |   |      |       | 42.8  |   |   |       | 48.4  |   |   |         | 57.6  |   |   |         | 62.6  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                    |               |       | 17.9     |   |           |       | 12.7  |   |      |       | 62.7  |   |   |       | 47.2  |   |   |         | 82.9  |   |   |         | 62.3  |  
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |               | 129.4 |          |   |           | 124.1 |       |   |      | 831.6 |       |   |   | 734.7 |       |   |   | 1,148.7 |       |   |   | 1,137.7 |      
|                                    
|                                    
|                                    
|                                    
|Cost of Sales                        |                                          |               | 33.2  |          |   |           | 32.1  |       |   |      | 354.6 |       |   |   | 311.6 |       |   |   | 505.1   |       |   |   | 533.0   |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Gross Margin                         |                                          |               | 96.2  |          |   |           | 92.0  |       |   |      | 477.0 |       |   |   | 423.1 |       |   |   | 643.6   |       |   |   | 604.7   |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Operating Expenses*            |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Operation and maintenance                |               |       | 65.3     |   |           |       | 58.3  |   |      |       | 203.5 |   |   |       | 184.2 |   |   |         | 275.9 |   |   |         | 260.3 |  
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation, depletion and amortization |               |       | 24.4     |   |           |       | 23.2  |   |      |       | 74.4  |   |   |       | 69.5  |   |   |         | 98.7  |   |   |         | 95.2  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property and other taxes                 |               |       | 12.3     |   |           |       | 12.2  |   |      |       | 43.8  |   |   |       | 43.7  |   |   |         | 56.0  |   |   |         | 58.1  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-down (Note 3e)            |               |       |         |   |           |       | 24.8  |   |      |       |      |   |   |       | 24.8  |   |   |         |      |   |   |         | 24.8  |  
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |               | 102.0 |          |   |           | 118.5 |       |   |      | 321.7 |       |   |   | 322.2 |       |   |   | 430.6   |       |   |   | 438.4   |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Income (Loss)              |                                          |               | (5.8  | )        |   |           | (26.5 | )     |   |      | 155.3 |       |   |   | 100.9 |       |   |   | 213.0   |       |   |   | 166.3   |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Equity in Earnings of Joint Ventures |                                          |               | .4    |          |   |           | .1    |       |   |      | 1.5   |       |   |   | .5    |       |   |   | 1.9     |       |   |   | .9      |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Income and (Deductions)*       |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                          |               |       | .9       |   |           |       | 1.6   |   |      |       | 2.7   |   |   |       | 3.6   |   |   |         | 4.8   |   |   |         | 4.6   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                         |               |       | (13.8    | ) |           |       | (13.1 | ) |      |       | (40.3 | ) |   |       | (41.1 | ) |   |         | (56.7 | ) |   |         | (55.6 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Investment loss (Note 3e)                |               |       |         |   |           |       | (8.5  | ) |      |       |      |   |   |       | (8.5  | ) |   |         |      |   |   |         | (8.5  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Minority interest                        |               |       | (.3      | ) |           |       | 7.1   |   |      |       | (.8   | ) |   |       | 5.9   |   |   |         | (1.0  | ) |   |         | 5.5   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                    |               |       | (.8      | ) |           |       | .5    |   |      |       | (.7   | ) |   |       | 1.1   |   |   |         | (2.1  | ) |   |         | .9    |  
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |               | (14.0 | )        |   |           | (12.4 | )     |   |      | (39.1 | )     |   |   | (39.0 | )     |   |   | (55.0   | )     |   |   | (53.1   | )    
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Income (Loss) Before Income Taxes    |                                          |               | (19.4 | )        |   |           | (38.8 | )     |   |      | 117.7 |       |   |   | 62.4  |       |   |   | 159.9   |       |   |   | 114.1   |      
|                                    
|                                    
|                                    
|                                    
|Income Taxes                         |                                          |               | (4.7  | )        |   |           | (14.3 | )     |   |      | 41.7  |       |   |   | 21.6  |       |   |   | 53.1    |       |   |   | 40.7    |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Net Income (Loss)                    |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual charges                   |               |       | (14.7    | ) |           |       | (7.8  | ) |      |       | 76.0  |   |   |       | 57.5  |   |   |         | 106.8 |   |   |         | 90.1  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual charges (Note 3e)                |               |       |         |   |           |       | (16.7 | ) |      |       |      |   |   |       | (16.7 | ) |   |         |      |   |   |         | (16.7 | )
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          | $             | (14.7 | )        |   | $         | (24.5 | )     |   | $    | 76.0  |       |   | $ | 40.8  |       |   | $ | 106.8   |       |   | $ | 73.4    |      
|                                     |                                          |               |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      






11



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


Gross Margin

Gross margin (operating revenues less cost of sales) increased
$4.2 million, $53.9 million and $38.9 million in
the 1999 quarter, nine- and twelve-month periods, respectively.
The increase is due primarily to margins generated under Michigan
 Consolidated Gas Companys (MichCon) new three-year gas
sales program, which is part of its Regulatory Reform Plan
(Note 7a). Under the gas sales program that began in
January 1999, 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 has entered into
fixed-price contracts at costs below $2.95 per Mcf for a
substantial portion of its expected gas supply requirements
through 2001. This strategy is likely to continue producing
favorable margins in each of the three years.

Gross margins for all three 1999 periods also reflect higher gas
sales resulting from more normal weather, especially the 1999
nine-month period that was 13.1% colder than the same 1998
period. Additionally, gross margins for all 1999 periods reflect
revenues from the continued growth in other gas-related services
as well as revenues and cost of sales associated with three
heating and cooling firms acquired in October 1998.

Gas Distributions operations are seasonal, with gross
margins and earnings concentrated in the first and fourth
quarters of each calendar year. By the end of the first quarter,
the heating season is largely over, and Gas Distribution
typically incurs substantially reduced gross margins and earnings
 in the second quarter and losses in the third quarter. The
seasonal nature of Gas Distributions operations is expected
 to be more pronounced as a result of MichCons new gas
sales program.

|                                              |                            |                            |  |          |      |           |  |      |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |       |       |  
|--------------------------------------------- | -------------------------- | -------------------------- |  | -------- | ---- | --------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                              |                            |                            |  |          |      |          
|                                              |                            | Quarter                    |  | 9 Months |      | 12 Months
|                                              |                            |                            |  |          |      |          
|                                              |                            | 1999                       |  | 1998     |      | 1999      |  | 1998 |      | 1999 |  | 1998
|                                              |                            |                            |  |          |      |           |  |      |      |      |  |     
|Effect of Weather on Gas Markets and Earnings |                            |                            |  |          |      |           |  |      |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |      
|                                             
|                                             
|                                             
|                                             
|                                              | Percent Warmer Than Normal |                            |  | N/M      |      |           |  | N/M  |      |      |  | (8.5 | )%    |   |  | (21.6 | )%    |   |  | (10.7 | )%    |   |  | (14.5 | )%   
|                                             
|                                             
|                                             
|                                             
|                                              | Decrease From Normal in:   |                            |  |          |      |           |  |      |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Gas Markets (Bcf)          |  |          | (.7  | )         |  |      | (1.5 | )    |  |      | (11.1 | ) |  |       | (26.7 | ) |  |       | (24.6 | ) |  |       | (27.4 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Net Income (Millions)      |  | $        | (.7  | )         |  | $    | (1.1 | )    |  | $    | (11.0 | ) |  | $     | (23.1 | ) |  | $     | (23.2 | ) |  | $     | (23.7 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Diluted Earnings Per Share |  | $        | (.01 | )         |  | $    | (.01 | )    |  | $    | (.13  | ) |  | $     | (.29  | ) |  | $     | (.28  | ) |  | $     | (.30  | )






Gas sales and end user transportationrevenues in total
increased by $.4 million and $87.0 million for the 1999
quarter and nine-month period, respectively, and decreased by
$4.6 million for the 1999 twelve-month period. Revenues were
 affected by fluctuations in gas sales and end user
transportation deliveries that increased in total by
1.9 Bcf, 14.6 Bcf and 3.0 Bcf in the current
quarter, nine- and twelve-month periods, respectively. The higher
 gas sales and end user transportation deliveries were due
primarily to weather, which was colder in all the 1999 periods
compared to the corresponding 1998 periods.

Revenues were 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 new
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. The gas commodity component of MichCons sales rate
increased

12



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


$.58 per Mcf (24%) and $.23 per Mcf (8%) for the 1999 quarter and
 nine-month period, respectively, and decreased $.08 per Mcf (3%)
 for the 1999 twelve-month period.

|                         |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|------------------------ | ---------------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                         |                              |         |       |          |  |          
|                         |                              | Quarter |       | 9 Months |  | 12 Months
|                         |                              |         |       |          |  |          
|                         |                              | 1999    |       | 1998     |  | 1999      |       | 1998  |  | 1999 |       | 1998 
|                         |                              |         |       |          |  |           |       |       |  |      |       |      
|                         |                              |        
|                         |                              | (Bcf)  
|                        
|                        
|                        
|                        
|Gas Distribution Markets |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                        
|                        
|                        
|                        
|                         | Gas Sales                    |         |       | 10.6     |  |           |       | 12.8  |  |      |       | 127.3 |  |  |       | 117.5 |  |  |       | 182.0 |  |  |       | 182.6 | 
|                        
|                        
|                        
|                        
|                         | End User Transportation      |         |       | 32.7     |  |           |       | 28.6  |  |      |       | 107.0 |  |  |       | 102.2 |  |  |       | 145.1 |  |  |       | 141.5 | 
|                         |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                         |                              |         | 43.3  |          |  |           | 41.4  |       |  |      | 234.3 |       |  |  | 219.7 |       |  |  | 327.1 |       |  |  | 324.1 |      
|                        
|                        
|                        
|                        
|                         | Intermediate Transportation* |         |       | 128.3    |  |           |       | 133.9 |  |      |       | 390.8 |  |  |       | 430.8 |  |  |       | 497.5 |  |  |       | 570.2 | 
|                         |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                         |                              |         | 171.6 |          |  |           | 175.3 |       |  |      | 625.1 |       |  |  | 650.5 |       |  |  | 824.6 |       |  |  | 894.3 |      
|                         |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      






Additionally, gas sales and end user transportation revenues in
total were impacted by MichCons three-year customer choice
program, which is also part of its Regulatory Reform Plan. Under
the customer choice program that began in April 1999,
approximately 70,000 or 6% of its customers are purchasing
natural gas from suppliers other than MichCon. However, MichCon
continues to transport and deliver the gas to the customers
 premises at prices that maintain its previously existing sales
margins on these services. MichCons customers who have
chosen to purchase their gas from other suppliers are reflected
as end user transportation customers rather than gas sales
customers. Accordingly, gas sales revenues have decreased,
partially offset by an increase in end user transportation
revenues, resulting in a net decrease in total operating revenues
 due to the gas commodity component included in gas sales rates.

Intermediate transportationrevenues decreased
$.3 million, $5.6 million and $5.0 million in the
1999 quarter, nine- and twelve-month periods, respectively.
Intermediate transportation revenues reflect lower off-system
volumes of 5.6 Bcf, 40.0 Bcf and 72.7 Bcf in the
1999 quarter, nine- and twelve-month periods, respectively. A
significant portion of the volume decrease was for customers who
pay a fixed fee for intermediate transportation capacity
regardless of actual usage. Although volumes associated with
these fixed-fee customers may vary, the related revenues are not
affected. The decrease for all 1999 periods is due to customers
shifting volumes from a higher rate to a lower rate
transportation route. The decrease in intermediate transportation
 revenues for the 1999 nine- and twelve-month periods is also due
 in part to an adjustment in 1998 of revenues related to fees
generated from tracking the transfer of gas title on
MichCons transportation system.

Other operating revenuesincreased $5.2 million,
$15.5 million and $20.6 million in the 1999 quarter,
nine- and twelve-month periods, respectively. The improvements
are due to an increase in facility development and appliance
maintenance services, late payment fees and other gas-related
services. Additionally, all 1999 periods reflect revenues from
the acquisition of three heating and cooling firms in
October 1998.

Cost of Sales

Cost of sales is affected by variations in gas 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 December 1998 (Note 7b), 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
 new gas sales program, the gas commodity component of its sales
rates is fixed. Accordingly, beginning in January 1999,
changes in cost of gas sold directly impact gross margins and
earnings.

Cost of sales increased $1.1 million and $43.0 million in the
1999 quarter and nine-month periods, respectively, and decreased
$27.9 million in the 1999 twelve-month period. Cost of sales for
all 1999 periods

13



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


was affected by a reduction 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 maintains its previously existing
sales margins on these services by continuing to transport and
deliver the gas to the customers premises.

The increase in the current nine-month period was due primarily
to higher weather-driven sales volumes. Cost of sales was also
impacted by average prices paid for gas, which increased $.42 per
 Mcf (18%) in the current quarter and decreased $.25 per Mcf (8%)
 in the current twelve-month period. Prices paid for gas sold in
the 1999 nine-month period were flat compared to the same 1998
period. Additionally, all 1999 periods reflect cost of sales
associated with the operations of the three heating and cooling
firms acquired in October 1998.

Other Operating Expenses

Operation and maintenanceexpenses increased $7.0 million,
 $19.3 million and $15.6 million in the 1999 quarter, nine- and
twelve-month periods, respectively. The increase in the 1999
quarter and nine-month period is due to higher employee benefit
costs. The increase in all 1999 periods also reflects additional
computer system support costs associated with MichCons new
customer information system as well as advertising costs
associated with MichCons new gas sales program. The 1998
nine- and twelve-month periods benefited from an interstate
pipeline company refund.

Depreciation and depletionincreased $1.2 million, $4.9
million and $3.5 million in the 1999 quarter, nine- and
twelve-month periods, respectively. Depreciation on higher plant
balances impacted all 1999 periods. The increase in all 1999
periods was tempered by the effect of lower depreciation rates
for MichCons utility property, plant and equipment that
became effective in January 1998.

Property and other taxesdecreased $2.1 million in the
1999 twelve-month period. The improvement is attributable to
lower Michigan Single Business Taxes resulting from an increase
in capital acquisition deductions.

Property write-downof $24.8 million in the 1998 periods
represents the impairment of a Michigan gas gathering system
(Note 3e).

Equity in Earnings of Joint Ventures

Equity in earnings of joint ventures increased $.3 million in the
 1999 quarter, and $1.0 million in the 1999 nine-and twelve-month
 periods. The comparability is affected by losses recorded in the
 1998 periods from Gas Distributions 47.5% interest in a
Missouri gas distribution company. The investment was written
down to fair value in the third quarter of 1998, and no
additional losses have since been recorded as a result of the
intended sale of the investment in 2000.

Other Income and Deductions

Other income and deductions changed unfavorably by $1.6 million,
$.1 million and $1.9 million in the 1999 quarter, nine- and
twelve-month periods, respectively. The 1998 nine- and
twelve-month periods were impacted by gains from the sale of
property. The 1999 quarter and twelve-month periods include
slightly higher interest costs. Other income and deductions in
all 1998 periods also reflect an unusual charge to write down the
 investment in a small natural gas distribution company located
in Missouri (Note 3e). Also impacting other income and deductions
 in all 1998 periods was a change in minority interest reflecting
 the joint venture partners share of the write-down of the
Michigan gas gathering properties (Note 3e).

Income Taxes

Income taxes increased $9.6 million, $20.1 million and $12.4
million in the 1999 quarter, nine- and twelve-month periods,
respectively, reflecting an increase in pre-tax earnings. The
increase for all 1999 periods

14



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


is also due to the flow-through effect of certain book-to-tax
temporary differences. Additionally, income tax comparisons for
the 1999 nine- and twelve-month periods were affected by the
favorable resolution of prior years tax issues.

Outlook

Gas Distributions strategy is to aggressively expand its
role as the preferred provider of natural gas and high-value
energy services within Michigan. Accordingly, Gas
Distributions objectives are to increase revenues and
control costs in order to deliver strong shareholder returns and
provide customers with high-quality service at competitive
prices.

Gas Distribution has begun and plans to continue capitalizing on
opportunities resulting from the gas industry restructuring.
MichCon is currently implementing 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, with approximately 70,000 customers
choosing to purchase natural gas from suppliers other than
MichCon. Plan years begin April 1 of each year, and the number of
 customers allowed to participate in the plan is limited to
75,000 in 1999, 150,000 in 2000 and 225,000 in 2001. There is
also a volume limitation on commercial and industrial
participants of 10 Bcf in 1999, 20 Bcf in 2000 and 30 Bcf in
2001. MichCon continues to transport and deliver the gas to the
customers premises at prices that maintain its previously
existing sales margins on these services.

The Plan also 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. As part of its gas
acquisition strategy, MichCon has entered into fixed-price
contracts at costs below $2.95 per Mcf for a substantial portion
of its expected gas supply requirements through 2001. This
strategy has produced favorable margins through
September 1999 and is likely to continue producing favorable
 margins through 2001. The level of margins generated from
selling gas will be affected by the number of customers choosing
to purchase gas from suppliers other than MichCon under the
three-year customer choice program.

Also beginning in 1999, an income sharing mechanism allows
customers to share in profits when actual returns on equity from
utility operations exceed predetermined thresholds. The impact of
 weather and expenses incurred in the fourth quarter of 1999 will
 determine the actual amount of profit, if any, to be shared with
 customers.

Gas Distribution also plans to grow revenues and earnings by
offering a variety of energy-related services, which include
appliance sales, installation and maintenance. Growth in revenues
 is expected from the three heating and cooling firms acquired in
 October 1998 that have been integrated under MichCon Home
Services, which is expanding its customer base and range of
services.

Changes in Accounting

In the 1999 first quarter, 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 organization costs
capitalized as of December 31, 1998. The cumulative effect
of the change was to decrease earnings by $2.9 million for the
1999 nine- and twelve-month periods.

In the 1999 first quarter, MCN adopted the Emerging Issues Task
Force consensus on Issue No. 98-10, Accounting for
Energy Trading and Risk Management Activities (EITF 98-10).
 EITF 98-10 requires all energy trading contracts to be
recognized in the balance sheet as either assets or liabilities
measured at their

15



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


fair value, with changes in fair value recognized in earnings.
Adoption of EITF 98-10 did not have a material impact on
MCNs financial statements.

CAPITAL RESOURCES AND LIQUIDITY

|                                          |                      |               |      |        |   |   |      |        |  
|----------------------------------------- | -------------------- | ------------- | ---- | ------ | - | - | ---- | ------ | -
|                                          |                      |              
|                                          |                      | 9 Months     
|                                          |                      |              
|                                          |                      | 1999          |      | 1998  
|                                          |                      |               |      |       
|                                          |                      |              
|                                          |                      | (in Millions)
|                                         
|                                         
|                                         
|                                         
|Cash and Cash Equivalents                 |                      |               |      |        |   |   |      |       
|                                         
|                                         
|                                         
|                                         
|Cash Flow Provided From (Used For):       |                      |               |      |        |   |   |      |       
|                                         
|                                         
|                                         
|                                         
|                                          | Operating activities |               | $    | 211.5  |   |   | $    | 237.5  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Financing activities |               |      | (270.4 | ) |   |      | 306.9  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Investing activities |               |      | 72.2   |   |   |      | (523.9 | )
|                                          |                      |               |      |        |   |   |      |       
|Net Increase in Cash and Cash Equivalents |                      | $             | 13.3 |        |   | $ | 20.5 |       
|                                          |                      |               |      |        |   |   |      |       

Operating Activities

MCNs cash flow from operating activities decreased $26.0
million during the 1999 nine-month period as compared to the same
 1998 period. The decrease was due primarily to higher working
capital requirements, substantially offset by increased earnings,
 after adjusting for non-cash items (depreciation, unusual
charges and deferred taxes).

Financing Activities

MCNs cash flow related to financing activities decreased
$577.3 million during the 1999 nine-month period compared to the
same 1998 period. The change primarily reflects lower debt
issuances and higher debt repayments, partially offset by an
increase in equity issuances, in the 1999 nine-month period. A
summary of MCNs significant financing activities and
financing plans during 1999 follows.

Prior to mid-February 1999, MCN issued new shares of common
stock pursuant to its Dividend Reinvestment and Stock Purchase
Plan and various employee benefit plans. MCN generated
$.2 million in the 1999 nine-month period and $14.7 million
in the same 1998 period 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.

MCNs 5,865,000 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
 Diversified Energy that came due in May 1999.

In March 1999, MCN entered into a $150 million revolving
credit agreement that expired in October 1999. There was no
balance outstanding under this credit agreement at
September 30, 1999. MCN effectively replaced this agreement
in October 1999 by entering into a $290 million revolving
credit agreement that expires in July 2000. Borrowings under the
credit agreement were used to refinance $100 million of Single
Point Remarketed Reset Capital Securities that were redeemed in
October 1999. The credit agreement will also be used to
repay debt, fund capital investments and for general corporate
purposes.

Diversified Energy

The Diversified Energy group maintains credit lines that allow
for borrowings of up to $200 million under a 364-day revolving
credit facility and up to $200 million under a three-year
revolving credit facility. These facilities support Diversified
Energys commercial paper program, which is used to finance
capital investments and working capital requirements. The 364-day
 facility was renewed in July 1999. During the first nine
months

16



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


of 1999, Diversified Energys commercial paper and bank
borrowings outstanding increased by $129.6 million, leaving
borrowings of $355.3 million outstanding under this program at
September 30, 1999.

MCN received approximately $270 million through
September 1999 from the sale of various non-Michigan E&P
 properties. MCN also received approximately $130 million in
August 1999 from the sale of its interest in TPL. 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-Michigan E&P properties are expected by
mid-2000 and will be used to repay outstanding borrowings and for
 general corporate purposes.

MCN repaid $80 million and $130 million of medium-term notes that
 came due in February 1999 and May 1999, respectively.

Gas Distribution

Cash and cash equivalents normally increase and short-term debt
is 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 the year, cash and cash equivalents normally
decrease as funds are used to finance increases in gas
inventories and customer accounts receivable. To meet its
seasonal short-term borrowing needs, MichCon normally issues
commercial paper that is backed by credit lines with several
banks. MichCon has established credit lines that allow for
borrowings of up to $150 million under a 364-day revolving credit
 facility and up to $150 million under a three-year revolving
credit facility. The 364-day facility was renewed in
July 1999. During the first nine months of 1999, MichCon
repaid $88.7 million of commercial paper, leaving borrowings of
$129.6 million outstanding under this program at
September 30, 1999.

During 1999, MichCon issued approximately $110 million of debt
(Note 10) and repaid $68 million of first mortgage bonds.

Investing Activities

MCNs cash flow related to investing activities increased
$596.1 million in the 1999 nine-month period as compared to the
same 1998 period. The increase was due primarily to proceeds from
 the sale of property and investments and lower capital
investments.

17



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


Capital investments equaled $391.6 million in the 1999 nine-month
 period compared to $636.6 million for the same period in 1998.
The 1999 amounts include significantly lower levels of
investments in E&P properties and Pipelines & Processing
ventures.

|                                                      |                        |               |       |       |  |   |       |       | 
|----------------------------------------------------- | ---------------------- | ------------- | ----- | ----- |  | - | ----- | ----- | 
|                                                      |                        |              
|                                                      |                        | 9 Months     
|                                                      |                        |              
|                                                      |                        | 1999          |       | 1998 
|                                                      |                        |               |       |      
|                                                      |                        |              
|                                                      |                        | (in Millions)
|                                                     
|                                                     
|                                                     
|                                                     
|Capital Investments                                   |                        |               |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Consolidated Capital Expenditures:                    |                        |               |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Diversified Energy     |               | $     | 138.5 |  |   | $     | 283.8 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gas Distribution       |               |       | 94.9  |  |   |       | 106.3 | 
|                                                      |                        |               |       |       |  |   |       |      
|                                                      |                        |               | 233.4 |       |  |   | 390.1 |      
|                                                      |                        |               |       |       |  |   |       |      
|MCNs Share of Joint Venture Capital Expenditures:(1) |                        |               |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Pipelines & Processing |               |       | 76.6  |  |   |       | 166.1 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Electric Power         |               |       | 52.0  |  |   |       | 19.7  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Energy Marketing       |               |       |      |  |   |       | .6    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                  |               |       | .1    |  |   |       | .8    | 
|                                                      |                        |               |       |       |  |   |       |      
|                                                      |                        |               | 128.7 |       |  |   | 187.2 |      
|                                                      |                        |               |       |       |  |   |       |      
|Acquisitions:(2)                                      |                        |               | 29.5  |       |  |   | 59.3  |      
|                                                      |                        |               |       |       |  |   |       |      
|Total Capital Investments                             |                        | $             | 391.6 |       |  | $ | 636.6 |      
|                                                      |                        |               |       |       |  |   |       |      




|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(1) | A portion of joint venture capital expenditures is financed with
	joint venture debt
|   
|(2) | Includes MCNs share of certain debt existing at the date of
	 acquisitions         

Total capital investments were partially funded from the sale of
certain E&P properties and joint venture investments that
totaled approximately $400 million in the 1999 nine-month period.

Outlook

1999 capital investments to approximate
$500 million MCNs strategic direction
is to grow in its targeted region by investing in energy-related
projects. For 1999, MCN anticipates investing approximately
$500 million, of which 70% is expected to be within the
Diversified Energy group.

The proposed level of investments for 2000 and each of the next
several years approximates $300 million and is expected to
be financed primarily with internally generated funds, including
proceeds received from the sale of assets. No issuance of
incremental equity securities is expected for the next few years.
 It is managements opinion that MCN and its subsidiaries
will have sufficient capital resources to meet anticipated
capital and operating requirements.

YEAR 2000

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
has implemented a corporate-wide, four-phase Year 2000
approach consisting of: i) inventory 
identification of the components of MCNs systems, equipment
 and facilities; ii) assessment  assessing
Year 2000 readiness and prioritizing the risks of items
identified in the inventory phase;
iii) remediation  upgrading, repairing and
replacing non-compliant systems, equipment and facilities; and
iv) testing  verifying items remediated. MCN has
completed the Year 2000 implementation plan for its mission
critical

18



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


business systems and measurement and control systems (including
embedded microprocessors), and therefore considers these systems
Year 2000 ready. The completion status of these systems
follows:

|                                 |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |     |  
|-------------------------------- | ------------------ | --------- |  | ---------- | - | ----------- |  | ------- | - |  |  | --- | - |  |  | --- | -
|                                 |                    | Inventory |  | Assessment |   | Remediation |  | Testing
|                                 |                    |           |  |            |   |             |  |        
|Business Systems:                |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                 |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                 | September 30, 1999 |           |  | 100        | % |             |  | 100     | % |  |  | 98  | % |  |  | 98  | %
|                                
|                                
|                                
|                                
|                                 | October 31, 1999   |           |  | 100        | % |             |  | 100     | % |  |  | 100 | % |  |  | 100 | %
|                                
|                                
|                                
|                                
|Measurement and Control Systems: |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                 |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                 | September 30, 1999 |           |  | 100        | % |             |  | 100     | % |  |  | 99  | % |  |  | 99  | %
|                                
|                                
|                                
|                                
|                                 | October 31, 1999   |           |  | 100        | % |             |  | 100     | % |  |  | 100 | % |  |  | 100 | %

Costs associated with the Year 2000 issue are not expected
to have a material adverse effect on MCN results of operations,
liquidity and financial condition. The total costs are estimated
to be between $5 million and $6 million, of which
approximately $4.6 million was incurred through
September 1999. This estimate does not include MCNs
share of Year 2000 costs that may be incurred by
partnerships and joint ventures. The anticipated costs are not
higher due in part to the ongoing replacement of significant old
systems. MCN has made a substantial investment in new systems
that were installed over the past few years that are
Year 2000 ready, particularly MichCons customer
information system which was installed and functional in
April 1999. The replacement of these systems and the
customer information system, in particular, was necessary to
maintain a high level of customer satisfaction and to respond to
changes in regulation and increased competition within the energy
 industry.

MCN anticipates a smooth transition to the Year 2000.
However, the failure to correct a material Year 2000 problem
 could result in an interruption in or a failure of certain
business activities and operations. Such interruptions or
failures could have a material adverse effect on MCNs
results of operations, liquidity and financial condition. Due to
the uncertainty inherent in the Year 2000 issue, resulting
in part from the uncertainty of the Year 2000 readiness of
key partners, operators, suppliers and government agencies, MCN
cannot certify that it will be unaffected by Year 2000
complications.

In order to reduce its Year 2000 risk, MCN has completed the
 development of contingency plans for mission-critical processes
in the event of a Year 2000 complication. Contingency plans
for several essential gas transmission facilities were tested
under a power outage scenario and have achieved
excellent results. Completed contingency plans will continue to
be enhanced throughout the remainder of 1999 as MCN works with
partners, operators, suppliers and governmental agencies.

MARKET RISK INFORMATION

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
manages commodity price and interest rate risk through the use of
 various derivative instruments and generally limits the use of
such instruments to hedging activities. A discussion and analysis
 of the events and factors that have changed MCNs commodity
 price, interest rate and foreign currency risk during the 1999
nine-month period follows.

Commodity Price Risk

Hedging Activities

Natural gas and oil futures, options and swap agreements are used
 to manage Diversified Energys exposure to the risk of
market price fluctuations on gas sale and purchase contracts and
gas inventories. As a result of changes in commodity prices that
occurred during the 1999 nine-month period, there have been
significant changes in the outcome of the sensitivity analysis
performed for commodity price risk at September 30, 1999 as
compared to December 31, 1998.

19



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)


A sensitivity analysis calculates the change in fair values of
MCNs natural gas and oil futures and swap agreements given
a hypothetical 10% increase or decrease in commodity prices
utilizing applicable forward commodity rates in effect at the end
 of the reporting period.

Changes in fair values resulting from sensitivity analysis
calculations follow:

|                                  |  |                    |       |                   |  |             |       |             |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ----------------- |  | ----------- | ----- | ----------- |  | - | ----- | - |  | - | ----- | -
|                                  |  |                    |       |                  
|                                  |  | September 30, 1999 |       | December 31, 1998
|                                  |  |                    |       |                  
|                                  |  | Assuming           |       | Assuming          |  | Assuming    |       | Assuming   
|                                  |  | a 10%              |       | a 10%             |  | a 10%       |       | a 10%      
|                                  |  | Increase in        |       | Decrease in       |  | Increase in |       | Decrease in
|                                  |  | Commodity          |       | Commodity         |  | Commodity   |       | Commodity  
|                                  |  | Prices             |       | Prices            |  | Prices      |       | Prices     
|                                  |  |                    |       |                   |  |             |       |            
|                                  |  |                   
|                                  |  | (in Millions)     
|Commodity Price Sensitive:*       |  |                    |       |                   |  |             |       |             |  |   |       |   |  |   |       |  
|                                 
|                                 
|                                 
|                                 
|Swaps: Pay fixed/receive variable |  | $                  | 79.6  |                   |  | $           | (79.6 | )           |  | $ | 53.6  |   |  | $ | (53.6 | )
|                                 
|                                 
|                                 
|                                 
|Pay
	variable/receive fixed       |  | $                  | (91.0 | )                 |  | $           | 91.0  |             |  | $ | (54.0 | ) |  | $ | 54.0  |  
|                                 
|                                 
|                                 
|                                 
|Futures: Longs                    |  | $                  | 5.3   |                   |  | $           | (5.3  | )           |  | $ | 1.9   |   |  | $ | (1.9  | )
|                                 
|                                 
|                                 
|                                 
|Shorts                            |  | $                  | (3.5  | )                 |  | $           | 3.5   |             |  | $ | (.1   | ) |  | $ | .1    |  




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

Non-Hedging Activities

During 1999, MCN sold its Western and Midcontinent/ Gulf Coast
E&P properties, but has 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 are no longer considered
hedges under definitions prescribed by the SEC and generally
accepted accounting principles. Accordingly, these swap
agreements and futures contracts are accounted for using the
mark-to-market method, with unrealized gains and losses recorded
in earnings. At September 30, 1999, these swap agreements
and futures contracts total 14.1 Bcf, have a notional value
of $33.0 million and mature through 2000.

Changes in fair values resulting from sensitivity analysis
calculations previously discussed follow:

|                                  |  |                    |      |                   |  |             |     |             |  |  |     |  |  |  |     | 
|--------------------------------- |  | ------------------ | ---- | ----------------- |  | ----------- | --- | ----------- |  |  | --- |  |  |  | --- | 
|                                  |  |                    |      |                  
|                                  |  | September 30, 1999 |      | December 31, 1998
|                                  |  |                    |      |                  
|                                  |  | Assuming           |      | Assuming          |  | Assuming    |     | Assuming   
|                                  |  | a 10%              |      | a 10%             |  | a 10%       |     | a 10%      
|                                  |  | Increase in        |      | Decrease in       |  | Increase in |     | Decrease in
|                                  |  | Commodity          |      | Commodity         |  | Commodity   |     | Commodity  
|                                  |  | Prices             |      | Prices            |  | Prices      |     | Prices     
|                                  |  |                    |      |                   |  |             |     |            
|                                  |  |                   
|                                  |  | (in Millions)     
|Commodity Price Sensitive:*       |  |                    |      |                   |  |             |     |             |  |  |     |  |  |  |     | 
|                                 
|                                 
|                                 
|                                 
|Swaps: Pay variable/receive fixed |  | $                  | (2.3 | )                 |  | $           | 2.3 |             |  |  | N/A |  |  |  | N/A | 
|                                 
|                                 
|                                 
|                                 
|Futures: Shorts                   |  | $                  | (1.3 | )                 |  | $           | 1.3 |             |  |  | N/A |  |  |  | N/A | 

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 and risk, 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. During the
1999 nine-month period, there have not been any events or factors
 that have caused any significant changes to MCNs interest
rate risk.

20



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS  (Concluded)


Foreign Currency Risk

MCN is subject to foreign currency risk as a result of its
investments in foreign joint ventures, which are located in
India, Nepal and the United Arab Emirates. During
August 1999, MCN completed the sale of its interest in TPL
that is located in India for approximately $130 million. This
sale has reduced MCNs foreign currency risk to an
insignificant level.

NEW ACCOUNTING PRONOUNCEMENTS

Derivative and Hedging Activities  In
June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 changes the
effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000.

SFAS No. 133 requires all derivatives to be recognized in
the balance sheet 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 manages commodity price risk and interest rate risk through
the use of various derivative instruments and predominantly
limits the use of such instruments to hedging activities. The
effects of SFAS No. 133 on MCNs financial statements
are subject to fluctuations in the market value of hedging
contracts which are, in turn, affected by variations in gas and
oil prices and in interest rates. Accordingly, management cannot
quantify the effects of adopting SFAS No. 133 at this time.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
 certain risks and uncertainties as set forth in MCNs 1998
Annual Report included herein in the Form 8-K filed with the
 SEC on October 15, 1999.

The Year 2000 disclosure is a Year 2000 Readiness
Disclosure under the Year 2000 Information and Readiness
Disclosure Act. Therefore, MCN claims the full protections
established by the Act.

AVAILABLE INFORMATION

The following information is available without charge to
shareholders and other interested parties: the 1998 Annual Report
 included in the Form 8-K filed with the SEC on
October 15, 1999; the Form 10-Q Quarterly Reports and
the Quarterly Statistical Supplements. To request these
publications, shareholders and other interested parties are
instructed to contact: MCN Investor Relations, 500 Griswold
Street, Detroit, Michigan 48226, (800) 548-4655.
Information is also available on MCNs website at
http://www.mcnenergy.com.

21



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##### Table of Contents



MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |           |  
|-------------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------- | ------- | ----------------- | - | ------------------- | -------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                                               |                                                          |                                          |         |                   |   |                    
|                                                               |                                                          | Three Months Ended                       |         | Nine Months Ended |   | Twelve Months Ended
|                                                               |                                                          | September 30,                            |         | September 30,     |   | September 30,      
|                                                               |                                                          |                                          |         |                   |   |                    
|                                                               |                                                          |                                          |         | 1998              |   |                     |          | 1998       |   |      |           | 1998      
|                                                               |                                                          |                                          |         | (Restated)        |   |                     |          | (Restated) |   |      |           | (Restated)
|                                                               |                                                          | 1999                                     |         | Note 5            |   | 1999                |          | Note 5     |   | 1999 |           | Note 5    
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |           
|                                                               |                                                          |                                         
|                                                               |                                                          | (in Thousands, except Per Share Amounts)
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                          | $                                        | 462,859 |                   |   | $                   | 351,145  |            |   | $    | 1,748,229 |            |   | $ | 1,458,819 |         |   | $ | 2,320,108 |           |   | $ | 2,162,183 |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Expenses                                             |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                            |                                          |         | 329,339           |   |                     |          | 201,006    |   |      |           | 1,118,172  |   |   |           | 853,551 |   |   |           | 1,470,395 |   |   |           | 1,309,153 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                                |                                          |         | 98,159            |   |                     |          | 90,712     |   |      |           | 298,586    |   |   |           | 277,215 |   |   |           | 410,786   |   |   |           | 386,192   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization                 |                                          |         | 38,611            |   |                     |          | 44,231     |   |      |           | 125,948    |   |   |           | 135,478 |   |   |           | 169,960   |   |   |           | 182,245   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                                 |                                          |         | 14,921            |   |                     |          | 15,542     |   |      |           | 52,849     |   |   |           | 54,255  |   |   |           | 68,147    |   |   |           | 72,277    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges (Note 3 ) |                                          |         |                  |   |                     |          | 259,296    |   |      |           | 52,000     |   |   |           | 592,318 |   |   |           | 52,000    |   |   |           | 592,318   |  
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                          |                                          | 481,030 |                   |   |                     | 610,787  |            |   |      | 1,647,555 |            |   |   | 1,912,817 |         |   |   | 2,171,288 |           |   |   | 2,542,185 |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Income (Loss)                                        |                                                          |                                          | (18,171 | )                 |   |                     | (259,642 | )          |   |      | 100,674   |            |   |   | (453,998  | )       |   |   | 148,820   |           |   |   | (380,002  | )        
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Equity in Earnings of Joint Ventures                           |                                                          |                                          | 15,396  |                   |   |                     | 17,963   |            |   |      | 40,020    |            |   |   | 46,561    |         |   |   | 55,684    |           |   |   | 60,040    |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Other Income and (Deductions)                                  |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                          |                                          |         | 1,909             |   |                     |          | 2,496      |   |      |           | 5,774      |   |   |           | 8,659   |   |   |           | 8,008     |   |   |           | 13,136    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                               |                                          |         | (22,540           | ) |                     |          | (24,392    | ) |      |           | (66,046    | ) |   |           | (62,345 | ) |   |           | (91,047   | ) |   |           | (79,336   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                                   |                                          |         | (5,541            | ) |                     |          | (4,991     | ) |      |           | (20,858    | ) |   |           | (16,654 | ) |   |           | (28,608   | ) |   |           | (20,981   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries        |                                          |         | (10,335           | ) |                     |          | (8,178     | ) |      |           | (31,004    | ) |   |           | (27,162 | ) |   |           | (40,212   | ) |   |           | (36,916   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties (Note 3c)                 |                                          |         | (5,877            | ) |                     |          |           |   |      |           | (74,675    | ) |   |           |        |   |   |           | (74,675   | ) |   |           |          |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses (Notes 3c and 3e)                      |                                          |         |                  |   |                     |          | (8,500     | ) |      |           | (7,456     | ) |   |           | (14,635 | ) |   |           | (7,456    | ) |   |           | (14,635   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest (Note 3e)                              |                                          |         | (632              | ) |                     |          | 7,275      |   |      |           | (1,371     | ) |   |           | 6,030   |   |   |           | (1,409    | ) |   |           | 5,580     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                    |                                          |         | 3,281             |   |                     |          | 134        |   |      |           | 13,655     |   |   |           | 14,095  |   |   |           | 19,121    |   |   |           | 17,040    |  
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                          |                                          | (39,735 | )                 |   |                     | (36,156  | )          |   |      | (181,981  | )          |   |   | (92,012   | )       |   |   | (216,278  | )         |   |   | (116,112  | )        
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Loss Before Income Taxes                                       |                                                          |                                          | (42,510 | )                 |   |                     | (277,835 | )          |   |      | (41,287   | )          |   |   | (499,449  | )       |   |   | (11,774   | )         |   |   | (436,074  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Benefit                                             |                                                          |                                          | (11,356 | )                 |   |                     | (101,111 | )          |   |      | (12,308   | )          |   |   | (188,984  | )       |   |   | (6,792    | )         |   |   | (170,496  | )        
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Loss Before Cumulative Effect of Accounting Change             |                                                          |                                          | (31,154 | )                 |   |                     | (176,724 | )          |   |      | (28,979   | )          |   |   | (310,465  | )       |   |   | (4,982    | )         |   |   | (265,578  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes
	(Note 6) |                                                          |                                          |        |                   |   |                     |         |            |   |      | (2,872    | )          |   |   |          |         |   |   | (2,872    | )         |   |   |          |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Net Loss                                                       |                                                          | $                                        | (31,154 | )                 |   | $                   | (176,724 | )          |   | $    | (31,851   | )          |   | $ | (310,465  | )       |   | $ | (7,854    | )         |   | $ | (265,578  | )        
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Loss Per Share  Basic and Diluted (Note 11)                   |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before cumulative effect of accounting change            |                                          | $       | (0.37             | ) |                     | $        | (2.24      | ) |      | $         | (.35       | ) |   | $         | (3.95   | ) |   | $         | (.06      | ) |   | $         | (3.38     | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cumulative effect of accounting change (Note 6)          |                                          |         |                  |   |                     |          |           |   |      |           | (.04       | ) |   |           |        |   |   |           | (.04      | ) |   |           |          |  
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                          | $                                        | (0.37   | )                 |   | $                   | (2.24    | )          |   | $    | (0.39     | )          |   | $ | (3.95     | )       |   | $ | (0.10     | )         |   | $ | (3.38     | )        
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Average Common Shares Outstanding  Basic and
	Diluted         |                                                          |                                          | 85,282  |                   |   |                     | 78,938   |            |   |      | 82,724    |            |   |   | 78,689    |         |   |   | 81,840    |           |   |   | 78,531    |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Dividends Declared Per Share                                   |                                                          | $                                        | .2550   |                   |   | $                   | .2550    |            |   | $    | .7650     |            |   | $ | .7650     |         |   | $ | 1.0200    |           |   | $ | 1.0200    |          
|                                                               |                                                          |                                          |         |                   |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          

CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Unaudited)

|                                 |  |                    |         |                   |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |         |   |  |   |          |  
|-------------------------------- |  | ------------------ | ------- | ----------------- |  | ------------------- | -------- | ---------- |  | ---- | ------- | ---------- |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                 |  |                    |         |                   |  |                    
|                                 |  | Three Months Ended |         | Nine Months Ended |  | Twelve Months Ended
|                                 |  | September 30,      |         | September 30,     |  | September 30,      
|                                 |  |                    |         |                   |  |                    
|                                 |  |                    |         | 1998              |  |                     |          | 1998       |  |      |         | 1998      
|                                 |  |                    |         | (Restated)        |  |                     |          | (Restated) |  |      |         | (Restated)
|                                 |  | 1999               |         | Note 5            |  | 1999                |          | Note 5     |  | 1999 |         | Note 5    
|                                 |  |                    |         |                   |  |                     |          |            |  |      |         |           
|                                 |  |                   
|                                 |  | (in Thousands)    
|                                
|                                
|                                
|                                
|Balance  Beginning of period    |  | $                  | (45,400 | )                 |  | $                   | 190,548  |            |  | $    | (2,977  | )          |  | $ | 365,730  |   |  | $ | (6,622  | ) |  | $ | 340,767  |  
|                                
|                                
|                                
|                                
|Add  Net loss                   |  |                    | (31,154 | )                 |  |                     | (176,724 | )          |  |      | (31,851 | )          |  |   | (310,465 | ) |  |   | (7,854  | ) |  |   | (265,578 | )
|                                 |  |                    |         |                   |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |         |   |  |   |          |  
|                                 |  |                    | (76,554 | )                 |  |                     | 13,824   |            |  |      | (34,828 | )          |  |   | 55,265   |   |  |   | (14,476 | ) |  |   | 75,189   |  
|                                
|                                
|                                
|                                
|Deduct  Cash dividends declared |  |                    | 22,009  |                   |  |                     | 20,446   |            |  |      | 63,735  |            |  |   | 61,887   |   |  |   | 84,087  |   |  |   | 81,811   |  
|                                 |  |                    |         |                   |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |         |   |  |   |          |  
|Balance  End of period          |  | $                  | (98,563 | )                 |  | $                   | (6,622   | )          |  | $    | (98,563 | )          |  | $ | (6,622   | ) |  | $ | (98,563 | ) |  | $ | (6,622   | )
|                                 |  |                    |         |                   |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |         |   |  |   |          |  

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

22



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##### Table of Contents








MCN ENERGY GROUP INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |           | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------ | -------------- | --------- | ------------ |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                              |                                                                                                        |                |           |             
|                                              |                                                                                                        | September 30,  |           | December 31,
|                                              |                                                                                                        |                |           |             
|                                              |                                                                                                        |                |           | 1998         |  |     
|                                              |                                                                                                        |                |           | (Restated)   |  |     
|                                              |                                                                                                        | 1999           |           | Note 5       |  | 1998
|                                              |                                                                                                        |                |           |              |  |     
|                                              |                                                                                                        |               
|                                              |                                                                                                        | (in Thousands)
|                                             
|                                             
|                                             
|                                             
|ASSETS                                        |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Current Assets                                |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents, at cost (which approximates market
	value)                                  |                | $         | 30,353       |  |      | $         | 60,031    |  |   | $         | 17,039    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, less allowance for doubtful accounts of
	$16,216, $9,515 and $9,665, respectively |                |           | 301,243      |  |      |           | 280,496   |  |   |           | 400,120   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accrued unbilled revenues                                                                              |                |           | 21,499       |  |      |           | 17,359    |  |   |           | 87,888    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas in inventory                                                                                       |                |           | 238,366      |  |      |           | 197,799   |  |   |           | 147,387   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Property taxes assessed applicable to future periods                                                   |                |           | 39,505       |  |      |           | 33,115    |  |   |           | 72,551    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                  |                |           | 56,799       |  |      |           | 56,120    |  |   |           | 42,472    | 
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        |                | 687,765   |              |  |      | 644,920   |           |  |   | 767,457   |          
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Deferred Charges and Other Assets             |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                  |                |           | 11,144       |  |      |           | 53,519    |  |   |           | 50,547    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in debt and equity securities                                                              |                |           | 72,494       |  |      |           | 42,986    |  |   |           | 69,705    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred swap losses and receivables (Note 15)                                                         |                |           | 96,539       |  |      |           | 45,033    |  |   |           | 63,147    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred environmental costs                                                                           |                |           | 31,291       |  |      |           | 30,655    |  |   |           | 30,773    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Prepaid benefit costs                                                                                  |                |           | 140,295      |  |      |           | 97,169    |  |   |           | 111,775   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                  |                |           | 125,569      |  |      |           | 96,719    |  |   |           | 98,940    | 
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        |                | 477,332   |              |  |      | 366,081   |           |  |   | 424,887   |          
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                 |                |           | 581,515      |  |      |           | 488,536   |  |   |           | 521,711   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power                                                                                         |                |           | 134,298      |  |      |           | 228,960   |  |   |           | 231,668   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing                                                                                       |                |           | 25,496       |  |      |           | 24,944    |  |   |           | 29,435    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                       |                |           | 2,478        |  |      |           | 628       |  |   |           | 1,478     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                  |                |           | 18,695       |  |      |           | 19,354    |  |   |           | 18,939    | 
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        |                | 762,482   |              |  |      | 762,422   |           |  |   | 803,231   |          
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Property, Plant and Equipment                 |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                 |                |           | 46,094       |  |      |           | 38,703    |  |   |           | 48,706    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production (Note 3c)                                                                     |                |           | 690,760      |  |      |           | 1,013,778 |  |   |           | 1,040,047 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                       |                |           | 3,001,638    |  |      |           | 2,869,897 |  |   |           | 2,916,540 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                  |                |           | 77,937       |  |      |           | 34,747    |  |   |           | 36,124    | 
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        |                | 3,816,429 |              |  |      | 3,957,125 |           |  |   | 4,041,417 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Less  Accumulated depreciation and depletion                                                          |                |           | 1,688,186    |  |      |           | 1,603,223 |  |   |           | 1,644,094 | 
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        |                | 2,128,243 |              |  |      | 2,353,902 |           |  |   | 2,397,323 |          
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                        | $              | 4,055,822 |              |  | $    | 4,127,325 |           |  | $ | 4,392,898 |          
|                                              |                                                                                                        |                |           |              |  |      |           |           |  |   |           |          

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

23



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##### Table of Contents



MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |         |  
|----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------- | --------- | ------------ | - | ---- | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                            |                                                                                        |                |           |             
|                                                                                                            |                                                                                        | September 30,  |           | December 31,
|                                                                                                            |                                                                                        |                |           |             
|                                                                                                            |                                                                                        |                |           | 1998         |   |     
|                                                                                                            |                                                                                        |                |           | (Restated)   |   |     
|                                                                                                            |                                                                                        | 1999           |           | Note 5       |   | 1998
|                                                                                                            |                                                                                        |                |           |              |   |     
|                                                                                                            |                                                                                        |               
|                                                                                                            |                                                                                        | (in Thousands)
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                        |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Current Liabilities                                                                                         |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accounts payable                                                                       |                | $         | 291,176      |   |      | $         | 318,129 |   |   | $         | 304,349 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Notes payable                                                                          |                |           | 370,995      |   |      |           | 414,957 |   |   |           | 618,851 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Current portion of long-term debt, preferred securities and
	capital lease obligations |                |           | 131,302      |   |      |           | 269,499 |   |   |           | 269,721 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Federal income, property and other taxes payable                                       |                |           | 5,249        |   |      |           | 48,130  |   |   |           | 69,465  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred gas cost recovery revenues (Note 7b)                                          |                |           |             |   |      |           | 23,899  |   |   |           | 14,980  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas payable                                                                            |                |           | 36,073       |   |      |           | 50,302  |   |   |           | 42,669  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Customer deposits                                                                      |                |           | 15,766       |   |      |           | 16,829  |   |   |           | 18,791  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Interest payable                                                                       |                |           | 26,459       |   |      |           | 30,095  |   |   |           | 30,314  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                                                  |                |           | 80,355       |   |      |           | 62,305  |   |   |           | 77,996  |  
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                                        |                | 957,375   |              |   |      | 1,234,145 |         |   |   | 1,447,136 |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Deferred Credits and Other Liabilities                                                                      |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Unamortized investment tax credit                                                      |                |           | 28,510       |   |      |           | 31,641  |   |   |           | 30,056  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Tax benefits amortizable to customers                                                  |                |           | 136,906      |   |      |           | 132,676 |   |   |           | 130,120 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred swap gains and payables (Note 15)                                             |                |           | 76,810       |   |      |           | 38,556  |   |   |           | 62,956  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accrued environmental costs                                                            |                |           | 30,373       |   |      |           | 35,000  |   |   |           | 35,000  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interest                                                                      |                |           | 10,928       |   |      |           | 11,948  |   |   |           | 10,898  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                                                  |                |           | 104,076      |   |      |           | 64,454  |   |   |           | 75,439  |  
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                                        |                | 387,603   |              |   |      | 314,275   |         |   |   | 344,469   |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Long-Term Debt,including capital lease obligations
	(Note 10)                                               |                                                                                        |                | 1,460,941 |              |   |      | 1,402,526 |         |   |   | 1,307,168 |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|MCN-Obligated Mandatorily Redeemable Preferred Securities of
	Subsidiaries Holding Solely Debentures of MCN |                                                                                        |                | 402,900   |              |   |      | 405,481   |         |   |   | 502,203   |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Contingencies (Note 14)                                                                                     |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common Shareholders Equity                                                                                 |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock (Note 10)                                                                 |                |           | 855          |   |      |           | 791     |   |   |           | 797     |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Additional paid-in capital (Note 10)                                                   |                |           | 967,356      |   |      |           | 813,809 |   |   |           | 832,966 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Retained earnings (deficit)                                                            |                |           | (98,563      | ) |      |           | (6,622  | ) |   |           | (2,977  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accumulated other comprehensive loss (Note 13)                                         |                |           | (357         | ) |      |           | (14,792 | ) |   |           | (16,576 | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Yield enhancement, contract and issuance costs                                         |                |           | (22,288      | ) |      |           | (22,288 | ) |   |           | (22,288 | )
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                                        |                | 847,003   |              |   |      | 770,898   |         |   |   | 791,922   |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                                        | $              | 4,055,822 |              |   | $    | 4,127,325 |         |   | $ | 4,392,898 |        
|                                                                                                            |                                                                                        |                |           |              |   |      |           |         |   |   |           |        

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

24



---



##### Table of Contents



MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |          |         |          |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------ | ---------- | ------- | -------- | ------ | -------- | ------- | -------- | -
|                                                                          |                                                                                                                             |                                                                          
|                                                                          |                                                                                                                             | Nine Months Ended                                                        
|                                                                          |                                                                                                                             | September 30,                                                            
|                                                                          |                                                                                                                             |                                                                          
|                                                                          |                                                                                                                             |                                                                           |                                                        | 1998      
|                                                                          |                                                                                                                             |                                                                           |                                                        | (Restated)
|                                                                          |                                                                                                                             | 1999                                                                      |                                                        | Note 5    
|                                                                          |                                                                                                                             |                                                                           |                                                        |           
|                                                                          |                                                                                                                             |                                                                          
|                                                                          |                                                                                                                             | (in Thousands)                                                           
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash Flow From Operating Activities                                       |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Net loss                                                                                                                    |                                                                           | $                                                      | (31,851    | )       |          | $      | (310,465 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Adjustments to reconcile net loss to net cash provided from
	operating activities Depreciation, depletion and amortization: |                                                                           |                                                        |            |         |          |        |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             |                                                                           | Per statement of operations                            |            |         | 125,948  |        |          |         | 135,478  |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             |                                                                           | Charged to other accounts                              |            |         | 6,676    |        |          |         | 5,990    |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Unusual charges, net of taxes (Note 3)                                    |                                                        |            | 87,185  |          |        |          | 389,598 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Cumulative effect of accounting change, net of taxes
	(Note 6)            |                                                        |            | 2,872   |          |        |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Deferred income taxes  current                                           |                                                        |            | (9,791  | )        |        |          | (11,994 | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Deferred income taxes and investment tax credit, net                      |                                                        |            | 82,738  |          |        |          | 14,779  |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Equity in earnings of joint ventures, net of distributions                |                                                        |            | (15,176 | )        |        |          | (30,344 | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Other                                                                     |                                                        |            | (790    | )        |        |          | (9,331  | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Changes in assets and liabilities, exclusive of changes shown
	separately |                                                        |            | (36,312 | )        |        |          | 53,787  |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                          |                                                                                                                             |                                                                           | Net cash provided from operating activities            |            |         | 211,499  |        |          |         | 237,498  |  
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Cash Flow From Financing Activities                                       |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Notes payable, net                                                                                                          |                                                                           |                                                        | (247,856   | )       |          |        | 103,588  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Dividends paid                                                                                                              |                                                                           |                                                        | (63,735    | )       |          |        | (61,887  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of common stock (Note 10)                                                                                          |                                                                           |                                                        | 132,544    |         |          |        | 14,742   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Reacquisition of common stock                                                                                               |                                                                           |                                                        | (780       | )       |          |        |         |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of long-term debt (Note 10)                                                                                        |                                                                           |                                                        | 106,535    |         |          |        | 458,761  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Long-term commercial paper and bank borrowings, net                                                                         |                                                                           |                                                        | 92,344     |         |          |        | 109,643  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Retirement of long-term debt and preferred securities
	(Note 10)                                                            |                                                                           |                                                        | (289,439   | )       |          |        | (326,194 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                       |                                                                           |                                                        |           |         |          |        | 8,243    |        
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                          |                                                                                                                             |                                                                           | Net cash provided from (used for) financing activities |            |         | (270,387 | )      |          |         | 306,896  |  
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Cash Flow From Investing Activities                                       |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Capital expenditures                                                                                                        |                                                                           |                                                        | (233,410   | )       |          |        | (390,067 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Acquisitions                                                                                                                |                                                                           |                                                        | (33,071    | )       |          |        | (36,731  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in debt and equity securities, net                                                                               |                                                                           |                                                        | (4,572     | )       |          |        | 46,286   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in joint ventures                                                                                                |                                                                           |                                                        | (62,572    | )       |          |        | (166,977 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Sale of property and joint venture interests                                                                                |                                                                           |                                                        | 409,616    |         |          |        | 44,034   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                       |                                                                           |                                                        | (3,789     | )       |          |        | (20,403  | )      
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                          |                                                                                                                             |                                                                           | Net cash provided from (used for) investing activities |            |         | 72,202   |        |          |         | (523,858 | )
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Net Increase in Cash and Cash Equivalents                                 |                                                                                                                             |                                                                           | 13,314                                                 |            |         |          | 20,536 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash and Cash Equivalents, January 1                                      |                                                                                                                             |                                                                           | 17,039                                                 |            |         |          | 39,495 |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Cash and Cash Equivalents, September 30                                   |                                                                                                                             | $                                                                         | 30,353                                                 |            |         | $        | 60,031 |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                                                                                    |                                                                           | $                                                      | 98,192     |         |          | $      | 113,476  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                                                                                   |                                                                           |                                                        | 66,389     |         |          |        | 75,651   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net                                                                            |                                                                           |                                                        | (15,153    | )       |          |        | 36,761   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                                                                                            |                                                                           |                                                        | (90,979    | )       |          |        | (141,022 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Property taxes assessed applicable to future periods                                                                        |                                                                           |                                                        | 33,046     |         |          |        | 34,764   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                                                                            |                                                                           |                                                        | (8,373     | )       |          |        | (22,576  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                                                                            |                                                                           |                                                        | (64,216    | )       |          |        | (38,668  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                                                                                                 |                                                                           |                                                        | (6,596     | )       |          |        | 41,985   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Interest payable                                                                                                            |                                                                           |                                                        | (3,855     | )       |          |        | 1,635    |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid benefit costs, net                                                                                                  |                                                                           |                                                        | (28,487    | )       |          |        | (16,276  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                                                                                   |                                                                           |                                                        | (2,193     | )       |          |        | (10,845  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                                                                                  |                                                                           |                                                        | (14,087    | )       |          |        | (21,098  | )      
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                          |                                                                                                                             | $                                                                         | (36,312                                                | )          |         | $        | 53,787 |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|Supplemental Disclosures                                                  |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid during the year for:                                                                                              |                                                                           |                                                        |            |         |          |        |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                             | Interest, net of amounts capitalized                                      |                                                        | $          | 97,395  |          |        | $        | 90,088  |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         
|                                                                          |                                                                                                                             | Federal income taxes                                                      |                                                        | $          | 3,550   |          |        | $        | 11,700  |         
|                                                                          |                                                                                                                             |                                                                           |                                                        |            |         |          |        |         

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

25



---



##### Table of Contents



MCN ENERGY GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  General

MCN Energy Group Inc. (MCN) is a diversified energy company
that operates two major business groups, Diversified Energy and
Gas Distribution. Diversified Energy, operating through MCN
Energy Enterprises Inc. (MCNEE), was previously doing business as
 MCN Investment Corporation. Gas Distribution principally
consists of Michigan Consolidated Gas Company (MichCon).

In MCNs 1998 Annual Report on Form 10-K/A, MCN
accounted for its Exploration & Production (E&P) segment
as a discontinued operation as the result of its decision to sell
 all of its oil and gas properties. In August 1999, the
company made a strategic business decision to keep a portion of
these properties (Note 8). Accordingly, financial results
included in MCNs 1998 Annual Report on Form 10-K/A
have been reclassified to reflect the E&P segment as a
continuing operation, and are included in MCNs
Form 8-K filed October 15, 1999 with the Securities and
 Exchange Commission (SEC). Therefore, the accompanying
consolidated financial statements should be read in conjunction
with MCNs 1998 Annual Report included in the Form 8-K.
 Additionally, certain reclassifications have been made to the
prior years financial statements to conform to the 1999
presentation. In the opinion of management, the unaudited
information furnished herein reflects all adjustments necessary
for a fair presentation of the financial statements for the
periods presented.

Because of seasonal and other factors, revenues, expenses, net
income and earnings per share for the interim periods should not
be construed as representative of revenues, expenses, net income
and earnings per share for all or any part of the balance of the
current year or succeeding periods.

2.  Merger Agreement With DTE Energy Company

MCN and DTE Energy Company (DTE) have signed a definitive
merger agreement, dated October 4, 1999, under which DTE
will acquire all outstanding shares of MCN common stock. Under
the terms of the agreement, MCN shareholders will have the right
to elect to receive either $28.50 in cash or 0.775 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 boards of directors of both companies have unanimously
approved the merger agreement. The transaction is subject to the
approval of the shareholders of both companies, regulatory
approvals and other customary merger conditions. The transaction
is expected to close in six to nine months from the date of the
merger agreement and 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.

DTE is a diversified energy provider. Its principal subsidiary is
 The Detroit Edison Company, Michigans largest electric
utility serving 2.1 million customers in southeastern
Michigan. DTEs non-regulated subsidiaries and ventures sell
 methane gas from landfills, coal, metallurgical coke and other
energy-related products and services.

Additionally, as part of the merger agreement, MCN has agreed to
use its best efforts to enter into agreements to dispose of some
or all of its interests in certain assets or facilities. MCN may
sell all or a portion of several Qualifying
Facilities as defined by the Public Utility Regulatory
Policies Act of 1978, as amended. MCNs investments in these
 Qualifying Facilities include: a 23% interest in the
 Midland Cogeneration Venture, a 1,370 megawatt (MW) cogeneration
 facility located in Michigan; a 50% interest in the Michigan
Power Project, a 123 MW cogeneration plant located in
Michigan; a 33 1/3% interest in the Carson Cogeneration
facility, a 42 MW cogeneration plant located in California;
and a 50% interest in the Ada Cogeneration facility, a 30 MW
 cogeneration plant located in Michigan. Furthermore, under the
terms of the merger agreement, MCN will dispose of all or a
portion of its 95% interest in the Cobisa-Person facility, a 140

26



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


MW power plant in New Mexico that is currently under
construction.

3.  Unusual Charges

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
recorded several unusual charges in 1998, consisting of property
write-downs, investment losses, and restructuring charges. In
1999, MCN recorded additional unusual charges. A discussion of
each unusual charge by segment follows:

a.  Pipelines & Processing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the third quarter of 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 is 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. Although the
	plants were 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 sought
	 to maximize the value of its investment in the coal fines
	project, and in May 1999 filed a request with the IRS
	seeking a factual determination that its coal fines plants were
	in service on June 30, 1998. In September 1999, MCN
	received favorable determination letters from the IRS ruling that
	 four of the six plants were in service by June 30, 1998
	(Note 4a).
|
| | In the third quarter of 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



| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restructuring Charge:In the third quarter of 1998, MCN
	recorded a $2,470,000 pre-tax ($1,605,000 net of taxes)
	restructuring charge related to certain international power
	projects. The charge was incurred as a result of refocusing
	MCNs strategic plan, particularly the decision to exit
	certain international power projects.

c.  Exploration & Production



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the second quarter of 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. Under the full cost method of accounting as prescribed
	by the SEC, MCNs capitalized exploration and production
	costs at June 30, 1999 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.
|
| | In the second and third quarters of 1998, MCN recognized
	write-downs of its gas and oil properties totaling $333,022,000
	pre-tax ($216,465,000 net of taxes) and $83,955,000 pre-tax
	($54,570,000 net of taxes), respectively. 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:In the second quarter of
	1999, MCN recognized losses from the sale of its Western and
	Midcontinent/ Gulf Coast E&P properties totaling $68,798,000
	pre-tax ($44,719,000 net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

27



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


of taxes). In the third quarter of 1999, MCN recognized
additional losses relating to the sale of these properties
totaling $5,877,000 pre-tax ($3,820,000 net of taxes).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loss on Investment:In the second quarter of 1999, MCN
	recognized a $7,456,000 pre-tax ($4,846,000 net of taxes) loss
	from the write-down of an investment in the common stock of an
	E&P company. MCN had also recognized a $6,135,000 pre-tax
	($3,987,000 net of taxes) loss from the write-down of this
	investment during the second quarter of 1998. The losses were due
	 to declines in the fair value of the securities that are not
	considered temporary. MCN has no carrying value in this
	investment after the write-downs.

d.  Corporate & Other



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restructuring Charge:In the third quarter of 1998, MCN
	recorded a $10,390,000 pre-tax ($6,753,000 net of taxes)
	restructuring charge related to the corporate realignment
	designed to improve operating efficiencies through a more
	streamlined organizational structure. The realignment includes
	cost saving initiatives expected to reduce future operating
	expenses. As of September 30, 1999, payments of $3,087,000
	have been charged against the restructuring accruals relating to
	severance and termination benefits. These benefits will continue
	to be paid through 2000. The remaining restructuring costs,
	primarily for net lease expenses, are expected to be paid over
	the related lease terms that expire through 2006.

e.  Gas Distribution



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the third quarter of 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:In the third quarter of 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 that MCN intends to sell in 2000. The
	write-down represents the amount by which the carrying value
	exceeded the estimated fair value of the investment.                                                                                                               

4.  Coal Fines Plants

a.  IRS Determination



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the third quarter of 1998, MCN recorded an impairment loss
	 of $133,782,000, pre-tax, which equaled the carrying value of
	its coal fines plants and reflected the likely inability to
	recover such costs (Note 3a). In September 1999, MCN
	received in-service determination letters from the
	IRS with respect to its six coal fines plants, which were built
	to produce briquettes that qualify for synthetic fuel tax
	credits. In the determination letters, the IRS ruled that four of
	 the plants were in service by the June 30, 1998 deadline in
	 order to qualify for synthetic fuel tax credits. The IRS ruled
	that two other plants did not meet the in-service requirements.
	The company continues to believe these two plants also meet the
	requirements and intends to appeal the unfavorable rulings.

b.  Disposition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In November 1999, MCN reached an agreement to sell four of
	its 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 will
	initially make a $45,000,000 payment that will be adjusted up to
	$152,000,000 or down to zero based on the results of a 36-month
	production test period. The sale is expected to be finalized in
	December 1999.

28



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


5.  Restatement

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999,
subsequent to the issuance of MCNs December 31, 1998
financial statements, certain matters came to managements
attention and resulted in a special investigation of prior
years operations of CoEnergy Trading Company (CTC),
MCNs non-utility energy marketing subsidiary. As a result
of the investigation, MCN identified that its internal controls
had been overridden, and that certain transactions had not been
properly accounted for. Specifically, the investigation concluded
 that CTC had entered into gas supply contracts and agreed to pay
 significantly less than market prices in one period in return
for above-market prices to be paid in subsequent periods through
March 2000. The effect of these transactions was to
improperly delay the accrual of cost of gas expenses, resulting
in the overstatement of net loss for the 1998 third quarter and
nine-month periods by $3,044,000 and $1,680,000, respectively,
and an understatement of net loss for the 1998 twelve-month
period by $3,991,000.

Additionally, the investigation identified that CTC had entered
into certain unauthorized gas purchase and sale contracts for
trading purposes. The unauthorized transactions violate
MCNs risk-management policy that requires all such
activities to be reviewed and approved by a risk committee that
reports regularly to the MCN Board of Directors. The gas purchase
 and sale contracts entered into in connection with trading
activities were not accounted for properly using the required
mark-to-market method, under which unrealized gains and losses
are recorded as an adjustment to cost of gas. The effect of not
properly accounting for these transactions was the understatement
 of net loss for the 1998 third quarter, nine- and twelve-month
periods by $1,801,000, $4,545,000 and $4,208,000, respectively.
However, net income of $403,000, $1,590,000 and $2,682,000 was
realized and recorded in connection with these trading activities
 in the 1998 third quarter, nine- and twelve-month periods,
respectively, resulting in a net loss from such activities for
the 1998 third quarter, nine- and twelve-month periods of
$1,398,000, $2,955,000 and $1,526,000, respectively. From the
inception of these trading activities in March 1997 through
June 1999, $2,714,000 of net loss was realized and recorded
in connection with these trading activities. All of the contracts
 were effectively closed by the end of June 1999.

Other items identified during the investigation resulted in the
understatement of net loss for the 1998 third quarter, nine- and
twelve-month periods by $816,000, $859,000 and $880,000,
respectively.

The 1998 information in the accompanying consolidated financial
statements has been restated from amounts originally reported to
properly account for the transactions identified. A summary of
the significant effects of the restatement on MCNs
September 30, 1998 financial statements is as follows:

|                                   |            |                                          |          |                    |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |   | 
|---------------------------------- | ---------- | ---------------------------------------- | -------- | ------------------ |  | ------------------- | -------- | -------- |  | ---------- | -------- | -------- |  | - | -------- | - |  | - | --------- | - |  | - | --------- | - | 
|                                   |            |                                          |          |                    |  |                    
|                                   |            | Three Months Ended                       |          | Nine Months Ended  |  | Twelve Months Ended
|                                   |            | September 30, 1998                       |          | September 30, 1998 |  | September 30, 1998 
|                                   |            |                                          |          |                    |  |                    
|                                   |            | Previously                               |          |                    |  | Previously          |          |          |  | Previously |          |         
|                                   |            | Reported                                 |          | Restated           |  | Reported            |          | Restated |  | Reported   |          | Restated
|                                   |            |                                          |          |                    |  |                     |          |          |  |            |          |         
|                                   |            |                                         
|                                   |            | (in Thousands, Except Per Share Amounts)
|                                  
|                                  
|                                  
|                                  
|Consolidated Statement of          |            |                                          |          |                    |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |  
|                                  
|                                  
|                                  
|                                  
|                                   | Operations |                                          |          |                    |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |   | 
|                                  
|                                  
|                                  
|                                  
|Cost of Sales                      |            | $                                        | 201,663  |                    |  | $                   | 201,006  |          |  | $          | 847,823  |          |  | $ | 853,551  |   |  | $ | 1,295,187 |   |  | $ | 1,309,153 |  
|                                  
|                                  
|                                  
|                                  
|Loss Before Income Taxes           |            | $                                        | (278,492 | )                  |  | $                   | (277,835 | )        |  | $          | (493,721 | )        |  | $ | (499,449 | ) |  | $ | (422,108  | ) |  | $ | (436,074  | )
|                                  
|                                  
|                                  
|                                  
|Income Tax Benefit                 |            | $                                        | (101,341 | )                  |  | $                   | (101,111 | )        |  | $          | (186,980 | )        |  | $ | (188,984 | ) |  | $ | (165,609  | ) |  | $ | (170,496  | )
|                                  
|                                  
|                                  
|                                  
|Net Loss                           |            | $                                        | (177,151 | )                  |  | $                   | (176,724 | )        |  | $          | (306,741 | )        |  | $ | (310,465 | ) |  | $ | (256,499  | ) |  | $ | (265,578  | )
|                                  
|                                  
|                                  
|                                  
|Loss Per Share  Basic and Diluted |            | $                                        | (2.24    | )                  |  | $                   | (2.24    | )        |  | $          | (3.90    | )        |  | $ | (3.95    | ) |  | $ | (3.27     | ) |  | $ | (3.38     | )

29



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                 |                    |                    |         |          |  |   |         |  | 
|------------------------------------------------ | ------------------ | ------------------ | ------- | -------- |  | - | ------- |  | 
|                                                 |                    |                   
|                                                 |                    | September 30, 1998
|                                                 |                    |                   
|                                                 |                    | Previously         |         |         
|                                                 |                    | Reported           |         | Restated
|                                                 |                    |                    |         |         
|Consolidated Statement of                        |                    |                    |         |          |  |   |         | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Financial Position |                    |         |          |  |   |         |  | 
|                                                
|                                                
|                                                
|                                                
|Accounts Receivable                              |                    | $                  | 277,229 |          |  | $ | 280,496 | 
|                                                
|                                                
|                                                
|                                                
|Gas in Inventory                                 |                    | $                  | 200,399 |          |  | $ | 197,799 | 
|                                                
|                                                
|                                                
|                                                
|Accounts Payable                                 |                    | $                  | 297,771 |          |  | $ | 318,129 | 
|                                                
|                                                
|                                                
|                                                
|Federal Income, Property and Other Taxes Payable |                    | $                  | 55,020  |          |  | $ | 48,130  | 
|                                                
|                                                
|                                                
|                                                
|Common Shareholders Equity                      |                    | $                  | 783,699 |          |  | $ | 770,898 | 

6.  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 organization costs
capitalized as of December 31, 1998. The cumulative effect
of the change was to decrease earnings by $4,418,000 pre-tax
($2,872,000 net of taxes) for the nine- and twelve-month periods
ended September 30, 1999.

7.  Regulatory Matters

a.  Regulatory Reform Plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1998 Annual Report included in the
	Form 8-K filed with the SEC on October 15, 1999,
	MichCon implemented its Regulatory Reform Plan in
	January 1999. The plan includes a new three-year gas sales
	program under which MichCons gas sales rates include a gas
	commodity component that is fixed at $2.95 per thousand cubic
	feet (Mcf). As part of its gas acquisition strategy, MichCon has
	entered into fixed-price contracts at costs below $2.95 per Mcf
	for a substantial portion of its expected gas supply requirements
	 through 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The plan also includes a comprehensive experimental three-year
	customer choice program, which is subject to annual caps on the
	level of participation. The customer choice program began in
	April 1999, with approximately 70,000 customers choosing to
	purchase natural gas from suppliers other than MichCon. Plan
	years begin April 1 of each year, and the number of
	customers allowed to participate in the plan is limited to 75,000
	 in 1999, 150,000 in 2000 and 225,000 in 2001. There is also a
	volume limitation on commercial and industrial participants. The
	volume limitation for these participants is 10 billion cubic feet
	 (Bcf) in 1999, 20 Bcf in 2000 and 30 Bcf in 2001.
	MichCon will continue to transport and deliver the gas to the
	customers premises at prices that maintain its previously
	existing sales margins on these services. Various parties have
	appealed the Michigan Public Service Commissions
	(MPSC) approval of the plan. While management believes the
	plan will be upheld on appeal, there can be no assurance as to
	the outcome.

b.  Gas Cost Recovery Proceedings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to January 1999, the Gas Cost Recovery
	(GCR) process allowed MichCon to recover its cost of gas
	sold if the MPSC determined that such costs were reasonable and
	prudent. An annual GCR reconciliation proceeding provided a
	review of gas costs incurred during the previous year and
	determined whether 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. The GCR process was suspended with the
	implementation of MichCons Regulatory Reform Plan in
	January 1999.

30



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 1999, MichCon filed its final GCR reconciliation
	 case covering gas costs incurred during 1998 which indicates an
	overrecovery of $18,000,000, including interest. Management
	believes that 1998 gas costs were reasonable and prudent and that
	 the MPSC will approve the gas costs incurred. However,
	management cannot predict the outcome of this proceeding. During
	the first quarter of 1999, MichCon refunded the overrecovery to
	customers as a reduction in gas sales rates.

8.  Discontinued Operations Subsequently Retained

In December 1998, MCN accounted for its E&P segment as a
 discontinued operation as a result of its decision to sell all
of its gas and oil properties. In August 1999, management
announced its intention to retain its natural gas producing
properties in Michigan. Accordingly, E&Ps operating
results for prior periods have been reclassified from
discontinued operations to continuing operations. The decision to
 retain these properties was based on the interaction of two
factors. MCN significantly revised its strategic direction. Key
aspects of the new corporate strategy include a
Midwest-to-Northeast regional focus rather than a North American
focus, and an emphasis on achieving operational efficiencies and
growth through the integration of existing businesses. Shortly
thereafter, the bid for the Michigan properties was lowered
significantly. The lower price was unacceptable, especially in
light of MCNs new strategic direction.

9.  Credit Facilities And Short-Term Borrowings

In October 1999, MCN entered into a $290,000,000 revolving
credit agreement that expires in July 2000. Borrowings under
 the credit agreement are at variable rates. This agreement
replaced the March 1999 $150,000,000 revolving credit
agreement.

MCNEE and MichCon maintain credit lines that allow for borrowings
 of up to $350,000,000 under 364-day revolving credit facilities
and up to $350,000,000 under three-year revolving credit
facilities. These credit lines totaling $700,000,000 support
their commercial paper programs. The 364-day revolving credit
facilities were renewed in July 1999. The three-year
revolving credit facilities expire in July 2001.

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
borrowed $260,000,000 under a one-year term loan facility, due
December 2, 1999. Principal payments are required based on
certain proceeds received from the sale of E&P assets. As of
September 30, 1999, MCN had repaid $203,000,000 of
borrowings under the facility.

10.  Enhanced Prides, Long-Term Debt and Preferred
Securities

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
issued 5,865,000 of Preferred Redeemable Increased Dividend
Equity Securities (Enhanced PRIDES) in 1996. Each security
represented a contract to purchase one share of MCN common stock.
 The Enhanced PRIDES were converted into MCN common stock in
April 1999, and as a result MCN received cash proceeds
totaling approximately $135,000,000.

In October 1999, MCN borrowed from its $290,000,000
revolving credit agreement and redeemed, at par, $100,000,000 of
Single Point Remarketed Reset Capital Securities which were due
in 2037.

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

In June 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. 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.

31



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


11.  Earnings Per Share Computation

MCN reports both basic and diluted earnings per share (EPS).
Basic EPS is computed by dividing income or loss before
cumulative effect of accounting change by the weighted average
number of common shares outstanding during the period. Diluted
EPS assumes the issuance of potential dilutive common shares
outstanding during the period and adjusts for changes in income
and the repurchase of common shares that would have occurred with
 proceeds from the assumed issuance. Potentially dilutive
securities have been excluded from the diluted EPS calculation
since their inclusion would have been antidilutive.

12.  Shareholders Rights Plan

As discussed in MCNs 1998 Annual Report included in the
Form 8-K filed with the SEC on October 15, 1999, MCN
has a Shareholders Rights Plan that is designed to maximize
 shareholders value in the event that MCN is acquired. The
rights are attached to and trade with shares of MCN common stock
until they are exercisable upon certain triggering events. The
plan has been amended, in connection with the pending merger with
 DTE (Note 2), so that DTEs acquisition of MCN will
not represent a triggering event.

13.  Comprehensive Income

MCN reports comprehensive income, which is defined as the change
in common shareholders equity during a period from
transactions and events from non-owner sources, including net
income. Total comprehensive income for the applicable periods is
as follows:

|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |          |   |         |  
|------------------------------------------------ | ------------------------------------------------------ | ---------------------------------------- | ---------------------------------------------------------- | ----------------- | - | ------------------- | -------- | -------- | - | ------ | ------- | ------- | - | ------ | -------- | -------- | - | ------ | ------ | ------ |  | ------ | -------- | -------- | - | ------- | -
|                                                 |                                                        |                                          |                                                            |                   |   |                    
|                                                 |                                                        | Three Months Ended                       |                                                            | Nine Months Ended |   | Twelve Months Ended
|                                                 |                                                        | September 30,                            |                                                            | September 30,     |   | September 30,      
|                                                 |                                                        |                                          |                                                            |                   |   |                    
|                                                 |                                                        | 1999                                     |                                                            | 1998              |   | 1999                |          | 1998     |   | 1999   |         | 1998   
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |        
|                                                 |                                                        |                                         
|                                                 |                                                        | (in Thousands)                          
|                                                
|                                                
|                                                
|                                                
|Comprehensive Income (Loss)                      |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                
|                                                
|                                                
|                                                
|Net Loss                                         |                                                        | $                                        | (31,154                                                    | )                 |   | $                   | (176,724 | )        |   | $      | (31,851 | )       |   | $      | (310,465 | )        |   | $      | (7,854 | )      |  | $      | (265,578 | )       
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|Other Comprehensive Income (Loss), Net of Taxes: |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                        | Foreign currency translation adjustment: |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |          |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                        |                                          | Foreign currency translation adjustment                    |                   |   | 16                  |          |          |   | (85    | )       |         |   | (600   | )        |          |   | (5,898 | )      |        |  | (1,256 | )        |          |   | (11,423 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                        |                                          | Less: Reclassification for losses recognized in net income |                   |   | 13,132              |          |          |   |       |         |         |   | 13,132 |          |          |   |       |        |        |  | 13,132 |          |          |   |        |  
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                 |                                                        |                                          | 13,148                                                     |                   |   |                     | (85      | )        |   |        | 12,532  |         |   |        | (5,898   | )        |   |        | 11,876 |        |  |        | (11,423  | )       
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                 |                                                        | Unrealized loss on securities:           |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |          |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                        |                                          | Unrealized losses during period                            |                   |   |                    |          |          |   | (2,559 | )       |         |   | (1,159 | )        |          |   | (5,362 | )      |        |  | (2,287 | )        |          |   | (6,546  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                        |                                          | Less: Reclassification for losses recognized in net income |                   |   |                    |          |          |   |       |         |         |   | 4,846  |          |          |   | 3,987  |        |        |  | 4,846  |          |          |   | 3,987   |  
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                 |                                                        |                                          |                                                           |                   |   |                     | (2,559   | )        |   |        | 3,687   |         |   |        | (1,375   | )        |   |        | 2,559  |        |  |        | (2,559   | )       
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                 | Total Other Comprehensive Income (Loss), Net of
	Taxes |                                          |                                                            | 13,148            |   |                     |          | (2,644   | ) |        |         | 16,219  |   |        |          | (7,273   | ) |        |        | 14,435 |  |        |          | (13,982  | )
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         
|                                                 | Total Comprehensive Income (Loss)                      |                                          | $                                                          | (18,006           | ) |                     | $        | (179,368 | ) |        | $       | (15,632 | ) |        | $        | (317,738 | ) |        | $      | 6,581  |  |        | $        | (279,560 | )
|                                                 |                                                        |                                          |                                                            |                   |   |                     |          |          |   |        |         |         |   |        |          |          |   |        |        |        |  |        |          |         

32



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


14.  Contingencies

MCN is involved in certain legal and administrative proceedings
before various courts and governmental agencies concerning claims
 arising in the ordinary course of business. These proceedings
include certain contract disputes between Gas Distribution and
gas producers. Management cannot predict the final disposition of
 such proceedings, but believes that adequate provision has been
made for probable losses. It is managements belief, after
discussion with legal counsel, that the ultimate resolution of
those proceedings still pending will not have a material adverse
effect on MCNs financial statements.

15.  Commodity Swap Agreements

MCNs Diversified Energy and Gas Distribution groups manage
commodity price risk through the use of various derivative
instruments and predominately limit the use of such instruments
to 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:

|                                     |                        |                |         |              |  |      |        |        |  |   |        |        | 
|------------------------------------ | ---------------------- | -------------- | ------- | ------------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                        |                |         |             
|                                     |                        | September 30,  |         | December 31,
|                                     |                        |                |         |             
|                                     |                        | 1999           |         | 1998         |  | 1998
|                                     |                        |                |         |              |  |     
|                                     |                        |               
|                                     |                        | (in Thousands)
|                                    
|                                    
|                                    
|                                    
|Deferred Swap Losses and Receivables |                        |                |         |              |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized losses      |                | $       | 64,940       |  |      | $      | 31,923 |  |   | $      | 48,700 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables            |                |         | 43,989       |  |      |        | 13,776 |  |   |        | 25,864 | 
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       
|                                     |                        |                | 108,929 |              |  |      | 45,699 |        |  |   | 74,564 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  Current portion |                |         | 12,390       |  |      |        | 666    |  |   |        | 11,417 | 
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       
|                                     |                        | $              | 96,539  |              |  | $    | 45,033 |        |  | $ | 63,147 |       
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       
|Deferred Swap Gains and Payables     |                        |                |         |              |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized gains       |                | $       | 34,884       |  |      | $      | 13,024 |  |   | $      | 24,126 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Payables               |                |         | 72,707       |  |      |        | 36,890 |  |   |        | 54,525 | 
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       
|                                     |                        |                | 107,591 |              |  |      | 49,914 |        |  |   | 78,651 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  Current portion |                |         | 30,781       |  |      |        | 11,358 |  |   |        | 15,695 | 
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       
|                                     |                        | $              | 76,810  |              |  | $    | 38,556 |        |  | $ | 62,956 |       
|                                     |                        |                |         |              |  |      |        |        |  |   |        |       

33



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


16.  Segment Information

MCN is organized into two business groups, Diversified Energy and
 Gas Distribution. The groups operate five major business
segments as set forth in the following table:

|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |           |  
|------------------------------------- | -------------------------------------- | ------------------ | ------- | ----------------- | - | ------------------- | -------- | ------- | - | ---- | --------- | ------- | - | - | --------- | -------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                      |                                        |                    |         |                   |   |                    
|                                      |                                        | Three Months Ended |         | Nine Months Ended |   | Twelve Months Ended
|                                      |                                        | September 30,      |         | September 30,     |   | September 30,      
|                                      |                                        |                    |         |                   |   |                    
|                                      |                                        | 1999               |         | 1998              |   | 1999                |          | 1998    |   | 1999 |           | 1998   
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |        
|                                      |                                        |                   
|                                      |                                        | (in Thousands)    
|                                     
|                                     
|                                     
|                                     
|Revenues From Unaffiliated Customers: |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 6,416             |   |                     | $        | 6,238   |   |      | $         | 17,747  |   |   | $         | 14,677   |   |   | $         | 23,927    |   |   | $         | 15,948    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 14,624            |   |                     |          | 12,727  |   |      |           | 39,747  |   |   |           | 34,972   |   |   |           | 51,905    |   |   |           | 47,797    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 305,405           |   |                     |          | 184,926 |   |      |           | 813,594 |   |   |           | 592,491  |   |   |           | 1,029,471 |   |   |           | 858,348   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 9,292             |   |                     |          | 23,810  |   |      |           | 51,167  |   |   |           | 87,261   |   |   |           | 73,109    |   |   |           | 110,688   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 127,122           |   |                     |          | 123,444 |   |      |           | 825,974 |   |   |           | 729,418  |   |   |           | 1,141,696 |   |   |           | 1,129,402 |  
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 462,859 |                   |   |                     | 351,145  |         |   |      | 1,748,229 |         |   |   | 1,458,819 |          |   |   | 2,320,108 |           |   |   | 2,162,183 |          
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Revenues From Affiliated Customers:   |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    |         | 507               |   |                     |          | 62      |   |      |           | 1,609   |   |   |           | 298      |   |   |           | 1,656     |   |   |           | 396       |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 17,940            |   |                     |          | 15,356  |   |      |           | 49,466  |   |   |           | 47,432   |   |   |           | 66,276    |   |   |           | 64,696    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 22,538            |   |                     |          | 27,205  |   |      |           | 68,081  |   |   |           | 72,467   |   |   |           | 93,513    |   |   |           | 108,579   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 2,318             |   |                     |          | 618     |   |      |           | 5,652   |   |   |           | 5,328    |   |   |           | 6,959     |   |   |           | 8,326     |  
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 43,303  |                   |   |                     | 43,241   |         |   |      | 124,808   |         |   |   | 125,525   |          |   |   | 168,404   |           |   |   | 181,997   |          
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Eliminations                          |                                        |                    | (43,303 | )                 |   |                     | (43,241  | )       |   |      | (124,808  | )       |   |   | (125,525  | )        |   |   | (168,404  | )         |   |   | (181,997  | )        
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Consolidated Operating Revenues       |                                        | $                  | 462,859 |                   |   | $                   | 351,145  |         |   | $    | 1,748,229 |         |   | $ | 1,458,819 |          |   | $ | 2,320,108 |           |   | $ | 2,162,183 |          
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Net Income (Loss):                    |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | (99               | ) |                     | $        | (89,332 | ) |      | $         | 3,358   |   |   | $         | (82,089  | ) |   | $         | 3,207     |   |   | $         | (78,036   | )
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 4,311             |   |                     |          | 2,627   |   |      |           | 11,682  |   |   |           | 15,290   |   |   |           | 15,663    |   |   |           | 18,660    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | (7,158            | ) |                     |          | (197    | ) |      |           | (7,545  | ) |   |           | 2,646    |   |   |           | (11,228   | ) |   |           | 2,610     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | (4,034            | ) |                     |          | (51,017 | ) |      |           | (83,742 | ) |   |           | (258,408 | ) |   |           | (78,687   | ) |   |           | (249,752  | )
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | (14,671           | ) |                     |          | (24,516 | ) |      |           | 75,962  |   |   |           | 40,854   |   |   |           | 106,842   |   |   |           | 73,418    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate & Other                      |                    |         | (9,503            | ) |                     |          | (14,289 | ) |      |           | (28,694 | ) |   |           | (28,758  | ) |   |           | (40,779   | ) |   |           | (32,478   | )
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | (31,154 | )                 |   |                     | (176,724 | )       |   |      | (28,979   | )       |   |   | (310,465  | )        |   |   | (4,982    | )         |   |   | (265,578  | )        
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of accounting change |                    |         |                  |   |                     |          |        |   |      |           | (2,872  | ) |   |           |         |   |   |           | (2,872    | ) |   |           |          |  
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Consolidated Net Loss                 |                                        | $                  | (31,154 | )                 |   | $                   | (176,724 | )       |   | $    | (31,851   | )       |   | $ | (310,465  | )        |   | $ | (7,854    | )         |   | $ | (265,578  | )        
|                                      |                                        |                    |         |                   |   |                     |          |         |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          

17.  Consolidating Financial Statements

Debt securities issued by MCNEE are subject to a support
agreement between MCN and MCNEE, under which MCN has committed to
 make payments of interest and principal on MCNEEs
securities in the event of failure to pay by MCNEE. Under the
terms of the support agreement, the assets of MCN, other than
MichCon, and any cash dividends paid to MCN by any of its
subsidiaries are available as recourse to holders of MCNEEs
 securities. The carrying value of MCNs assets on an
unconsolidated basis, which primarily consists of investments in
subsidiaries other than MichCon, is $736,335,000 at
September 30, 1999.

The following MCN consolidating financial statements are
presented and include separately MCNEE, MichCon and MCN and other
 subsidiaries. MCN has determined that separate financial
statements and other disclosures concerning MCNEE are not
material to investors. The other MCN subsidiaries represent
Citizens Gas Fuel Company, MCN Michigan Limited Partnership, MCN
Financing I, MCN Financing II, MCN Financing III,
MCN Financing V, MCN Financing VI, MichCon Enterprises,
 Inc. and Blue Lake Holdings, Inc., until its sale on
December 31, 1997.

34



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited)

|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |         |  
|----------------------------------------------------- | ------------------------------------------------- | ------------------------------------- | -------- | ------ | - | ------- | -------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | -------- | ------- | -
|                                                      |                                                   | MCN                                   |          |        |   |         |          | Eliminations |   |             
|                                                      |                                                   | and Other                             |          |        |   |         |          | and          |   | Consolidated
|                                                      |                                                   | Subsidiaries                          |          | MCNEE  |   | MichCon |          | Reclasses    |   | Total       
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |             
|                                                      |                                                   |                                      
|                                                      |                                                   | Three Months Ended September 30, 1999
|                                                      |                                                   |                                      
|                                                      |                                                   |                                      
|                                                      |                                                   | (in Thousands)                       
|                                                     
|                                                     
|                                                     
|                                                     
|Operating Revenues                                    |                                                   | $                                     | 6,847    |        |   | $       | 335,539  |              |   | $            | 122,635 |         |   | $ | (2,162  | )       |   | $ | 462,859  |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                    |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of sales                                     |                                       |          | 5,047  |   |         |          | 298,054      |   |              |         | 28,187  |   |   |         | (1,949  | ) |   |          | 329,339 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Operation and maintenance                         |                                       |          | (752   | ) |         |          | 36,612       |   |              |         | 62,486  |   |   |         | (187    | ) |   |          | 98,159  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Depreciation, depletion and amortization          |                                       |          | 1,044  |   |         |          | 13,375       |   |              |         | 24,192  |   |   |         |        |   |   |          | 38,611  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Property and other taxes                          |                                       |          | 349    |   |         |          | 2,397        |   |              |         | 12,175  |   |   |         |        |   |   |          | 14,921  |  
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                      |                                                   |                                       | 5,688    |        |   |         | 350,438  |              |   |              | 127,040 |         |   |   | (2,136  | )       |   |   | 481,030  |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Income (Loss)                               |                                                   |                                       | 1,159    |        |   |         | (14,899  | )            |   |              | (4,405  | )       |   |   | (26     | )       |   |   | (18,171  | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings of Joint Ventures and Subsidiaries |                                                   |                                       | (30,454  | )      |   |         | 14,952   |              |   |              | 444     |         |   |   | 30,454  |         |   |   | 15,396   |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                         |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest income                                   |                                       |          | 10,841 |   |         |          | 1,100        |   |              |         | 916     |   |   |         | (10,948 | ) |   |          | 1,909   |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest on long-term debt                        |                                       |          | 245    |   |         |          | (10,248      | ) |              |         | (12,537 | ) |   |         |        |   |   |          | (22,540 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other interest expense                            |                                       |          | (2,304 | ) |         |          | (13,000      | ) |              |         | (1,184  | ) |   |         | 10,947  |   |   |          | (5,541  | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Dividends on preferred securities of subsidiaries |                                       |          |       |   |         |          |             |   |              |         |        |   |   |         | (10,335 | ) |   |          | (10,335 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Loss on sale of E&P properties                    |                                       |          |       |   |         |          | (5,877       | ) |              |         |        |   |   |         |        |   |   |          | (5,877  | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Minority interest                                 |                                       |          |       |   |         |          | (350         | ) |              |         | (282    | ) |   |         |        |   |   |          | (632    | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                             |                                       |          | (813   | ) |         |          | 4,657        |   |              |         | (590    | ) |   |         | 27      |   |   |          | 3,281   |  
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                      |                                                   |                                       | 7,969    |        |   |         | (23,718  | )            |   |              | (13,677 | )       |   |   | (10,309 | )       |   |   | (39,735  | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Loss Before Income Taxes                              |                                                   |                                       | (21,326  | )      |   |         | (23,665  | )            |   |              | (17,638 | )       |   |   | 20,119  |         |   |   | (42,510  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Income Tax Benefit                                    |                                                   |                                       | (507     | )      |   |         | (6,751   | )            |   |              | (4,098  | )       |   |   |        |         |   |   | (11,356  | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Loss                                              |                                                   |                                       | (20,819  | )      |   |         | (16,914  | )            |   |              | (13,540 | )       |   |   | 20,119  |         |   |   | (31,154  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Dividends on Preferred Securities                     |                                                   |                                       | 10,335   |        |   |         |         |              |   |              |        |         |   |   | (10,335 | )       |   |   |         |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss) Available for Common Stock          |                                                   | $                                     | (31,154  | )      |   | $       | (16,914  | )            |   | $            | (13,540 | )       |   | $ | 30,454  |         |   | $ | (31,154  | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                      |                                                   | Three Months Ended September 30, 1998
|                                                      |                                                   |                                      
|Operating Revenues                                    |                                                   | $                                     | 1,634    |        |   | $       | 228,949  |              |   | $            | 122,428 |         |   | $ | (1,866  | )       |   | $ | 351,145  |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                    |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of sales                                     |                                       |          | 931    |   |         |          | 170,039      |   |              |         | 31,143  |   |   |         | (1,107  | ) |   |          | 201,006 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Operation and maintenance                         |                                       |          | (8,742 | ) |         |          | 42,791       |   |              |         | 57,422  |   |   |         | (759    | ) |   |          | 90,712  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Depreciation, depletion and amortization          |                                       |          | 696    |   |         |          | 20,562       |   |              |         | 22,973  |   |   |         |        |   |   |          | 44,231  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Property and other taxes                          |                                       |          | 360    |   |         |          | 3,095        |   |              |         | 12,087  |   |   |         |        |   |   |          | 15,542  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Property write-downs and restructuring charges    |                                       |          | 8,669  |   |         |          | 225,827      |   |              |         | 24,800  |   |   |         |        |   |   |          | 259,296 |  
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                      |                                                   |                                       | 1,914    |        |   |         | 462,314  |              |   |              | 148,425 |         |   |   | (1,866  | )       |   |   | 610,787  |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Loss                                        |                                                   |                                       | (280     | )      |   |         | (233,365 | )            |   |              | (25,997 | )       |   |   |        |         |   |   | (259,642 | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings of Joint Ventures and Subsidiaries |                                                   |                                       | (171,089 | )      |   |         | 17,896   |              |   |              | 511     |         |   |   | 170,645 |         |   |   | 17,963   |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                         |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest income                                   |                                       |          | 8,447  |   |         |          | 1,149        |   |              |         | 1,639   |   |   |         | (8,739  | ) |   |          | 2,496   |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest on long-term debt                        |                                       |          | 91     |   |         |          | (13,508      | ) |              |         | (10,975 | ) |   |         |        |   |   |          | (24,392 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other interest expense                            |                                       |          | (445   | ) |         |          | (11,244      | ) |              |         | (2,001  | ) |   |         | 8,699   |   |   |          | (4,991  | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Dividends on preferred securities of subsidiaries |                                       |          |       |   |         |          |             |   |              |         |        |   |   |         | (8,178  | ) |   |          | (8,178  | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Investment loss                                   |                                       |          | (8,500 | ) |         |          |             |   |              |         |        |   |   |         |        |   |   |          | (8,500  | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Minority interest                                 |                                       |          |       |   |         |          | 225          |   |              |         | 7,050   |   |   |         |        |   |   |          | 7,275   |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                             |                                       |          | 17     |   |         |          | (412         | ) |              |         | 529     |   |   |         |        |   |   |          | 134     |  
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                      |                                                   |                                       | (390     | )      |   |         | (23,790  | )            |   |              | (3,758  | )       |   |   | (8,218  | )       |   |   | (36,156  | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Loss Before Income Taxes                              |                                                   |                                       | (171,759 | )      |   |         | (239,259 | )            |   |              | (29,244 | )       |   |   | 162,427 |         |   |   | (277,835 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Income Tax Benefit                                    |                                                   |                                       | (3,254   | )      |   |         | (86,951  | )            |   |              | (10,906 | )       |   |   |        |         |   |   | (101,111 | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income                                            |                                                   |                                       | (168,505 | )      |   |         | (152,308 | )            |   |              | (18,338 | )       |   |   | 162,427 |         |   |   | (176,724 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Dividends on Preferred Securities                     |                                                   |                                       | 8,178    |        |   |         |         |              |   |              |        |         |   |   | (8,178  | )       |   |   |         |        
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Loss Available for Common Stock                   |                                                   | $                                     | (176,683 | )      |   | $       | (152,308 | )            |   | $            | (18,338 | )       |   | $ | 170,605 |         |   | $ | (176,724 | )      
|                                                      |                                                   |                                       |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        

35



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited)

|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |           |  
|-------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------ | -------- | ------ | - | ------- | --------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                               |                                                   | MCN                                  |          |        |   |         |           | Eliminations |   |             
|                                                               |                                                   | and Other                            |          |        |   |         |           | and          |   | Consolidated
|                                                               |                                                   | Subsidiaries                         |          | MCNEE  |   | MichCon |           | Reclasses    |   | Total       
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |             
|                                                               |                                                   |                                     
|                                                               |                                                   | Nine Months Ended September 30, 1999
|                                                               |                                                   |                                     
|                                                               |                                                   |                                     
|                                                               |                                                   | (in Thousands)                      
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                   | $                                    | 25,419   |        |   | $       | 927,018   |              |   | $            | 806,280 |         |   | $ | (10,488 | )       |   | $ | 1,748,229 |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                      |          | 17,685 |   |         |           | 771,091      |   |              |         | 336,948 |   |   |         | (7,552  | ) |   |           | 1,118,172 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                      |          | (1,586 | ) |         |           | 109,108      |   |              |         | 193,974 |   |   |         | (2,910  | ) |   |           | 298,586   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                      |          | 2,851  |   |         |           | 49,539       |   |              |         | 73,558  |   |   |         |        |   |   |           | 125,948   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                      |          | 1,126  |   |         |           | 8,386        |   |              |         | 43,337  |   |   |         |        |   |   |           | 52,849    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges    |                                      |          |       |   |         |           | 52,000       |   |              |         |        |   |   |         |        |   |   |           | 52,000    |  
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                      | 20,076   |        |   |         | 990,124   |              |   |              | 647,817 |         |   |   | (10,462 | )       |   |   | 1,647,555 |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                        |                                                   |                                      | 5,343    |        |   |         | (63,106   | )            |   |              | 158,463 |         |   |   | (26     | )       |   |   | 100,674   |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures and Subsidiaries          |                                                   |                                      | (29,894  | )      |   |         | 38,563    |              |   |              | 1,457   |         |   |   | 29,894  |         |   |   | 40,020    |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                      |          | 32,470 |   |         |           | 3,088        |   |              |         | 2,861   |   |   |         | (32,645 | ) |   |           | 5,774     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                      |          | 706    |   |         |           | (31,724      | ) |              |         | (35,028 | ) |   |         |        |   |   |           | (66,046   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                      |          | (9,616 | ) |         |           | (38,867      | ) |              |         | (5,020  | ) |   |         | 32,645  |   |   |           | (20,858   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                      |          |       |   |         |           |             |   |              |         |        |   |   |         | (31,004 | ) |   |           | (31,004   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                    |                                      |          |       |   |         |           | (74,675      | ) |              |         |        |   |   |         |        |   |   |           | (74,675   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment loss                                   |                                      |          |       |   |         |           | (7,456       | ) |              |         |        |   |   |         |        |   |   |           | (7,456    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                      |          |       |   |         |           | (566         | ) |              |         | (805    | ) |   |         |        |   |   |           | (1,371    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                      |          | (1,071 | ) |         |           | 15,003       |   |              |         | (303    | ) |   |         | 26      |   |   |           | 13,655    |  
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                      | 22,489   |        |   |         | (135,197  | )            |   |              | (38,295 | )       |   |   | (30,978 | )       |   |   | (181,981  | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                      | (2,062   | )      |   |         | (159,740  | )            |   |              | 121,625 |         |   |   | (1,110  | )       |   |   | (41,287   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                      | (1,215   | )      |   |         | (54,120   | )            |   |              | 43,027  |         |   |   |        |         |   |   | (12,308   | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change    |                                                   |                                      | (847     | )      |   |         | (105,620  | )            |   |              | 78,598  |         |   |   | (1,110  | )       |   |   | (28,979   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes           |                                                   |                                      |         |        |   |         | (2,872    | )            |   |              |        |         |   |   |        |         |   |   | (2,872    | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                      | (847     | )      |   |         | (108,492  | )            |   |              | 78,598  |         |   |   | (1,110  | )       |   |   | (31,851   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                      | 31,004   |        |   |         |          |              |   |              |        |         |   |   | (31,004 | )       |   |   |          |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net (Loss) Available for Common Stock                          |                                                   | $                                    | (31,851  | )      |   | $       | (108,492  | )            |   | $            | 78,598  |         |   | $ | 29,894  |         |   | $ | (31,851   | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                               |                                                   | Nine Months Ended September 30, 1998
|                                                               |                                                   |                                     
|Operating Revenues                                             |                                                   | $                                    | 10,303   |        |   | $       | 734,031   |              |   | $            | 724,442 |         |   | $ | (9,957  | )       |   | $ | 1,458,819 |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                      |          | 5,374  |   |         |           | 547,775      |   |              |         | 306,244 |   |   |         | (5,842  | ) |   |           | 853,551   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                      |          | (8,502 | ) |         |           | 108,320      |   |              |         | 181,512 |   |   |         | (4,115  | ) |   |           | 277,215   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                      |          | 2,035  |   |         |           | 64,533       |   |              |         | 68,910  |   |   |         |        |   |   |           | 135,478   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                      |          | 1,531  |   |         |           | 9,382        |   |              |         | 43,342  |   |   |         |        |   |   |           | 54,255    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Write-down of E&P properties                      |                                      |          | 8,669  |   |         |           | 558,849      |   |              |         | 24,800  |   |   |         |        |   |   |           | 592,318   |  
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                      | 9,107    |        |   |         | 1,288,859 |              |   |              | 624,808 |         |   |   | (9,957  | )       |   |   | 1,912,817 |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                        |                                                   |                                      | 1,196    |        |   |         | (554,828  | )            |   |              | 99,634  |         |   |   |        |         |   |   | (453,998  | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                      | (305,927 | )      |   |         | 46,062    |              |   |              | 1,461   |         |   |   | 304,965 |         |   |   | 46,561    |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                      |          | 28,019 |   |         |           | 5,314        |   |              |         | 3,573   |   |   |         | (28,247 | ) |   |           | 8,659     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                      |          | 494    |   |         |           | (29,145      | ) |              |         | (33,694 | ) |   |         |        |   |   |           | (62,345   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                      |          | (1,104 | ) |         |           | (36,647      | ) |              |         | (7,149  | ) |   |         | 28,246  |   |   |           | (16,654   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                      |          |       |   |         |           |             |   |              |         |        |   |   |         | (27,162 | ) |   |           | (27,162   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                    |                                      |          |       |   |         |           |             |   |              |         |        |   |   |         |        |   |   |           |          |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment loss                                   |                                      |          | (8,500 | ) |         |           | (6,135       | ) |              |         |        |   |   |         |        |   |   |           | (14,635   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                      |          |       |   |         |           | 123          |   |              |         | 5,907   |   |   |         |        |   |   |           | 6,030     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                      |          | (490   | ) |         |           | 13,350       |   |              |         | 1,235   |   |   |         |        |   |   |           | 14,095    |  
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                      | 18,419   |        |   |         | (53,140   | )            |   |              | (30,128 | )       |   |   | (27,163 | )       |   |   | (92,012   | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                      | (286,312 | )      |   |         | (561,906  | )            |   |              | 70,967  |         |   |   | 277,802 |         |   |   | (499,449  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                      | (3,010   | )      |   |         | (210,601  | )            |   |              | 24,627  |         |   |   |        |         |   |   | (188,984  | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                      | (283,302 | )      |   |         | (351,305  | )            |   |              | 46,340  |         |   |   | 277,802 |         |   |   | (310,465  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                      | 27,162   |        |   |         |          |              |   |              |        |         |   |   | (27,162 | )       |   |   |          |          
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Loss Available for Common Stock                            |                                                   | $                                    | (310,464 | )      |   | $       | (351,305  | )            |   | $            | 46,340  |         |   | $ | 304,964 |         |   | $ | (310,465  | )        
|                                                               |                                                   |                                      |          |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          

36



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited)

|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |           |  
|-------------------------------------------------------------- | ------------------------------------------------- | -------------------------------------- | -------- | ------- | - | ------- | --------- | ------------ | - | ------------ | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                               |                                                   | MCN                                    |          |         |   |         |           | Eliminations |   |             
|                                                               |                                                   | and Other                              |          |         |   |         |           | and          |   | Consolidated
|                                                               |                                                   | Subsidiaries                           |          | MCNEE   |   | MichCon |           | Reclasses    |   | Total       
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |             
|                                                               |                                                   |                                       
|                                                               |                                                   | Twelve Months Ended September 30, 1999
|                                                               |                                                   |                                       
|                                                               |                                                   |                                       
|                                                               |                                                   | (in Thousands)                        
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                   | $                                      | 33,378   |         |   | $       | 1,185,815 |              |   | $            | 1,115,496 |         |   | $ | (14,581 | )       |   | $ | 2,320,108 |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                        |          | 23,017  |   |         |           | 975,523      |   |              |           | 482,233 |   |   |         | (10,378 | ) |   |           | 1,470,395 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                        |          | (3,291  | ) |         |           | 153,395      |   |              |           | 264,859 |   |   |         | (4,177  | ) |   |           | 410,786   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                        |          | 4,022   |   |         |           | 68,407       |   |              |           | 97,531  |   |   |         |        |   |   |           | 169,960   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                        |          | 1,314   |   |         |           | 11,400       |   |              |           | 55,433  |   |   |         |        |   |   |           | 68,147    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges    |                                        |          |        |   |         |           | 52,000       |   |              |           |        |   |   |         |        |   |   |           | 52,000    |  
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                        | 25,062   |         |   |         | 1,260,725 |              |   |              | 900,056   |         |   |   | (14,555 | )       |   |   | 2,171,288 |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                        |                                                   |                                        | 8,316    |         |   |         | (74,910   | )            |   |              | 215,440   |         |   |   | (26     | )       |   |   | 148,820   |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                        | (6,251   | )       |   |         | 53,743    |              |   |              | 1,942     |         |   |   | 6,250   |         |   |   | 55,684    |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                        |          | 41,859  |   |         |           | 4,383        |   |              |           | 4,976   |   |   |         | (43,210 | ) |   |           | 8,008     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                        |          | (429    | ) |         |           | (44,400      | ) |              |           | (46,218 | ) |   |         |        |   |   |           | (91,047   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                        |          | (10,986 | ) |         |           | (50,850      | ) |              |           | (9,984  | ) |   |         | 43,212  |   |   |           | (28,608   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                        |          |        |   |         |           |             |   |              |           |        |   |   |         | (40,212 | ) |   |           | (40,212   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                    |                                        |          |        |   |         |           | (74,675      | ) |              |           |        |   |   |         |        |   |   |           | (74,675   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment loss                                   |                                        |          |        |   |         |           | (7,456       | ) |              |           |        |   |   |         |        |   |   |           | (7,456    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                        |          |        |   |         |           | (424         | ) |              |           | (985    | ) |   |         |        |   |   |           | (1,409    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                        |          | (1,186  | ) |         |           | 22,001       |   |              |           | (1,720  | ) |   |         | 26      |   |   |           | 19,121    |  
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                        | 29,258   |         |   |         | (151,421  | )            |   |              | (53,931   | )       |   |   | (40,184 | )       |   |   | (216,278  | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                        | 31,323   |         |   |         | (172,588  | )            |   |              | 163,451   |         |   |   | (33,960 | )       |   |   | (11,774   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                        | (1,034   | )       |   |         | (59,975   | )            |   |              | 54,217    |         |   |   |        |         |   |   | (6,792    | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change    |                                                   |                                        | 32,357   |         |   |         | (112,613  | )            |   |              | 109,234   |         |   |   | (33,960 | )       |   |   | (4,982    | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes           |                                                   |                                        |         |         |   |         | (2,872    | )            |   |              |          |         |   |   |        |         |   |   | (2,872    | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                        | 32,357   |         |   |         | (115,485  | )            |   |              | 109,234   |         |   |   | (33,960 | )       |   |   | (7,854    | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                        | 40,212   |         |   |         |          |              |   |              |          |         |   |   | (40,212 | )       |   |   |          |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                   |                                                   | $                                      | (7,855   | )       |   | $       | (115,485  | )            |   | $            | 109,234   |         |   | $ | 6,252   |         |   | $ | (7,854    | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   | Twelve Months Ended September 30, 1998
|                                                               |                                                   |                                       
|Operating Revenues                                             |                                                   | $                                      | 15,967   |         |   | $       | 1,039,310 |              |   | $            | 1,121,762 |         |   | $ | (14,856 | )       |   | $ | 2,162,183 |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                        |          | 8,644   |   |         |           | 785,533      |   |              |           | 524,321 |   |   |         | (9,345  | ) |   |           | 1,309,153 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                        |          | (8,094  | ) |         |           | 142,953      |   |              |           | 256,844 |   |   |         | (5,511  | ) |   |           | 386,192   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                        |          | 2,609   |   |         |           | 85,107       |   |              |           | 94,529  |   |   |         |        |   |   |           | 182,245   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                        |          | 1,860   |   |         |           | 12,933       |   |              |           | 57,484  |   |   |         |        |   |   |           | 72,277    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges    |                                        |          | 8,669   |   |         |           | 558,849      |   |              |           | 24,800  |   |   |         |        |   |   |           | 592,318   |  
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                        | 13,688   |         |   |         | 1,585,375 |              |   |              | 957,978   |         |   |   | (14,856 | )       |   |   | 2,542,185 |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                        |                                                   |                                        | 2,279    |         |   |         | (546,065  | )            |   |              | 163,784   |         |   |   |        |         |   |   | (380,002  | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                        | (260,893 | )       |   |         | 58,974    |              |   |              | 1,807     |         |   |   | 260,152 |         |   |   | 60,040    |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                        |          | 38,135  |   |         |           | 8,418        |   |              |           | 4,602   |   |   |         | (38,019 | ) |   |           | 13,136    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                        |          | 602     |   |         |           | (34,691      | ) |              |           | (45,247 | ) |   |         |        |   |   |           | (79,336   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                        |          | (1,607  | ) |         |           | (47,616      | ) |              |           | (10,031 | ) |   |         | 38,273  |   |   |           | (20,981   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                        |          |        |   |         |           |             |   |              |           |        |   |   |         | (36,916 | ) |   |           | (36,916   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment loss                                   |                                        |          | (8,500  | ) |         |           | (6,135       | ) |              |           |        |   |   |         |        |   |   |           | (14,635   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                        |          |        |   |         |           | 99           |   |              |           | 5,481   |   |   |         |        |   |   |           | 5,580     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                        |          | (417    | ) |         |           | 16,349       |   |              |           | 1,108   |   |   |         |        |   |   |           | 17,040    |  
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                        | 28,213   |         |   |         | (63,576   | )            |   |              | (44,087   | )       |   |   | (36,662 | )       |   |   | (116,112  | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                        | (230,401 | )       |   |         | (550,667  | )            |   |              | 121,504   |         |   |   | 223,490 |         |   |   | (436,074  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                        | (2,166   | )       |   |         | (211,562  | )            |   |              | 43,232    |         |   |   |        |         |   |   | (170,496  | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                        | (228,235 | )       |   |         | (339,105  | )            |   |              | 78,272    |         |   |   | 223,490 |         |   |   | (265,578  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                        | 36,916   |         |   |         |          |              |   |              |          |         |   |   | (36,916 | )       |   |   |          |          
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                   |                                                   | $                                      | (265,151 | )       |   | $       | (339,105  | )            |   | $            | 78,272    |         |   | $ | 260,406 |         |   | $ | (265,578  | )        
|                                                               |                                                   |                                        |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          

37



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |           |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | --- | ------- | --------- | ------------ | ----- | ------------ | --------- | --------- | ------ | - | ---------- | ---------- | - | - | --------- | --------- | ------ | 
|                                                               |                                                                 | MCN                                    |           |         |     |         |           | Eliminations |       |             
|                                                               |                                                                 | and Other                              |           |         |     |         |           | and          |       | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNEE   |     | MichCon |           | Reclasses    |       | Total       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | September 30, 1999                    
|                                                               |                                                                 |                                       
|                                                               |                                                                 |                                       
|                                                               |                                                                 | (in Thousands)                        
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 80      |     |         | $         | 18,393       |       |              | $         | 11,880    |        |   | $          |           |   |   | $         | 30,353    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 5,450   |     |         |           | 239,004      |       |              |           | 111,434   |        |   |            | (38,429    | ) |   |           | 317,459   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 168 |         |           |              | 1,652 |              |           |           | 14,396 |   |            |            |  |   |           |           | 16,216 | 
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 5,282   |     |         |           | 237,352      |       |              |           | 97,038    |        |   |            | (38,429    | ) |   |           | 301,243   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 321     |     |         |           |             |       |              |           | 21,178    |        |   |            |           |   |   |           | 21,499    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |     |         |           | 128,196      |       |              |           | 110,170   |        |   |            |           |   |   |           | 238,366   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 284     |     |         |           | 1,529        |       |              |           | 37,692    |        |   |            |           |   |   |           | 39,505    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 6,171   |     |         |           | 59,589       |       |              |           | 38,609    |        |   |            | (47,570    | ) |   |           | 56,799    |       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 12,138    |         |     |         | 445,059   |              |       |              | 316,567   |           |        |   | (85,999    | )          |   |   | 687,765   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 9,248   |     |         |           | 106,934      |       |              |           |          |        |   |            | (105,038   | ) |   |           | 11,144    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |     |         |           | 5,217        |       |              |           | 66,653    |        |   |            | 624        |   |   |           | 72,494    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |     |         |           | 96,539       |       |              |           |          |        |   |            |           |   |   |           | 96,539    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,769   |     |         |           |             |       |              |           | 28,522    |        |   |            |           |   |   |           | 31,291    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           | 783     |     |         |           |             |       |              |           | 146,534   |        |   |            | (7,022     | ) |   |           | 140,295   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 16,273  |     |         |           | 41,802       |       |              |           | 64,528    |        |   |            | 2,966      |   |   |           | 125,569   |       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 29,073    |         |     |         | 250,492   |              |       |              | 306,237   |           |        |   | (108,470   | )          |   |   | 477,332   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,372,832 |         |     |         | 740,237   |              |       |              | 19,766    |           |        |   | (1,370,353 | )          |   |   | 762,482   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 48,697    |         |     |         | 793,985   |              |       |              | 2,973,747 |           |        |   |           |            |   |   | 3,816,429 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 19,537  |     |         |           | 203,718      |       |              |           | 1,464,931 |        |   |            |           |   |   |           | 1,688,186 |       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 29,160    |         |     |         | 590,267   |              |       |              | 1,508,816 |           |        |   |           |            |   |   | 2,128,243 |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,443,203 |         |     | $       | 2,026,055 |              |       | $            | 2,151,386 |           |        | $ | (1,564,822 | )          |   | $ | 4,055,822 |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Liabilities                                            |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 5,845   |     |         | $         | 213,448      |       |              | $         | 112,090   |        |   | $          | (40,207    | ) |   | $         | 291,176   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 57,751  |     |         |           | 181,748      |       |              |           | 132,465   |        |   |            | (969       | ) |   |           | 370,995   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           | 103,094 |     |         |           | 149          |       |              |           | 28,059    |        |   |            |           |   |   |           | 131,302   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | (4,359  | )   |         |           | 2,016        |       |              |           | 51,591    |        |   |            | (43,999    | ) |   |           | 5,249     |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |     |         |           | 30,310       |       |              |           | 5,763     |        |   |            |           |   |   |           | 36,073    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 4       |     |         |           |             |       |              |           | 15,762    |        |   |            |           |   |   |           | 15,766    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 2,270   |     |         |           | 12,259       |       |              |           | 11,930    |        |   |            |           |   |   |           | 26,459    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 12,548  |     |         |           | 21,078       |       |              |           | 47,834    |        |   |            | (1,105     | ) |   |           | 80,355    |       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 177,153   |         |     |         | 461,008   |              |       |              | 405,494   |           |        |   | (86,280    | )          |   |   | 957,375   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           |        |     |         |           |             |       |              |           | 104,778   |        |   |            | (104,778   | ) |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 252     |     |         |           |             |       |              |           | 28,258    |        |   |            |           |   |   |           | 28,510    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |     |         |           |             |       |              |           | 136,906   |        |   |            |           |   |   |           | 136,906   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |     |         |           | 76,810       |       |              |           |          |        |   |            |           |   |   |           | 76,810    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |     |         |           |             |       |              |           | 27,373    |        |   |            |           |   |   |           | 30,373    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |     |         |           | 2,358        |       |              |           | 8,570     |        |   |            |           |   |   |           | 10,928    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 12,538  |     |         |           | 45,894       |       |              |           | 48,757    |        |   |            | (3,113     | ) |   |           | 104,076   |       
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 15,790    |         |     |         | 125,062   |              |       |              | 354,642   |           |        |   | (107,891   | )          |   |   | 387,603   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |     |         | 777,455   |              |       |              | 683,486   |           |        |   |           |            |   |   | 1,460,941 |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 402,900   |         |     |         |          |              |       |              |          |           |        |   |           |            |   |   | 402,900   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 855     |     |         |           | 5            |       |              |           | 10,300    |        |   |            | (10,305    | ) |   |           | 855       |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 967,356 |     |         |           | 956,767      |       |              |           | 230,399   |        |   |            | (1,187,166 | ) |   |           | 967,356   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (98,563 | )   |         |           | (293,885     | )     |              |           | 467,065   |        |   |            | (173,180   | ) |   |           | (98,563   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |     |         |           | (357         | )     |              |           |          |        |   |            |           |   |   |           | (357      | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )   |         |           |             |       |              |           |          |        |   |            |           |   |   |           | (22,288   | )     
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 847,360   |         |     |         | 662,530   |              |       |              | 707,764   |           |        |   | (1,370,651 | )          |   |   | 847,003   |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,443,203 |         |     | $       | 2,026,055 |              |       | $            | 2,151,386 |           |        | $ | (1,564,822 | )          |   | $ | 4,055,822 |          
|                                                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          

38



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |           |       | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | --- | ------------ | --------- | --------- | ----- | - | ---------- | ---------- | - | - | --------- | --------- | ----- | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |     |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |     | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNEE   |    | MichCon |           | Reclasses    |     | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | September 30, 1998                    
|                                                               |                                                                 |                                       
|                                                               |                                                                 |                                       
|                                                               |                                                                 | (in Thousands)                        
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 1,373   |    |         | $         | 48,047       |     |              | $         | 10,611    |       |   | $          |           |   |   | $         | 60,031    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 5,185   |    |         |           | 185,364      |     |              |           | 108,135   |       |   |            | (8,673     | ) |   |           | 290,011   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 70 |         |           |              | 533 |              |           |           | 8,912 |   |            |            |  |   |           |           | 9,515 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 5,115   |    |         |           | 184,831      |     |              |           | 99,223    |       |   |            | (8,673     | ) |   |           | 280,496   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 214     |    |         |           |             |     |              |           | 17,145    |       |   |            |           |   |   |           | 17,359    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 101,334      |     |              |           | 96,465    |       |   |            |           |   |   |           | 197,799   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 121     |    |         |           | 1,593        |     |              |           | 31,401    |       |   |            |           |   |   |           | 33,115    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 3,904   |    |         |           | 24,980       |     |              |           | 136,736   |       |   |            | (109,500   | ) |   |           | 56,120    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 10,727    |         |    |         | 360,785   |              |     |              | 391,581   |           |       |   | (118,173   | )          |   |   | 644,920   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 3,387   |    |         |           | 131,597      |     |              |           |          |       |   |            | (81,465    | ) |   |           | 53,519    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 5,464        |     |              |           | 37,171    |       |   |            | 351        |   |   |           | 42,986    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 45,033       |     |              |           |          |       |   |            |           |   |   |           | 45,033    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,603   |    |         |           |             |     |              |           | 28,052    |       |   |            |           |   |   |           | 30,655    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           | 619     |    |         |           |             |     |              |           | 103,814   |       |   |            | (7,264     | ) |   |           | 97,169    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 4,891   |    |         |           | 33,671       |     |              |           | 58,429    |       |   |            | (272       | ) |   |           | 96,719    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 11,500    |         |    |         | 215,765   |              |     |              | 227,466   |           |       |   | (88,650    | )          |   |   | 366,081   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,282,571 |         |    |         | 741,335   |              |     |              | 20,458    |           |       |   | (1,281,942 | )          |   |   | 762,422   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 44,295    |         |    |         | 1,067,113 |              |     |              | 2,845,717 |           |       |   |           |            |   |   | 3,957,125 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 14,889  |    |         |           | 211,170      |     |              |           | 1,377,164 |       |   |            |           |   |   |           | 1,603,223 |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 29,406    |         |    |         | 855,943   |              |     |              | 1,468,553 |           |       |   |           |            |   |   | 2,353,902 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,334,204 |         |    | $       | 2,173,828 |              |     | $            | 2,108,058 |           |       | $ | (1,488,765 | )          |   | $ | 4,127,325 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 2,894   |    |         | $         | 259,081      |     |              | $         | 67,591    |       |   | $          | (11,437    | ) |   | $         | 318,129   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 107,440 |    |         |           | 211,348      |     |              |           | 204,313   |       |   |            | (108,144   | ) |   |           | 414,957   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 211,433      |     |              |           | 58,066    |       |   |            |           |   |   |           | 269,499   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | 703     |    |         |           | 6,204        |     |              |           | 41,223    |       |   |            |           |   |   |           | 48,130    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |     |              |           | 23,899    |       |   |            |           |   |   |           | 23,899    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 21,782       |     |              |           | 28,520    |       |   |            |           |   |   |           | 50,302    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 26      |    |         |           |             |     |              |           | 16,803    |       |   |            |           |   |   |           | 16,829    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 2,873   |    |         |           | 13,697       |     |              |           | 13,525    |       |   |            |           |   |   |           | 30,095    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 16,680  |    |         |           | 9,534        |     |              |           | 38,112    |       |   |            | (2,021     | ) |   |           | 62,305    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 130,616   |         |    |         | 733,079   |              |     |              | 492,052   |           |       |   | (121,602   | )          |   |   | 1,234,145 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (6,574  | )  |         |           |             |     |              |           | 84,652    |       |   |            | (78,078    | ) |   |           |          |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 279     |    |         |           |             |     |              |           | 31,362    |       |   |            |           |   |   |           | 31,641    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |     |              |           | 132,676   |       |   |            |           |   |   |           | 132,676   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 38,556       |     |              |           |          |       |   |            |           |   |   |           | 38,556    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |     |              |           | 32,000    |       |   |            |           |   |   |           | 35,000    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,599        |     |              |           | 9,349     |       |   |            |           |   |   |           | 11,948    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 15,712  |    |         |           | 14,148       |     |              |           | 41,858    |       |   |            | (7,264     | ) |   |           | 64,454    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 12,417    |         |    |         | 55,303    |              |     |              | 331,897   |           |       |   | (85,342    | )          |   |   | 314,275   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |    |         | 780,781   |              |     |              | 621,745   |           |       |   |           |            |   |   | 1,402,526 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 405,481   |         |    |         |          |              |     |              |          |           |       |   |           |            |   |   | 405,481   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 791     |    |         |           | 5            |     |              |           | 10,300    |       |   |            | (10,305    | ) |   |           | 791       |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 813,809 |    |         |           | 797,852      |     |              |           | 230,399   |       |   |            | (1,028,251 | ) |   |           | 813,809   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (6,622  | )  |         |           | (178,400     | )   |              |           | 421,665   |       |   |            | (243,265   | ) |   |           | (6,622    | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (14,792      | )   |              |           |          |       |   |            |           |   |   |           | (14,792   | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |     |              |           |          |       |   |            |           |   |   |           | (22,288   | )    
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 785,690   |         |    |         | 604,665   |              |     |              | 662,364   |           |       |   | (1,281,821 | )          |   |   | 770,898   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,334,204 |         |    | $       | 2,173,828 |              |     | $            | 2,108,058 |           |       | $ | (1,488,765 | )          |   | $ | 4,127,325 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          

39



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |           |       | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | --- | ------------ | --------- | --------- | ----- | - | ---------- | ---------- | - | - | --------- | --------- | ----- | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |     |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |     | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNEE   |    | MichCon |           | Reclasses    |     | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | December 31, 1998                     
|                                                               |                                                                 |                                       
|                                                               |                                                                 |                                       
|                                                               |                                                                 | (in Thousands)                        
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 1,400   |    |         | $         | 9,036        |     |              | $         | 6,603     |       |   | $          |           |   |   | $         | 17,039    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 10,039  |    |         |           | 265,312      |     |              |           | 151,746   |       |   |            | (17,312    | ) |   |           | 409,785   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 84 |         |           |              | 653 |              |           |           | 8,928 |   |            |            |  |   |           |           | 9,665 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 9,955   |    |         |           | 264,659      |     |              |           | 142,818   |       |   |            | (17,312    | ) |   |           | 400,120   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 1,121   |    |         |           |             |     |              |           | 86,767    |       |   |            |           |   |   |           | 87,888    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 90,418       |     |              |           | 56,969    |       |   |            |           |   |   |           | 147,387   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 214     |    |         |           | 1,172        |     |              |           | 71,165    |       |   |            |           |   |   |           | 72,551    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 5,143   |    |         |           | 11,872       |     |              |           | 30,169    |       |   |            | (4,712     | ) |   |           | 42,472    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 17,833    |         |    |         | 377,157   |              |     |              | 394,491   |           |       |   | (22,024    | )          |   |   | 767,457   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 3,305   |    |         |           | 128,807      |     |              |           |          |       |   |            | (81,565    | ) |   |           | 50,547    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 3,548        |     |              |           | 65,556    |       |   |            | 601        |   |   |           | 69,705    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 63,147       |     |              |           |          |       |   |            |           |   |   |           | 63,147    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,604   |    |         |           |             |     |              |           | 28,169    |       |   |            |           |   |   |           | 30,773    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           |        |    |         |           |             |     |              |           | 113,879   |       |   |            | (2,104     | ) |   |           | 111,775   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 9,401   |    |         |           | 26,870       |     |              |           | 59,007    |       |   |            | 3,662      |   |   |           | 98,940    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 15,310    |         |    |         | 222,372   |              |     |              | 266,611   |           |       |   | (79,406    | )          |   |   | 424,887   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,534,180 |         |    |         | 782,471   |              |     |              | 19,343    |           |       |   | (1,532,763 | )          |   |   | 803,231   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 48,681    |         |    |         | 1,103,716 |              |     |              | 2,889,020 |           |       |   |           |            |   |   | 4,041,417 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 17,210  |    |         |           | 229,944      |     |              |           | 1,396,940 |       |   |            |           |   |   |           | 1,644,094 |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 31,471    |         |    |         | 873,772   |              |     |              | 1,492,080 |           |       |   |           |            |   |   | 2,397,323 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,598,794 |         |    | $       | 2,255,772 |              |     | $            | 2,172,525 |           |       | $ | (1,634,193 | )          |   | $ | 4,392,898 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 4,123   |    |         | $         | 218,851      |     |              | $         | 98,891    |       |   | $          | (17,516    | ) |   | $         | 304,349   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 260,771 |    |         |           | 137,762      |     |              |           | 221,169   |       |   |            | (851       | ) |   |           | 618,851   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 211,433      |     |              |           | 58,288    |       |   |            |           |   |   |           | 269,721   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | 1,441   |    |         |           | 6,965        |     |              |           | 61,059    |       |   |            |           |   |   |           | 69,465    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |     |              |           | 14,980    |       |   |            |           |   |   |           | 14,980    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 17,332       |     |              |           | 25,337    |       |   |            |           |   |   |           | 42,669    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 22      |    |         |           |             |     |              |           | 18,769    |       |   |            |           |   |   |           | 18,791    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 2,835   |    |         |           | 16,519       |     |              |           | 10,960    |       |   |            |           |   |   |           | 30,314    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 15,502  |    |         |           | 8,757        |     |              |           | 56,262    |       |   |            | (2,525     | ) |   |           | 77,996    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 284,694   |         |    |         | 617,619   |              |     |              | 565,715   |           |       |   | (20,892    | )          |   |   | 1,447,136 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (10,308 | )  |         |           |             |     |              |           | 88,567    |       |   |            | (78,259    | ) |   |           |          |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 272     |    |         |           |             |     |              |           | 29,784    |       |   |            |           |   |   |           | 30,056    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |     |              |           | 130,120   |       |   |            |           |   |   |           | 130,120   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 62,956       |     |              |           |          |       |   |            |           |   |   |           | 62,956    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |     |              |           | 32,000    |       |   |            |           |   |   |           | 35,000    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,697        |     |              |           | 8,201     |       |   |            |           |   |   |           | 10,898    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 10,435  |    |         |           | 15,741       |     |              |           | 51,460    |       |   |            | (2,197     | ) |   |           | 75,439    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 3,399     |         |    |         | 81,394    |              |     |              | 340,132   |           |       |   | (80,456    | )          |   |   | 344,469   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |    |         | 687,333   |              |     |              | 619,835   |           |       |   |           |            |   |   | 1,307,168 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 502,203   |         |    |         |          |              |     |              |          |           |       |   |           |            |   |   | 502,203   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 797     |    |         |           | 5            |     |              |           | 10,300    |       |   |            | (10,305    | ) |   |           | 797       |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 832,966 |    |         |           | 1,071,390    |     |              |           | 230,399   |       |   |            | (1,301,789 | ) |   |           | 832,966   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (2,977  | )  |         |           | (185,393     | )   |              |           | 406,144   |       |   |            | (220,751   | ) |   |           | (2,977    | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (16,576      | )   |              |           |          |       |   |            |           |   |   |           | (16,576   | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |     |              |           |          |       |   |            |           |   |   |           | (22,288   | )    
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 808,498   |         |    |         | 869,426   |              |     |              | 646,843   |           |       |   | (1,532,845 | )          |   |   | 791,922   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,598,794 |         |    | $       | 2,255,772 |              |     | $            | 2,172,525 |           |       | $ | (1,634,193 | )          |   | $ | 4,392,898 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          

40



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Concluded)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)

|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |          |          |  
|----------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | -------- | ------- | ------ | ------------ | -------- | ------------ | ------- | ------- | ------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                      |                                                       | MCN                                                    |        |          |          |         |        | Eliminations |          |             
|                                                      |                                                       | and Other                                              |        |          |          |         |        | and          |          | Consolidated
|                                                      |                                                       | Subsidiaries                                           |        | MCNEE    |          | MichCon |        | Reclasses    |          | Total       
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |             
|                                                      |                                                       |                                                       
|                                                      |                                                       | Nine Months Ended September 30, 1999                  
|                                                      |                                                       |                                                       
|                                                      |                                                       |                                                       
|                                                      |                                                       | (in Thousands)                                        
|                                                     
|                                                     
|                                                     
|                                                     
|Net Cash Flow From Operating Activities               |                                                       | $                                                      | 51,563 |          |          | $       | 30,059 |              |          | $            | 177,343 |         |         | $ | (47,466 | )        |          | $ | 211,499 |         
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                   |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Notes payable, net                                    |                                                        |        | (203,020 | )        |         |        | 43,986       |          |              |         | (88,704 | )       |   |         | (118     | )        |   |         | (247,856 | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Capital contributions paid to affiliates, net         |                                                        |        |         |          |         |        | (114,623     | )        |              |         |        |         |   |         | 114,623  |          |   |         |         |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Dividends paid                                        |                                                        |        | (63,735  | )        |         |        |             |          |              |         | (17,500 | )       |   |         | 17,500   |          |   |         | (63,735  | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred securities dividends paid                   |                                                        |        | (31,004  | )        |         |        |             |          |              |         |        |         |   |         | 31,004   |          |   |         |         |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Issuance of common stock                              |                                                        |        | 132,544  |          |         |        |             |          |              |         |        |         |   |         |         |          |   |         | 132,544  |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Reacquisition of common stock                         |                                                        |        | (780     | )        |         |        |             |          |              |         |        |         |   |         |         |          |   |         | (780     | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | 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 |                                                        |        |         |          |         |        | (212,960     | )        |              |         | (76,479 | )       |   |         |         |          |   |         | (289,439 | )       
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|                                                      |                                                       | Net cash provided from (used for) financing activities |        |          | (165,995 | )       |        |              | (191,253 | )            |         |         | (76,148 | ) |         |          | 163,009  |   |         |          | (270,387 | )
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                   |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Capital expenditures                                  |                                                        |        | (882     | )        |         |        | (138,232     | )        |              |         | (94,296 | )       |   |         |         |          |   |         | (233,410 | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Acquisitions                                          |                                                        |        |         |          |         |        | (33,071      | )        |              |         |        |         |   |         |         |          |   |         | (33,071  | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Investment in debt and equity securities, net         |                                                        |        |         |          |         |        | (3,452       | )        |              |         | (1,097  | )       |   |         | (23      | )        |   |         | (4,572   | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Investment in joint ventures and subsidiaries         |                                                        |        | 113,623  |          |         |        | (61,558      | )        |              |         | (14     | )       |   |         | (114,623 | )        |   |         | (62,572  | )       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Sale of property and joint venture interests          |                                                        |        |         |          |         |        | 411,867      |          |              |         |        |         |   |         | (2,251   | )        |   |         | 409,616  |         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                                 |                                                        |        | 371      |          |         |        | (5,003       | )        |              |         | (511    | )       |   |         | 1,354    |          |   |         | (3,789   | )       
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|                                                      |                                                       | Net cash provided from (used for) investing activities |        |          | 113,112  |         |        |              | 170,551  |              |         |         | (95,918 | ) |         |          | (115,543 | ) |         |          | 72,202   |  
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and
	Cash Equivalents |                                                       |                                                        | (1,320 | )        |          |         | 9,357  |              |          |              | 5,277   |         |         |   |        |          |          |   | 13,314  |         
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and Cash Equivalents, January 1                  |                                                       |                                                        | 1,400  |          |          |         | 9,036  |              |          |              | 6,603   |         |         |   |        |          |          |   | 17,039  |         
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         
|Cash and Cash Equivalents, September 30               |                                                       | $                                                      | 80     |          |          | $       | 18,393 |              |          | $            | 11,880  |         |         | $ |        |          |          | $ | 30,353  |         
|                                                      |                                                       |                                                        |        |          |          |         |        |              |          |              |         |         |         |   |         |          |          |   |         |         

|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |          |          |  
|---------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | ------- | - | ------ | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | ------- | - | ------- | -------- | -------- | -
|                                                     |                                                   |                                                       
|                                                     |                                                   | Nine Months Ended September 30, 1998                  
|                                                     |                                                   |                                                       
|Net Cash Flow From Operating Activities              |                                                   | $                                                      | 37,775 |          |         | $ | 11,228 |          |          | $ | 218,035 |          |          | $ | (29,540 | )        |         | $ | 237,498 |         
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|Cash Flow From Financing Activities                  |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                |                                                        |        | 107,440  |         |   |        | 138,592  |          |   |         | (37,378  | )        |   |         | (105,066 | )       |   |         | 103,588  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions paid to affiliates, net     |                                                        |        |         |         |   |        | (38,554  | )        |   |         |         |          |   |         | 38,554   |         |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                    |                                                        |        | (61,887  | )       |   |        |         |          |   |         |         |          |   |         |         |         |   |         | (61,887  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid               |                                                        |        | (27,162  | )       |   |        |         |          |   |         |         |          |   |         | 27,162   |         |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                          |                                                        |        | 14,742   |         |   |        |         |          |   |         |         |          |   |         |         |         |   |         | 14,742   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                        |                                                        |        |         |         |   |        | 305,709  |          |   |         | 153,052  |          |   |         |         |         |   |         | 458,761  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper, net                   |                                                        |        |         |         |   |        | 109,643  |          |   |         |         |          |   |         |         |         |   |         | 109,643  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt                      |                                                        |        | (100,365 | )       |   |        | (101,192 | )        |   |         | (124,637 | )        |   |         |         |         |   |         | (326,194 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                             |                                                        |        |         |         |   |        | 8,243    |          |   |         |         |          |   |         |         |         |   |         | 8,243    |         
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|                                                     |                                                   | Net cash provided from (used for) financing activities |        |          | (67,232 | ) |        |          | 422,441  |   |         |          | (8,963   | ) |         |          | (39,350 | ) |         |          | 306,896  |  
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|Cash Flow From Investing Activities                  |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                              |                                                        |        | (6,632   | )       |   |        | (278,256 | )        |   |         | (105,179 | )        |   |         |         |         |   |         | (390,067 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                      |                                                        |        |         |         |   |        | (36,731  | )        |   |         |         |          |   |         |         |         |   |         | (36,731  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net     |                                                        |        |         |         |   |        | 48,347   |          |   |         | (2,061   | )        |   |         |         |         |   |         | 46,286   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries     |                                                        |        | (1,250   | )       |   |        | (165,776 | )        |   |         | 49       |          |   |         |         |         |   |         | (166,977 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and investment in joint ventures |                                                        |        |         |         |   |        | 46,060   |          |   |         |         |          |   |         | (2,026   | )       |   |         | 44,034   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                             |                                                        |        | 38,689   |         |   |        | (24,385  | )        |   |         | (105,623 | )        |   |         | 70,916   |         |   |         | (20,403  | )       
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|                                                     |                                                   | Net cash provided from (used for) investing activities |        |          | 30,807  |   |        |          | (410,741 | ) |         |          | (212,814 | ) |         |          | 68,890  |   |         |          | (523,858 | )
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                   |                                                        | 1,350  |          |         |   | 22,928 |          |          |   | (3,742  | )        |          |   |        |          |         |   | 20,536  |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                   |                                                        | 23     |          |         |   | 25,119 |          |          |   | 14,353  |          |          |   |        |          |         |   | 39,495  |         
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         
|Cash and Cash Equivalents, September 30              |                                                   | $                                                      | 1,373  |          |         | $ | 48,047 |          |          | $ | 10,611  |          |          | $ |        |          |         | $ | 60,031  |         
|                                                     |                                                   |                                                        |        |          |         |   |        |          |          |   |         |          |          |   |         |          |         |   |         |         

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OTHER INFORMATION

EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

| |  |         |      |             |  |                                                                                   
| |  | ------- | ---- | ----------- |  | ----------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 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.
| |  |         | 27-1 |             |  | 1999 Financial Data Schedule                                                      
| |  |         | 27-2 |             |  | 1998 Financial Data Schedule                                                      

(b)  Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | MCN filed a report on Form 8-K dated September 22,
	1999, under Item 5, with respect to the offering by MCN
	Energy Enterprises Inc. of up to $620,000,000 of its unsecured
	notes, designated as Medium-Term Notes, Series C (Offered
	Notes) pursuant to the registration statement of the registrant
	and MCN Energy Enterprises Inc. on Form S-3
	(No. 333-47137) filed with the Securities and Exchange
	Commission under the Securities Act of 1933. The following
	documents were filed as Exhibits thereto:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Distribution Agreement dated September 22, 1999 with respect
	 to the Offered Notes.
|
| |  | Form of Note with respect to the Offered Notes.                                     



| |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | MCN filed a report on Form 8-K dated October 4, 1999,
	under Item 5, announcing that it had entered into an
	Agreement and Plan of Merger, dated as of October 4, 1999,
	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 following documents were filed as Exhibits thereto:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
|
| |  | Press Release, dated October 5, 1999                                                                                                          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | MCN filed a report on Form 8-K dated October 15, 1999,
	under Item 5, with respect to managements decision, in
	 August 1999, to retain its natural gas producing properties
	 in Michigan. In the 1998 MCN Annual Report on Form 10-K/ A,
	 MCN accounted for its Exploration & Production
	(E&P) segment, which included these properties, as a
	discontinued operation. Accordingly, E&Ps operating
	results for prior periods have been reclassified from
	discontinued operations to continuing operations. The decision to
	 retain these properties was based on the interaction of two
	factors. MCN significantly revised its strategic direction. Key
	aspects of the new corporate strategy include a
	Midwest-to-Northeast regional focus rather than a North American
	focus, and an emphasis on achieving operational efficiencies and
	growth through the integration of existing businesses. Shortly
	thereafter, the bid for the Michigan properties was lowered
	significantly. The lower price was unacceptable, especially in
	light of MCNs new strategic direction. The following
	documents were filed as Exhibits thereto:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | MCN Energy Group Inc. 1998 Annual Report reflecting the E&P
	segment reclassified as a continuing operation
|
| |  | March 31, 1999 and June 30, 1999 Quarterly Operating
	Results and Common Stock Prices                      
|
| |  | MCN 1998 Financial Data Schedule                                                                           
|
| |  | MCN 1997 Financial Data Schedule                                                                           
|
| |  | MCN 1996 Financial Data Schedule                                                                           

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SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



| |                      
| | ---------------------
| | MCN ENERGY GROUP INC.

Date: November 12, 1999

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

| |                              
| | -----------------------------
| | Gerard Kabzinski             
| | Vice President and Controller

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EXHIBIT INDEX

| |  |         |      |             |  |                                                                                   
| |  | ------- | ---- | ----------- |  | ----------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 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.
| |  |         | 27-1 |             |  | 1999 Financial Data Schedule                                                      
| |  |         | 27-2 |             |  | 1998 Financial Data Schedule