##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-Q

|                                                  |  |                                                                                          
|------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|(Mark One)                                        |  |                                                                                          
|                                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31, 2001, 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                                                        |  | 38-2820658                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|500 Griswold Street, Detroit, Michigan                          |  | 48226                                
|(Address of principal executive offices)                        |  | (Zip Code)                           

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
May 10, 2001:

Common Stock, par value $.01 per share: 90,185,793



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TABLE OF CONTENTS



|                                                  |                                                                                       |  |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|Other Information                                
|                                                  | Exhibits and Reports on Form 8-K                                                     
|Signature                                        
|Letter RE Unaudited Interim Financial Information



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##### Table of Contents



INDEX TO FORM 10-Q

FOR QUARTER ENDED MARCH 31, 2001


|                               |                                                                                                |        |    |    | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------ | -- | -- | 
|                               |                                                                                                | PAGE  
|                               |                                                                                                | NUMBER
|                               |                                                                                                |       
|COVER                          |                                                                                                |        | i  |   
|                              
|                              
|                              
|                              
|                              
|INDEX                          |                                                                                                |        | ii |   
|                              
|                              
|                              
|                              
|                              
|PART I  FINANCIAL INFORMATION |                                                                                                |        |    |   
|                              
|                              
|                              
|                              
|                               | Item 1. Financial Statements                                                                   |        |    | 20 | 
|                              
|                              
|                              
|                              
|                               | Item 2. Managements Discussion and Analysis of
	Financial Condition and Results of Operations |        |    | 1  | 
|                              
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION    |                                                                                                |        |    |   
|                              
|                              
|                              
|                              
|                               | Item 6. Exhibits and Reports on Form 8-K                                                       |        |    | 44 | 
|                              
|                              
|                              
|                              
|                              
|SIGNATURE                      |                                                                                                |        | 45 |   

ii



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##### Table of Contents








MANAGEMENTS DISCUSSION AND ANALYSIS


OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


RESULTS OF OPERATIONS

Results reflect accounting change, asset sales, increased Gas
Distribution margins and Energy Marketing losses 
MCNs earnings for the 2001 first quarter were
$43.3 million or $.48 per diluted share compared with
earnings of $69.5 million or $.78 per diluted share in the 2000
first quarter. As subsequently discussed, the comparability of
earnings was affected by the impact of several unusual items,
merger costs, an accounting change and an extraordinary item.

|                                                          |                                       |         |        |       |   |   |      |      |  
|--------------------------------------------------------- | ------------------------------------- | ------- | ------ | ----- | - | - | ---- | ---- | -
|                                                         
|                                                         
|                                                          |                                       |        
|                                                          |                                       | Quarter
|                                                          |                                       |        
|                                                          |                                       | 2001    |        | 2000 
|(in Millions)                                             |                                       |         |        |      
|Net Income (Loss)                                         |                                       |         |        |       |   |   |      |     
|                                                         
|                                                         
|                                                         
|                                                         
|Diversified Energy:                                       |                                       |         |        |       |   |   |      |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before unusual items and merger costs |         | $      | (35.4 | ) |   | $    | (4.2 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Unusual items (Note 6)                |         |        | 83.5  |   |   |      | 7.0  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |        | (.1   | ) |   |      |     |  
|                                                          |                                       |         |        |       |   |   |      |     
|                                                          |                                       |         | 48.0   |       |   |   | 2.8  |     
|                                                          |                                       |         |        |       |   |   |      |     
|Gas Distribution:                                         |                                       |         |        |       |   |   |      |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before merger costs                   |         |        | 99.2  |   |   |      | 66.9 |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |        | (.7   | ) |   |      | (.2  | )
|                                                          |                                       |         |        |       |   |   |      |     
|                                                          |                                       |         | 98.5   |       |   |   | 66.7 |     
|                                                          |                                       |         |        |       |   |   |      |     
|Total Before Accounting Change and Extraordinary Item:    |                                       |         |        |       |   |   |      |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before unusual items and merger costs |         |        | 63.8  |   |   |      | 62.7 |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Unusual items (Note 6)                |         |        | 83.5  |   |   |      | 7.0  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |        | (.8   | ) |   |      | (.2  | )
|                                                          |                                       |         |        |       |   |   |      |     
|                                                          |                                       |         | 146.5  |       |   |   | 69.5 |     
|                                                         
|                                                         
|                                                         
|                                                         
|Accounting Change for Derivatives (Note 3)                |                                       |         | (100.6 | )     |   |   |     |     
|                                                         
|                                                         
|                                                         
|                                                         
|Extraordinary Item  Loss on Redemption of Debt (Note
	5) |                                       |         | (2.6   | )     |   |   |     |     
|                                                          |                                       |         |        |       |   |   |      |     
|                                                          |                                       | $       | 43.3   |       |   | $ | 69.5 |     
|                                                          |                                       |         |        |       |   |   |      |     
|                                                         

1



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


|                                                          |                                       |         |       |      |   |   |     |      |  
|--------------------------------------------------------- | ------------------------------------- | ------- | ----- | ---- | - | - | --- | ---- | -
|                                                         
|                                                         
|                                                          |                                       |        
|                                                          |                                       | Quarter
|                                                          |                                       |        
|                                                          |                                       | 2001    |       | 2000
|(in Millions)                                             |                                       |         |       |     
|Diluted Earnings (Loss) Per Share                         |                                       |         |       |      |   |   |     |     
|                                                         
|                                                         
|                                                         
|                                                         
|Diversified Energy:                                       |                                       |         |       |      |   |   |     |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before unusual items and merger costs |         | $     | (.39 | ) |   | $   | (.03 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Unusual items (Note 6)                |         |       | .92  |   |   |     | .08  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |       |     |   |   |     |     |  
|                                                          |                                       |         |       |      |   |   |     |     
|                                                          |                                       |         | .53   |      |   |   | .05 |     
|                                                          |                                       |         |       |      |   |   |     |     
|Gas Distribution:                                         |                                       |         |       |      |   |   |     |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before merger costs                   |         |       | 1.10 |   |   |     | .73  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |       | (.01 | ) |   |     |     |  
|                                                          |                                       |         |       |      |   |   |     |     
|                                                          |                                       |         | 1.09  |      |   |   | .73 |     
|                                                          |                                       |         |       |      |   |   |     |     
|Total Before Accounting Change and Extraordinary Item:    |                                       |         |       |      |   |   |     |     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Before unusual items and merger costs |         |       | .71  |   |   |     | .70  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Unusual items (Note 6)                |         |       | .92  |   |   |     | .08  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Merger costs (Note 2)                 |         |       | (.01 | ) |   |     |     |  
|                                                          |                                       |         |       |      |   |   |     |     
|                                                          |                                       |         | 1.62  |      |   |   | .78 |     
|                                                         
|                                                         
|                                                         
|                                                         
|Accounting Change for Derivatives (Note 3)                |                                       |         | (1.11 | )    |   |   |    |     
|                                                         
|                                                         
|                                                         
|                                                         
|Extraordinary Item  Loss on Redemption of Debt (Note
	5) |                                       |         | (.03  | )    |   |   |    |     
|                                                          |                                       |         |       |      |   |   |     |     
|                                                          |                                       | $       | .48   |      |   | $ | .78 |     
|                                                          |                                       |         |       |      |   |   |     |     
|                                                         

Excluding the unusual items, merger costs, accounting change and
extraordinary item, MCNs earnings in the 2001 first
quarter increased $1.1 million or $.01 per diluted share,
as compared to the corresponding 2000 period. The earnings
comparison reflects increased contributions from the Gas
Distribution segment and losses within the Diversified Energy
group, largely due to the Energy Marketing business.

Pending merger  MCN and DTE Energy
Company (DTE) signed a definitive merger agreement dated
October 4, 1999, which was amended on February 28,
2001, under which DTE will acquire all outstanding shares of MCN
common stock. The amended merger agreement imposes more
stringent restrictions on MCNs ability to take significant
actions without DTEs consent. The revised merger agreement
is subject to the approval of MCN shareholders at a special
meeting scheduled for May 15, 2001. In March 2001, the
proposed merger received clearance from the Federal Trade
Commission. The transaction is also subject to the approval of
the Securities and Exchange Commission which has set a
May 17, 2001 deadline for public comments. Although no
assurances can be given, and the merger may be completed later,
MCN and DTE are currently targeting May 31, 2001 as the
completion date for the merger. Under any circumstances, DTE
intends to issue a press release that will provide shareholders
with five business days notice of the definitive closing
date.

MCN recorded legal, accounting, employee benefit and other
expenses associated with the merger which had the effect of
reducing 2001 first quarter earnings by $.8 million or
$.01 per diluted share, and 2000 first quarter results by
$.2 million or zero cents per share. MCN will incur
additional merger-related costs during 2001.

2



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Unusual items  As discussed in
MCNs 2000 Annual Report on Form 10-K and Note 6
to the Consolidated Financial Statements included herein, MCN
recorded several unusual items in the 2001 and
2000 periods, consisting of gains on asset sales. The
unusual items increased earnings in the 2001 and 2000 first
quarter periods as follows:

|                                        |                                    |         |      |      |  |   |     |     | 
|--------------------------------------- | ---------------------------------- | ------- | ---- | ---- |  | - | --- | --- | 
|                                       
|                                       
|                                        |                                    |        
|                                        |                                    | Quarter
|                                        |                                    |        
|                                        |                                    | 2001    |      | 2000
|(in Millions, Except Per Share Amounts) |                                    |         |      |     
|Unusual Items (Net of Taxes)            |                                    |         |      |      |  |   |     |    
|Diversified Energy                      |                                    |         |      |      |  |   |     |    
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines & Processing (Note 6a)   |         | $    | 83.5 |  |   | $   | 2.2 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Electric Power (Note 6b)           |         |      |     |  |   |     | 2.4 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Exploration & Production (Note 6c) |         |      |     |  |   |     | 2.4 | 
|                                        |                                    |         |      |      |  |   |     |    
|                                        |                                    | $       | 83.5 |      |  | $ | 7.0 |    
|                                        |                                    |         |      |      |  |   |     |    
|Diluted Earnings Per Share              |                                    | $       | .92  |      |  | $ | .08 |    
|                                        |                                    |         |      |      |  |   |     |    
|                                       

Diversified Energy

Results reflect Energy Marketing losses and asset sales
 Diversified Energy had earnings of $48.0 million for
the 2001 first quarter compared to earnings of $2.8 million
for the same 2000 period. The comparability of results was
impacted by several unusual items and merger costs, as
previously discussed. Excluding the unusual items and merger
costs, Diversified Energy had losses of $35.4 million, an
increase of $31.2 million in the current quarter over the
2000 first quarter. The results for the 2001 period reflect
losses of the Energy Marketing segment and reduced earnings
primarily attributable to the sale of interests in pipeline and
power projects, as well as Exploration & Production
(E&P) properties.

3



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)




---

|                              |                                                     |         |       |        |   |   |       |       |  
|----------------------------- | --------------------------------------------------- | ------- | ----- | ------ | - | - | ----- | ----- | -
|                              |                                                     |        
|                              |                                                     | Quarter
|                              |                                                     |        
|                              |                                                     | 2001    |       | 2000  
|(in Millions)                 |                                                     |         |       |       
|Diversified Energy Operations |                                                     |         |       |        |   |   |       |      
|                             
|                             
|                             
|                             
|Operating Revenues*           |                                                     | $       | 742.9 |        |   | $ | 465.9 |      
|                              |                                                     |         |       |        |   |   |       |      
|Operating Expenses*           |                                                     |         |       |        |   |   |       |      
|                             
|                             
|                             
|                             
|                              | Gains from sale of assets (Note 6)                  |         |       | (127.9 | ) |   |       | (3.9  | )
|                             
|                             
|                             
|                             
|                              | Merger costs (Note 2)                               |         |       | .2     |   |   |       |      |  
|                             
|                             
|                             
|                             
|                              | Other operating expenses                            |         |       | 779.2  |   |   |       | 460.6 |  
|                              |                                                     |         |       |        |   |   |       |      
|                              |                                                     |         | 651.5 |        |   |   | 456.7 |      
|                              |                                                     |         |       |        |   |   |       |      
|Operating Income              |                                                     |         | 91.4  |        |   |   | 9.2   |      
|Joint Venture Income          |                                                     |         |       |        |   |   |       |      
|                             
|                             
|                             
|                             
|                              | Equity in earnings                                  |         |       | .9     |   |   |       | 10.2  |  
|                             
|                             
|                             
|                             
|                              | Gains from sale of joint venture interests (Note 6) |         |       | .5     |   |   |       | 7.0   |  
|                              |                                                     |         |       |        |   |   |       |      
|                              |                                                     |         | 1.4   |        |   |   | 17.2  |      
|                              |                                                     |         |       |        |   |   |       |      
|Other Income & (Deductions)*  |                                                     |         |       |        |   |   |       |      
|                             
|                             
|                             
|                             
|                              | Interest income                                     |         |       | 3.5    |   |   |       | 2.1   |  
|                             
|                             
|                             
|                             
|                              | Interest expense                                    |         |       | (15.6  | ) |   |       | (15.4 | )
|                             
|                             
|                             
|                             
|                              | Dividends on preferred securities of subsidiaries   |         |       | (6.3   | ) |   |       | (8.6  | )
|                             
|                             
|                             
|                             
|                              | Other                                               |         |       | (.9    | ) |   |       | (.7   | )
|                              |                                                     |         |       |        |   |   |       |      
|                              |                                                     |         | (19.3 | )      |   |   | (22.6 | )    
|                              |                                                     |         |       |        |   |   |       |      
|Income Before Income Taxes    |                                                     |         | 73.5  |        |   |   | 3.8   |      
|                             
|                             
|                             
|                             
|Income Tax Provision          |                                                     |         | 25.5  |        |   |   | 1.0   |      
|                              |                                                     |         |       |        |   |   |       |      
|Net Income (Loss)             |                                                     |         |       |        |   |   |       |      
|                             
|                             
|                             
|                             
|                              | Before unusual items                                |         |       | (35.4  | ) |   |       | (4.2  | )
|                             
|                             
|                             
|                             
|                              | Unusual items and merger costs (Notes 2 and 6)      |         |       | 83.4   |   |   |       | 7.0   |  
|                              |                                                     |         |       |        |   |   |       |      
|                              |                                                     | $       | 48.0  |        |   | $ | 2.8   |      
|                              |                                                     |         |       |        |   |   |       |      




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

Operating and Joint Venture Income

Operating and joint venture results for the 2001 first quarter,
excluding unusual items and merger costs, decreased
$50.9 million reflecting reduced contributions from all the
Diversified Energy operating segments.




|                                             |                          |         |       |       |   |   |      |      |  
|-------------------------------------------- | ------------------------ | ------- | ----- | ----- | - | - | ---- | ---- | -
|                                             |                          |        
|                                             |                          | Quarter
|                                             |                          |        
|                                             |                          | 2001    |       | 2000 
|(in Millions)                                |                          |         |       |      
|Operating and Joint Venture Income (Loss)    |                          |         |       |       |   |   |      |     
|                                            
|                                            
|                                            
|                                            
|Before Unusual Items and Merger Costs:       |                          |         |       |       |   |   |      |     
|                                            
|                                            
|                                            
|                                            
|                                             | Pipelines & Processing   |         | $     | .5    |   |   | $    | 5.8  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Electric Power           |         |       | (.4   | ) |   |      | 1.8  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Energy Marketing         |         |       | (38.3 | ) |   |      | 4.4  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Exploration & Production |         |       | 3.2   |   |   |      | 4.7  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Corporate & Other        |         |       | (.4   | ) |   |      | (1.2 | )
|                                             |                          |         |       |       |   |   |      |     
|                                             |                          |         | (35.4 | )     |   |   | 15.5 |     
|                                            
|                                            
|                                            
|                                            
|Unusual Items and Merger Costs (Notes 2 & 6) |                          |         | 128.2 |       |   |   | 10.9 |     
|                                             |                          |         |       |       |   |   |      |     
|                                             |                          | $       | 92.8  |       |   | $ | 26.4 |     
|                                             |                          |         |       |       |   |   |      |     




Pipelines & Processingoperating and joint venture
results, excluding unusual items, decreased by $5.3 million
for the 2001 first quarter. Results reflect lower earnings from
MCNs 25%-owned

4



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


methanol production business due to a decrease in margins. This
business relies on natural gas as its chief feedstock in
producing methanol. Significantly higher cost of gas in the 2001
first quarter resulted in reduced methanol margins. Methanol
volumes produced during the 2001 quarter declined
6.3 million gallons or 37% as a result of uneconomical
margins.

Pipelines & Processing operating and joint venture income
also reflects an 11.5 billion cubic feet (Bcf) decline in
transportation deliveries and a 9.0 Bcf reduction in gas
processing volumes. The reduced transportation contributions are
attributable to the sale of pipeline projects that were located
in areas outside MCNs target region. Lower earnings from
processing gas to remove natural gas liquids is due to a decline
in processing margins resulting from high gas prices.




|                                    |                             |         |      |      |  |  |      |      | 
|----------------------------------- | --------------------------- | ------- | ---- | ---- |  |  | ---- | ---- | 
|                                    |                             |        
|                                    |                             | Quarter
|                                    |                             |        
|                                    |                             | 2001    |      | 2000
|                                    |                             |         |      |     
|Pipelines & Processing Statistics*  |                             |         |      |      |  |  |      |     
|                                   
|                                   
|                                   
|                                   
|Methanol Produced (Million Gallons) |                             |         | 10.8 |      |  |  | 17.1 |     
|                                   
|                                   
|                                   
|                                   
|Transportation (Bcf)                |                             |         | 29.8 |      |  |  | 41.3 |     
|                                   
|                                   
|                                   
|                                   
|Gas Processed (Bcf):                |                             |         |      |      |  |  |      |     
|                                   
|                                   
|                                   
|                                   
|                                    | Carbon dioxide treatment    |         |      | 12.5 |  |  |      | 12.8 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Natural gas liquids removal |         |      | 8.8  |  |  |      | 17.5 | 
|                                    |                             |         |      |      |  |  |      |     
|                                    |                             |         | 21.3 |      |  |  | 30.3 |     
|                                    |                             |         |      |      |  |  |      |     




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

Electric Poweroperating and joint venture results,
excluding unusual items, decreased $2.2 million for the
2001 first quarter. The decline in earnings reflects the sale of
essentially all of MCNs interests in power generation
facilities. The sales were required as a condition of MCNs
merger with DTE. Additionally, the 2000 first quarter includes
margins generated from selling gas to power companies. The sales
contracts with the power companies were transferred to the
Energy Marketing segment in the 2001 first quarter.



---

|                                               |  |         |      |      |  |  |       | 
|---------------------------------------------- |  | ------- | ---- | ---- |  |  | ----- | 
|                                               |  |        
|                                               |  | Quarter
|                                               |  |        
|                                               |  | 2001    |      | 2000
|                                               |  |         |      |     
|Electric Power*                                |  |         |      |      |  |  |       | 
|                                              
|                                              
|                                              
|                                              
|Electricity Sales (Thousand of Megawatt Hours) |  |         | 26.5 |      |  |  | 185.2 | 
|                                               |  |         |      |      |  |  |       | 
|Gas Sales (Bcf)                                |  |         |     |      |  |  | 4.8   | 
|                                               |  |         |      |      |  |  |       | 




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

Energy Marketingoperating and joint venture results
decreased $42.7 million for the 2001 first quarter. Results
reflect the impact of fluctuating natural gas prices and weather
which was exacerbated as a result of Energy Marketings use
of fair value accounting for its inventory, forward contracts,
financial instruments, and storage and transportation capacity
contracts. As discussed in MCNs 2000 Annual Report on
Form 10-K, Energy Marketing changed its operating strategy
in the 2000 second quarter and began trading activities by
entering into transactions that better utilize its

5



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


gas storage capacity and assets. In connection with this change
in strategy, Energy Marketing also changed to the Fair Value
method of accounting for gas in inventory and implemented
mark-to-market accounting for the related forward, derivative
financial and storage capacity contracts. Additionally, as a
result of the January 2001 adoption of Statement of
Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities
(Note 3), Energy Marketing marks-to-market its
transportation capacity contracts and its other derivative
financial contracts as well as certain forward contracts.

Energy Marketing manages commodity price risk by utilizing
derivative financial contracts to more fully balance its
portfolio of gas supply and sales agreements. Energy
Marketings objective is to enter into new transactions
that are hedgeable and profitable from an economic standpoint.
MCN has determined that this risk minimization strategy will be
accounted for by marking-to-market its commodity forwards,
financial derivatives, and corresponding physical positions so
there are substantial offsetting amounts. This fair value
accounting better aligns financial reporting for the Energy
Marketing segment with the way such business is managed and its
performance measured.

Although it attempts to maintain a balanced or flat book from an
economic standpoint, Energy Marketing experiences earnings
volatility as a result of its production-related gas supply
contract, as well as from open positions related to its
long-term transportation and storage assets. Energy
Marketings contract to purchase gas produced from E&P
operations does not meet the definition of a derivative under
SFAS No. 133. Energy Marketing experienced an
$11 million pre-tax loss in the 2001 first quarter from
marking to market sales contracts with certain power generation
customers without recording an offsetting gain from marking to
market the production-related gas supply contract. This non-cash
loss was magnified as a result of the significant decline in gas
prices during the 2001 first quarter.

Energy Marketing has firm-price gas sales contracts with
customers that allow them to purchase a sufficient quantity of
gas to meet their needs, subject to certain minimum and maximum
volumes. Some customers used significantly more gas than
anticipated in December 2000, which resulted in Energy
Marketing being in a short position in January 2001. The
higher than expected usage was due in part to weather, which was
23% colder than normal in December. Energy Marketing purchased
high priced gas in January 2001 to cover its short position
and to meet an expected increase in gas sales in the 2001 first
quarter based on a forecasted colder winter. However, the winter
weather was warmer than predicted resulting in an Energy
Marketing long position when its customers purchased less than
anticipated. Energy Marketing balanced its position by selling
high-cost gas in a market experiencing falling prices, resulting
in approximately $11 million in pre-tax losses during the
2001 first quarter.




|                        |  |         |       |      |  |  |       | 
|----------------------- |  | ------- | ----- | ---- |  |  | ----- | 
|                        |  |        
|                        |  | Quarter
|                        |  |        
|                        |  | 2001    |       | 2000
|                        |  |         |       |     
|Energy Marketing (Bcf)* |  |         |       |      |  |  |       | 
|                       
|                       
|                       
|                       
|Gas Sales               |  |         | 116.7 |      |  |  | 174.5 | 
|                       
|                       
|                       
|                       
|Exchange Gas Deliveries |  |         | 21.9  |      |  |  | 14.9  | 
|                        |  |         |       |      |  |  |       | 
|                        |  |         | 138.6 |      |  |  | 189.4 | 
|                        |  |         |       |      |  |  |       | 




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

Energy Marketings results in the 2001 first quarter were
also impacted by an approximate $5 million pre-tax loss
from marking to market 1.1 Bcf of non-hedged gas that
remained in

6



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


inventory at March 31, 2001. Under fair value accounting,
this storage gas was priced in December 2000 at a spot
market rate of $10.19 per thousand cubic feet (Mcf) compared to
a March 2001 spot market rate of $5.82 per Mcf. The
inventory is not hedged since it is used to meet unexpected
demand of commercial and industrial customers and to maintain
minimum gas pressure necessary for optimum winter withdrawal
capability.

Exploration & Productionoperating and joint venture
income, excluding unusual items, decreased $1.5 million in
the 2001 first quarter. The decline reflects a reduction in
overall gas and oil production of .4 Bcf equivalent in the
current quarter due primarily to the sale of E&P properties
that were located in areas outside MCNs target area.

E&P results for the 2001 first quarter were also impacted by
an increase in production-related expenses. The increased
production expenses reflect higher severance taxes as a result
of the increase in gas sales prices. The impact of the higher
severance taxes was partially offset by lower operating costs
reflecting savings associated with MCNs assumption of
operator responsibilities in early 2000.



---

|                                         |                                                  |         |     |      |  |  |     |      | 
|---------------------------------------- | ------------------------------------------------ | ------- | --- | ---- |  |  | --- | ---- | 
|                                         |                                                  |        
|                                         |                                                  | Quarter
|                                         |                                                  |        
|                                         |                                                  | 2001    |     | 2000
|                                         |                                                  |         |     |     
|Exploration & Production Statistics      |                                                  |         |     |      |  |  |     |     
|                                        
|                                        
|                                        
|                                        
|Gas and Oil Production (Bcf equivalent): |                                                  |         |     |      |  |  |     |     
|                                        
|                                        
|                                        
|                                        
|                                         | Michigan                                         |         |     | 6.1  |  |  |     | 6.2  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Western, Midcontinent/ Gulf Coast and Appalachia |         |     | .1   |  |  |     | .4   | 
|                                         |                                                  |         |     |      |  |  |     |     
|                                         |                                                  |         | 6.2 |      |  |  | 6.6 |     
|                                         |                                                  |         |     |      |  |  |     |     
|Production Costs (per Mcf equivalent):   |                                                  |         |     |      |  |  |     |     
|                                        
|                                        
|                                        
|                                        
|                                         | Operating                                        |         | $   | .46  |  |  | $   | .56  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Transportation, treating and marketing           |         |     | .28  |  |  |     | .31  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Severance taxes                                  |         |     | .39  |  |  |     | .16  | 
|                                         |                                                  |         |     |      |  |  |     |     
|                                         | Overall                                          |         | $   | 1.13 |  |  | $   | 1.03 | 
|                                         |                                                  |         |     |      |  |  |     |     




Corporate & Otheroperating and joint venture results
improved $.8 million in the 2001 first quarter. The
improvement primarily reflects lower corporate expenses
allocated to the Diversified Energy group due to its reduced
percentage of MCNs consolidated financial position and
results.

Other Income and Deductions

Other income and deductions decreased $3.3 million in the
2001 first quarter. The results reflect higher interest income
and lower preferred dividend costs. The increase in interest
income is attributable to an interest-bearing advance made to
the Vector Pipeline Partnership. The lower preferred dividends
reflect the retirement of $130.7 million of preferred
securities in May 2000.

Income Taxes

Income taxes increased $24.5 million in the 2001 first
quarter due to an increase in pre-tax earnings.

7



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Outlook

MCNs strategic direction emphasizes achieving operational
efficiencies and growth through integration of existing
businesses. MCN will continue expanding its coverage within
existing markets and emphasize operating projects that enhance
MCN businesses within the Midwest-to-Northeast corridor. MCN has
ample gas storage and transportation capacity, which enhances
its ability to provide reliable and custom-tailored bundled
services to large-volume end users and utilities. MCN expects to
continue pursuing alternative operating and financial strategies
to optimize the value of its storage and transportation assets.

Energy Marketing manages commodity price risk by utilizing
derivative financial contracts to more fully balance its
portfolio of gas supply and sales agreements. Energy Marketing
attempts to maintain a balanced or flat book from an economic
standpoint. However, Energy Marketing will experience earnings
volatility as a result of its production-related gas supply, as
well as from open positions related to its long-term
transportation and storage assets.

Gas Distribution

Results reflect increased contributions from Gas Sales
Program and colder weather Gas
Distributions earnings were $98.5 million for the
2001 first quarter, an increase of $31.8 million from the
comparable 2000 period of $66.7 million. The earnings
improvement for the 2001 first quarter reflects higher gross
margins resulting from increased contributions from the Gas Sales

8



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Program and the impact of colder weather. Gross margins under
the Gas Sales Program benefited from lower gas cost attributable
to a reduction in inventory gas.




|                               |                                          |         |       |       |   |   |       |       |  
|------------------------------ | ---------------------------------------- | ------- | ----- | ----- | - | - | ----- | ----- | -
|                               |                                          |        
|                               |                                          | Quarter
|                               |                                          |        
|                               |                                          | 2001    |       | 2000 
|(in Millions)                  |                                          |         |       |      
|Gas Distribution Operations    |                                          |         |       |       |   |   |       |      
|Operating Revenues*            |                                          |         |       |       |   |   |       |      
|                              
|                              
|                              
|                              
|                               | Gas sales                                |         | $     | 417.1 |   |   | $     | 378.7 |  
|                              
|                              
|                              
|                              
|                               | End user transportation                  |         |       | 37.4  |   |   |       | 38.9  |  
|                              
|                              
|                              
|                              
|                               | Intermediate transportation              |         |       | 12.5  |   |   |       | 14.5  |  
|                              
|                              
|                              
|                              
|                               | Other                                    |         |       | 19.0  |   |   |       | 21.6  |  
|                               |                                          |         |       |       |   |   |       |      
|                               |                                          |         | 486.0 |       |   |   | 453.7 |      
|                              
|                              
|                              
|                              
|Cost of Sales                  |                                          |         | 214.6 |       |   |   | 224.2 |      
|                               |                                          |         |       |       |   |   |       |      
|Gross Margin                   |                                          |         | 271.4 |       |   |   | 229.5 |      
|                               |                                          |         |       |       |   |   |       |      
|Other Operating Expenses*      |                                          |         |       |       |   |   |       |      
|                              
|                              
|                              
|                              
|                               | Operation and maintenance                |         |       | 65.4  |   |   |       | 66.6  |  
|                              
|                              
|                              
|                              
|                               | Depreciation, depletion and amortization |         |       | 26.6  |   |   |       | 26.4  |  
|                              
|                              
|                              
|                              
|                               | Property and other taxes                 |         |       | 16.3  |   |   |       | 19.2  |  
|                              
|                              
|                              
|                              
|                               | Merger costs (Note 2)                    |         |       | 1.0   |   |   |       | .4    |  
|                               |                                          |         |       |       |   |   |       |      
|                               |                                          |         | 109.3 |       |   |   | 112.6 |      
|                               |                                          |         |       |       |   |   |       |      
|Operating Income               |                                          |         | 162.1 |       |   |   | 116.9 |      
|                               |                                          |         |       |       |   |   |       |      
|Joint Venture Income           |                                          |         | .7    |       |   |   | .6    |      
|                               |                                          |         |       |       |   |   |       |      
|Other Income and (Deductions)* |                                          |         |       |       |   |   |       |      
|                              
|                              
|                              
|                              
|                               | Interest income                          |         |       | 2.6   |   |   |       | .6    |  
|                              
|                              
|                              
|                              
|                               | Interest expense                         |         |       | (14.5 | ) |   |       | (15.5 | )
|                              
|                              
|                              
|                              
|                               | Minority interest                        |         |       | (.1   | ) |   |       | (.1   | )
|                              
|                              
|                              
|                              
|                               | Other                                    |         |       | .8    |   |   |       | .3    |  
|                               |                                          |         |       |       |   |   |       |      
|                               |                                          |         | (11.2 | )     |   |   | (14.7 | )    
|                               |                                          |         |       |       |   |   |       |      
|Income Before Income Taxes     |                                          |         | 151.6 |       |   |   | 102.8 |      
|                              
|                              
|                              
|                              
|Income Taxes                   |                                          |         | 53.1  |       |   |   | 36.1  |      
|                               |                                          |         |       |       |   |   |       |      
|Net Income                     |                                          |         |       |       |   |   |       |      
|                              
|                              
|                              
|                              
|                               | Before merger costs                      |         |       | 99.2  |   |   |       | 66.9  |  
|                              
|                              
|                              
|                              
|                               | Merger costs (Note 2)                    |         |       | (.7   | ) |   |       | (.2   | )
|                               |                                          |         |       |       |   |   |       |      
|                               |                                          | $       | 98.5  |       |   | $ | 66.7  |      
|                               |                                          |         |       |       |   |   |       |      




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

Gross Margin

Gross margin (operating revenues less cost of gas) increased
$41.9 million in the 2001 first quarter. As previously
discussed, gross margins reflect increased contributions from
the Gas Sales Program as well as higher gas sales due to colder
weather.

9



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


MichCons three-year Gas Sales Program is part of its
Regulatory Reform Plan (Note 8a) which was implemented in
January 1999. Under the Gas Sales Program, MichCons gas
sales rates include a gas commodity component that is fixed at
$2.95 per Mcf. Margins generated under the sales program were
approximately $32 million higher in the 2001 first quarter,
primarily as a result of lower cost gas supply. The average cost
of gas sold during the 2001 first quarter was $2.44 per Mcf, a
decline of $.38 per Mcf from the 2000 first quarter. As
discussed in the Cost of Gas section that follows,
the decrease in MichCons average cost of gas sold during
the 2001 first quarter is due to a 25 Bcf liquidation of
inventory gas that was priced at $.38 per Mcf (Note 4).
Higher prices for gas purchased, partially offset the favorable
impact on margins of the inventory liquidation.

Margins generated under the Gas Sales Program also reflect an
increase in the number of customers choosing to purchase gas
from MichCon rather than other suppliers under MichCons
three-year Customer Choice Program. There were 55,000 customers
participating in year two of the program that commenced in April
2000, a decrease of 15,000 customers from year one of the
program. Distribution margins were retained from participating
customers as MichCon continued to transport and deliver the gas
to the customers premises. As discussed in the
Outlook section that follows, year three of the
program commenced in April 2001 with approximately 30,000
customers choosing to participate.

The significant improvement in gross margins was also due to an
increase in gas sales due to colder weather. Although weather
was 5.5% warmer than normal in the 2001 first quarter, it was
still 8.7% colder than the comparable 2000 period. Partially
offsetting the favorable impact on margins from the Gas Sales
Program and the colder weather were declines in end user and
intermediate transportation revenues, as well as revenues from
other gas-related services.



---

|                                              |                            |         |      |      |   |  |       |       |  
|--------------------------------------------- | -------------------------- | ------- | ---- | ---- | - |  | ----- | ----- | -
|                                              |                            |        
|                                              |                            | Quarter
|                                              |                            |        
|                                              |                            | 2001    |      | 2000
|                                              |                            |         |      |     
|Effect of Weather on Gas Markets and Earnings |                            |         |      |      |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|Percent Warmer Than Normal                    |                            |         | (5.5 | )%   |   |  | (14.2 | )%   
|                                             
|                                             
|                                             
|                                             
|Decrease From Normal in:                      |                            |         |      |      |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Gas markets (Bcf)          |         |      | (6.3 | ) |  |       | (16.1 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Net income (in Millions)   |         | $    | (4.9 | ) |  | $     | (15.0 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Diluted earnings per share |         | $    | (.05 | ) |  | $     | (.16  | )




Gas sales and end user transportation revenuesin total
increased $36.9 million for the 2001 first quarter.
Revenues reflect an increase in gas sales volumes, partially
offset by a decline in end user transportation deliveries. Gas
sales volumes rose 8.6 Bcf in the 2001 first quarter due
primarily to the colder weather and the addition of 15,000
customers who chose to purchase their gas from MichCon rather
than other suppliers under MichCons Customer Choice
Program. End user transportation deliveries decreased 5.0 Bcf in
the 2001 first quarter, reflecting the impact of a slowing
economy as well as volumes associated with the fewer number of
customers participating in the Customer Choice Program.
Customers participating in this program are classified as end
user transportation customers rather than gas sales customers.
Accordingly, gas sales revenues have increased, partially offset
by a decrease in end user transportation revenues, resulting in
a net increase in total operating

10



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


revenues due to the gas commodity component included in gas
sales rates. The impact of colder weather partially offset the
decrease in end user transportation volumes attributable to the
Customer Choice Program.



---

|                             |  |         |       |      |  |  |       | 
|---------------------------- |  | ------- | ----- | ---- |  |  | ----- | 
|                             |  |        
|                             |  | Quarter
|                             |  |        
|                             |  | 2001    |       | 2000
|                             |  |         |       |     
|Gas Distribution (Bcf)       |  |         |       |      |  |  |       | 
|                            
|                            
|                            
|                            
|Gas Sales                    |  |         | 86.8  |      |  |  | 78.2  | 
|                            
|                            
|                            
|                            
|End User Transportation      |  |         | 46.7  |      |  |  | 51.7  | 
|                             |  |         |       |      |  |  |       | 
|                             |  |         | 133.5 |      |  |  | 129.9 | 
|                            
|                            
|                            
|                            
|Intermediate Transportation* |  |         | 171.9 |      |  |  | 182.8 | 
|                             |  |         |       |      |  |  |       | 
|                             |  |         | 305.4 |      |  |  | 312.7 | 
|                             |  |         |       |      |  |  |       | 




|  |                              
|- | -----------------------------
|* | Includes intercompany volumes

Intermediate transportation revenuesdecreased
$2.0 million in the 2001 first quarter, and intermediate
transportation deliveries decreased 10.9 Bcf. A significant
portion of the volume decrease was due to 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 in intermediate transportation revenues is attributable
to the expiration of some fixed-fee contracts and the
dissolution of a partnership that owned a 126-mile northern
Michigan natural gas gathering system. MichCon held a 66%
interest in the partnership that was dissolved in
June 2000. Under the terms of the dissolution, MichCon
received the 67-mile northern portion of the gathering system in
return for its partnership interest. Although there are lower
revenues attributable to the gathering system, such decline
represents the joint venture partners share of revenues.
Accordingly, the decline in revenues was offset by a reduction
in minority interest expense.

Other operating revenuesdecreased $2.6 million in
the 2001 first quarter due primarily to revenues from the
operations of the heating, ventilation and cooling business that
was sold in January 2001. Additionally, the decline reflects
lower revenues from providing appliance maintenance services and
was partially offset by an increase in late payment fees.

Cost of Sales

Cost of sales is affected by variations in sales volumes and
cost of purchased gas as well as related transportation costs.
Cost of sales decreased $9.6 million in the 2001 first
quarter, primarily due to the impact of the 25 Bcf
liquidation of inventory gas (Note 4). The cost of sales
decrease was partially offset by the effect of higher gas sales
volumes and prices paid for fixed-price gas supply. As
previously discussed, the increase in sales volumes reflects
colder weather and customers who have chosen to purchase gas
from MichCon rather than other suppliers. The average price paid
for gas purchased in the 2001 first quarter increased $.34 per
Mcf (12%) compared to the 2000 first quarter.

11



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Additionally, the comparison was favorably impacted by the cost
of sales associated with the operations of the heating,
ventilation and cooling business that was sold in
January 2001.

Other Operating Expenses

Operation and maintenanceexpenses decreased
$1.2 million in the 2001 first quarter. The decrease is
attributable to lower pension and retiree healthcare costs, as
well as the operations of the previously owned heating,
ventilation and cooling business. Partially offsetting the
decrease were higher employee medical costs and the benefit to
the 2000 first quarter of insurance proceeds resulting from the
settlement of environmental claims with certain insurance
carriers.

Depreciation and depletionincreased $.2 million in
the 2001 first quarter reflecting depreciation on higher plant
balances.

Property and other taxesdecreased $2.9 million in
the 2001 first quarter reflecting a change in the taxable value
of personal property subject to taxation by local taxing
jurisdictions. New valuation tables approved by the Michigan
State Tax Commission more accurately recognize the impact of
regulation on the value of a utilitys personal property
based on the propertys age. The new tables impacted
property tax expense beginning in mid-2000.

Merger costsincreased $.6 million in the 2001 first
quarter and represent legal, consulting, accounting, employee
benefit and other expenses associated with the pending merger
between MCN and DTE Energy Company (Note 2).

Equity in Earnings of Joint Ventures

Equity in earnings of joint ventures increased $.1 million
in the 2001 first quarter reflecting slight improvements in the
operations of Gas Distributions natural gas storage, gas
distribution and real estate partnerships.

Other Income and Deductions

Other income and deductions decreased $3.5 million in the
2001 first quarter. The decrease is attributable to lower
interest costs and an increase in interest income. The increase
in interest income results from MichCon leasing a portion of its
pipeline system to the Vector Pipeline Partnership through a
capital lease arrangement that began in December 2000.

Income Taxes

Income taxes increased $17.0 million in the 2001 first
quarter due to an increase in pre-tax earnings.

12



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Outlook

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

Regulatory Reform Plan MichCon has
capitalized on opportunities resulting from the gas industry
restructuring. MichCon is currently operating under its
Regulatory Reform Plan, which includes a comprehensive
experimental three-year Customer Choice Program designed to
offer all sales customers added choices and greater price
certainty. The Customer Choice Program began in April 1999 and
allows a limited number of customers to purchase their gas from
suppliers other than MichCon. Year two of the program began in
April 2000, with approximately 55,000 customers choosing to
participate. The final year of the program began in April 2001,
and the number of participating customers declined to
approximately 30,000. MichCon will continue to transport and
deliver the gas to the participating customers premises at
prices that generate favorable margins.

The Regulatory Reform Plan also includes the Gas Sales Program,
which suspended the gas cost recovery (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 ending in
December 2001. The suspension of the GCR mechanism allows
MichCon to profit from its ability to purchase gas at less than
$2.95 per Mcf. The program also increases MichCons risk
associated with generating positive margins.

As part of its gas acquisition strategy, MichCon has entered
into fixed-price contracts for nearly 90% of its expected 2001
gas supply requirements assuming normal weather. MichCon expects
to meet the balance of its gas supply requirements for 2001 with
withdrawals from storage. In the 2001 first quarter, MichCon
supplemented its fixed-price purchases with a 25 Bcf
liquidation of inventory gas at prices significantly lower than
$2.95 per Mcf to mitigate the effect on earnings of current high
gas prices. Although this strategy produced favorable margins in
the 2001 first quarter, MichCon does not expect to generate
profits from the Gas Sales Program in 2001. The average cost of
MichCons fixed-price supplies for the remainder of 2001 is
higher than $2.95 per Mcf.

MichCon expects negative margins from selling gas in the 2001
second through fourth quarters, essentially offsetting the
positive margins generated in the 2001 first quarter. While
MichCon has fixed the prices on a substantial portion of its
expected 2001 gas purchases, the level of margins ultimately
generated from selling gas will be affected by a number of
factors. Such factors include: (i) the actual level of gas
sales volumes; (ii) the timing and location of gas
purchases; and (iii) the level of gas consumed in December
2001 that will be billed at GCR rates. The actual level of gas
sales volumes will fluctuate with changes in weather and the
number of customers who ultimately choose to purchase gas from
suppliers other than MichCon. By changing the timing and
location of gas purchases, MichCon can capture favorable price
differentials within certain operational and contractual limits.
More significantly, volumes delivered in December 2001 that
remain unbilled at December 31, 2001 will be billed at the
January 2002 GCR rate. Therefore, actual gas margins in 2001
will be impacted by the level of unbilled volumes and the
January 2002 GCR rate. Based on

13



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


current forward gas prices, the unbilled volumes would be billed
at rates significantly higher than $2.95 per Mcf.

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

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

As discussed in MCNs 2000 Annual Report on Form 10-K,
MichCon filed applications with the MPSC in December 2000
to modify the experimental Customer Choice and Gas Sales
Programs as outlined in the MPSCs October 2000 order.
MichCon had proposed the modifications to become effective in
April 2001. On March 22, 2001, MichCon withdrew its
applications with the MPSC. MichCon will return to a GCR
mechanism in January 2002 when the current Regulatory Reform
Plan expires.

Pending Merger As a condition of the
Federal Trade Commission approving MCNs proposed merger
with DTE Energy Company (Note 2), MichCon agreed to
transfer a property interest to a unit of Exelon Corporation
allowing for the utilization of natural gas transportation
capacity on its system. The contract remains subject to
consummation of the merger. If the contract becomes effective,
it will allow for increased competition for end user
transportation and gas sale services that could reduce earnings
by an estimated $5 million annually beginning in 2002.

Accounting Change for Derivatives

As of January 1, 2001, MCN adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended (Note 3). The Statement
requires all derivatives to be recognized in the statement of
financial position as either assets or liabilities measured at
their fair value and sets forth conditions in which a derivative
instrument may be designated as a hedge. The Statement requires
that changes in the fair value of derivatives be recognized
currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a
derivatives gains and losses to be recorded to other
comprehensive income or to offset related results on the hedged
item in earnings.

MCN identified its interest rate swaps, options embedded in
certain debt instruments, commodity forward contracts, commodity
futures and swaps, and certain of its transportation contracts
as derivatives. The cumulative effect of adopting SFAS
No. 133 was a $154.8 million pre-tax
($100.6 million net of taxes) decrease in earnings, and a
$99.7 million pre-tax ($64.8 million net of

14



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


taxes) increase in other comprehensive income. The adoption also
impacted assets and liabilities recorded in the Consolidated
Statement of Financial Position.

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

Extraordinary Item  Loss of Redemption
of Debt

In March 2001, MCN elected to repurchase at a premium
$100 million of remarketable debt that was subject to
remarketing in April 2001. As a result, MCN recorded an
extraordinary loss totaling $3.9 million pre-tax
($2.6 million net of taxes) (Note 5).

CAPITAL RESOURCES AND LIQUIDITY




|                                          |                      |         |       |        |   |   |       |        |  
|----------------------------------------- | -------------------- | ------- | ----- | ------ | - | - | ----- | ------ | -
|                                          |                      |        
|                                          |                      | Quarter
|                                          |                      |        
|                                          |                      | 2001    |       | 2000  
|                                          |                      |         |       |       
|(in Millions)                             |                      |         |       |        |   |   |       |       
|                                         
|                                         
|                                         
|                                         
|Cash and Cash Equivalents                 |                      |         |       |        |   |   |       |       
|                                         
|                                         
|                                         
|                                         
|Cash Flow Provided From (Used For):       |                      |         |       |        |   |   |       |       
|                                         
|                                         
|                                         
|                                         
|                                          | Operating activities |         | $     | 252.0  |   |   | $     | 245.4  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Financing activities |         |       | (270.3 | ) |   |       | (521.3 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Investing activities |         |       | (23.5  | ) |   |       | 240.5  |  
|                                          |                      |         |       |        |   |   |       |       
|Net Decrease in Cash and Cash Equivalents |                      | $       | (41.8 | )      |   | $ | (35.4 | )     
|                                          |                      |         |       |        |   |   |       |       



---

Operating Activities

MCNs cash flow from operating activities increased
$6.6 million during the 2001 first quarter as compared to
the same 2000 period. The increase was due primarily to an
increase in earnings, after adjusting for non-cash items
(depreciation, unusual items, change in accounting and deferred
taxes) which was partially offset by higher working capital
requirements.

Financing Activities

MCNs cash flow used for financing activities decreased
$251.0 million during the 2001 first quarter as compared to
the 2000 first quarter. The change primarily reflects lower debt
repayments. A summary of MCNs significant financing
activities and financing plans follows.

15



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


In March 2001, MCN entered into a $200 million term
loan agreement that expires the earlier of October 2001 or
60 days after completion of the merger with DTE. MCN
borrowed the full $200 million under the term agreement in
April 2001. Proceeds were used to redeem or refinance debt.

Diversified Energy

The Diversified Energy group maintains credit lines that allow
for borrowings of up to $300 million under a 364-day
revolving credit facility and up to $200 million under a
three-year revolving credit facility, both of which expire in
July 2001. These facilities support Diversified Energys
$400 million commercial paper program, which is used to
finance capital investments and to finance Energy
Marketings working capital requirements. During the first
three months of 2001, Diversified Energy repaid
$87.1 million of commercial paper and bank borrowings,
leaving borrowings of $209.3 million outstanding under this
program at March 31, 2001.

In February 2001, MCN Energy Enterprises Inc. (MCNEE)
repaid $60 million of maturing medium term notes.
Additionally, in April 2001, MCNEE redeemed $100 million of
remarketable debt (Note 5).

MCN received approximately $3.2 million during the 2001
first quarter from the sale of assets. Proceeds from additional
sales are expected in 2001 and will be used to repay outstanding
borrowings and for general corporate purposes.

Gas Distribution

Gas Distribution maintains a relatively consistent amount of
cash and cash equivalents through the use of short-term
borrowings. Short-term borrowings are normally reduced in the
first part of each year as gas inventories are depleted and
funds are received from winter heating sales. During the latter
part of the year, Gas Distributions short-term borrowings
normally increase as funds are used to finance increases in gas
inventories and customer accounts receivable. To meet its
seasonal short-term borrowing needs, Gas Distribution normally
issues commercial paper that is backed by credit lines with
several banks. MichCon has established credit lines to allow for
borrowings of up to $200 million under a 364-day revolving
credit facility, and up to $150 million under a three-year
revolving credit facility, both of which expire in July 2001.
During the first three months of 2001, MichCon repaid
$103.4 million of commercial paper, leaving borrowings of
$177.2 million outstanding under this program at
March 31, 2001.

In May 2001, MichCon repaid $20 million of maturing
long-term debt.

Investing Activities

MCNs cash flow relating to investing activities decreased
$264.0 million in the 2001 first quarter as compared to the
same 2000 period. The change was due primarily to less cash
received from the sale

16



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


of assets in 2001. The comparison was also affected by the sale
of securities associated with MichCons Grantor Trust and
fewer joint venture investments in the 2001 first quarter.

Capital investments equaled $35.1 million in the 2001 first
quarter compared to $54.5 million for the same period in
2000. The 2001 investments include significantly lower levels of
investments within the Diversified Energy Group.




|                                                    |                          |         |      |      |  |   |      |      | 
|--------------------------------------------------- | ------------------------ | ------- | ---- | ---- |  | - | ---- | ---- | 
|                                                    |                          |        
|                                                    |                          | Quarter
|                                                    |                          |        
|                                                    |                          | 2001    |      | 2000
|(in Millions)                                       |                          |         |      |     
|Capital Investments                                 |                          |         |      |      |  |   |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Consolidated Capital Expenditures:                  |                          |         |      |      |  |   |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Exploration & Production |         | $    | 5.3  |  |   | $    | 1.6  | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas Distribution         |         |      | 20.8 |  |   |      | 21.3 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                    |         |      | .2   |  |   |      | .8   | 
|                                                    |                          |         |      |      |  |   |      |     
|                                                    |                          |         | 26.3 |      |  |   | 23.7 |     
|                                                    |                          |         |      |      |  |   |      |     
|MCNs Share of Joint Venture Capital Expenditures:* |                          |         |      |      |  |   |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Pipelines & Processing   |         |      | 8.8  |  |   |      | 18.4 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Electric Power           |         |      |     |  |   |      | 12.4 | 
|                                                    |                          |         |      |      |  |   |      |     
|                                                    |                          |         | 8.8  |      |  |   | 30.8 |     
|                                                    |                          |         |      |      |  |   |      |     
|Total Capital Investments                           |                          | $       | 35.1 |      |  | $ | 54.5 |     
|                                                    |                          |         |      |      |  |   |      |     




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

Outlook

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

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

MARKET RISK INFORMATION

As discussed in MCNs 2000 Annual Report on Form 10-K,
MCN manages commodity price and interest rate risk through the
use of various derivative instruments. A discussion and analysis
of the events and factors that have changed MCNs risk
management activities follows.

17



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)


Commodity Price Risk

Natural gas 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, gas
production and gas inventories. There has been a significant
decrease in gas prices since December 2000. As a result of the
decreases, there have been material changes in the outcome of
the sensitivity analysis performed for commodity price risk at
March 31, 2001 as compared to December 31, 2000.

As discussed in MCNs 2000 Annual Report on Form 10-K,
a sensitivity analysis calculates the fair values of MCNs
natural gas 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.

The results of the sensitivity analysis calculations follow:



---

|                                       |                                    |                |   |                   |   |             |   |             |   |               |   |       |   |  |   |        |   |  |  |            | 
|-------------------------------------- | ---------------------------------- | -------------- | - | ----------------- | - | ----------- | - | ----------- | - | ------------- | - | ----- | - |  | - | ------ | - |  |  | ---------- | 
|                                       |                                    |                |   |                   |   |            
|                                       |                                    | March 31, 2001 |   | December 31, 2000 |   |            
|                                       |                                    |                |   |                   |   |            
|                                       |                                    | Assuming       |   | Assuming          |   | Assuming    |   | Assuming    |   |              
|                                       |                                    | a 10%          |   | a 10%             |   | a 10%       |   | a 10%       |   | Favorable    
|                                       |                                    | Increase in    |   | Decrease in       |   | Increase in |   | Decrease in |   | (Unfavorable)
|                                       |                                    | Prices         |   | Prices            |   | Prices      |   | Prices      |   | Change In    
|(in Millions)                          |                                    |                |   |                   |   |             |   |             |   |              
|                                       |                                    |                |   |                   |   |             |   |             |   |              
|                                      
|                                      
|                                      
|                                      
|Market Risk
	Commodity Price Sensitive |                                    |                |   |                   |   |             |   |             |   |               |   |       |   |  |   |        |   |  |  |           
|Risk management activities             |                                    |                |   |                   |   |             |   |             |   |               |   |       |   |  |   |        |   |  |  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Swaps:  Pay fixed/receive variable |                | $ | 108.8             |   |             | $ | (108.8      | ) |               | $ | 117.8 |   |  | $ | (117.8 | ) |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Pay
	 variable/receive fixed       |                | $ | (89.2             | ) |             | $ | 89.2        |   |               | $ | (97.9 | ) |  | $ | 97.9   |   |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Futures: Longs                     |                | $ | 4.2               |   |             | $ | (4.2        | ) |               | $ | 3.0   |   |  | $ | (3.0   | ) |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Shorts                             |                | $ | (.4               | ) |             | $ | .4          |   |               | $ | (.6   | ) |  | $ | .6     |   |  |  | Fair Value | 
|Trading Activities                     |                                    |                |   |                   |   |             |   |             |   |               |   |       |   |  |   |        |   |  |  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Swaps:  Pay fixed/receive variable |                | $ | 1.5               |   |             | $ | (1.5        | ) |               | $ | 14.8  |   |  | $ | (14.8  | ) |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Pay
	 variable/receive fixed       |                | $ | (2.9              | ) |             | $ | 2.9         |   |               | $ | (11.9 | ) |  | $ | 11.9   |   |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Futures: Longs                     |                | $ | 1.2               |   |             | $ | (1.2        | ) |               | $ | 1.6   |   |  | $ | (1.6   | ) |  |  | Fair Value | 
|                                      
|                                      
|                                      
|                                      
|                                       | Shorts                             |                | $ | (1.9              | ) |             | $ | 1.9         |   |               | $ | (3.7  | ) |  | $ | 3.7    |   |  |  | Fair Value | 




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 without exchange of
the underlying principal amounts. During the 2001 first quarter,
there were no material changes to MCNs interest rate risk.

18



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS(CONCLUDED)


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 2000 Annual Report on Form 10-K.

AVAILABLE INFORMATION

The following information is available without charge to
shareholders and other interested parties: the Form 10-K
Annual Report and the Form 10-Q Quarterly Reports. 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.

19



---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)




|                                                                             |                                                                       |                    |           |          |   |   |         |         |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------ | --------- | -------- | - | - | ------- | ------- | -
|                                                                             |                                                                       |                   
|                                                                             |                                                                       | Three Months Ended
|                                                                             |                                                                       | March 31          
|                                                                             |                                                                       |                   
|                                                                             |                                                                       | 2001               |           | 2000    
|(in Thousands, Except Per Share Amounts)                                     |                                                                       |                    |           |         
|Operating Revenues                                                           |                                                                       | $                  | 1,185,201 |          |   | $ | 913,504 |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Operating Expenses                                                           |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cost of sales                                                         |                    |           | 921,930  |   |   |         | 645,822 |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Operation and maintenance                                             |                    |           | 85,033   |   |   |         | 91,392  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Depreciation, depletion and amortization                              |                    |           | 33,921   |   |   |         | 34,219  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Property and other taxes                                              |                    |           | 19,818   |   |   |         | 21,593  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of assets, net (Note 6)                      |                    |           | (127,925 | ) |   |         | (3,735  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains from sale of tax credits                                        |                    |           | (2,379   | ) |   |         | (2,048  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Merger costs (Note 2)                                                 |                    |           | 1,203    |   |   |         | 362     |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             |                                                                       |                    | 931,601   |          |   |   | 787,605 |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Operating Income                                                             |                                                                       |                    | 253,600   |          |   |   | 125,899 |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Joint Venture Income                                                         |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Equity in earnings                                                    |                    |           | 1,582    |   |   |         | 10,779  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of joint venture interests, net (Note 6)     |                    |           | 510      |   |   |         | 7,091   |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             |                                                                       |                    | 2,092     |          |   |   | 17,870  |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Other Income and (Deductions)                                                |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest income                                                       |                    |           | 6,089    |   |   |         | 2,748   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest on long-term debt                                            |                    |           | (18,266  | ) |   |         | (23,509 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other interest expense                                                |                    |           | (11,840  | ) |   |         | (7,354  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Dividends on preferred securities of subsidiaries                     |                    |           | (6,253   | ) |   |         | (8,622  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Minority interest                                                     |                    |           | (113     | ) |   |         | (485    | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other                                                                 |                    |           | (126     | ) |   |         | 6       |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             |                                                                       |                    | (30,509   | )        |   |   | (37,216 | )      
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Income Before Income Taxes                                                   |                                                                       |                    | 225,183   |          |   |   | 106,553 |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Income Tax Provision                                                         |                                                                       |                    | 78,671    |          |   |   | 37,042  |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Income Before Cumulative Effect of Accounting Change and
	Extraordinary Item |                                                                       |                    | 146,512   |          |   |   | 69,511  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cumulative Effect of Accounting Change for Derivatives(Note 3)               |                                                                       |                    | (100,644  | )        |   |   |        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Extraordinary Item  Loss on Redemption of Debt(Note  5)                     |                                                                       |                    | (2,549    | )        |   |   |        |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Net Income                                                                   |                                                                       | $                  | 43,319    |          |   | $ | 69,511  |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Basic Earnings (Loss) Per Share(Note 9)                                      |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Before cumulative effect of accounting change and extraordinary
	item |                    | $         | 1.63     |   |   | $       | .81     |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cumulative effect of accounting change for derivatives
	(Note 3)      |                    |           | (1.12    | ) |   |         |        |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Extraordinary item  loss on redemption of debt
	(Note  5)            |                    |           | (.03     | ) |   |         |        |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             |                                                                       | $                  | .48       |          |   | $ | .81     |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Diluted Earnings (Loss) Per Share(Note 9)                                    |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Before cumulative effect of accounting change and extraordinary
	item |                    | $         | 1.62     |   |   | $       | .78     |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cumulative effect of accounting change for derivatives
	(Note 3)      |                    |           | (1.11    | ) |   |         |        |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Extraordinary item  loss on redemption of debt
	(Note  5)            |                    |           | (.03     | ) |   |         |        |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             |                                                                       | $                  | .48       |          |   | $ | .78     |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Average Common Shares Outstanding                                            |                                                                       |                    |           |          |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Basic                                                                 |                    |           | 90,178   |   |   |         | 85,506  |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|                                                                             | Diluted                                                               |                    |           | 90,738   |   |   |         | 90,948  |  
|                                                                             |                                                                       |                    |           |          |   |   |         |        
|Dividends Declared Per Share                                                 |                                                                       | $                  | .2550     |          |   | $ | .2550   |        
|                                                                             |                                                                       |                    |           |          |   |   |         |        




CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(DEFICIT)(UNAUDITED)





|                                 |  |                    |          |      |  |   |          |  
|-------------------------------- |  | ------------------ | -------- | ---- |  | - | -------- | -
|                                 |  |                   
|                                 |  | Three Months Ended
|                                 |  | March 31          
|                                 |  |                   
|                                 |  | 2001               |          | 2000
|(in Thousands)                   |  |                    |          |     
|Balance  Beginning of Period    |  | $                  | (100,856 | )    |  | $ | (119,677 | )
|                                
|                                
|                                
|                                
|Add  Net Income                 |  |                    | 43,319   |      |  |   | 69,511   |  
|                                 |  |                    |          |      |  |   |          |  
|                                 |  |                    | (57,537  | )    |  |   | (50,166  | )
|                                
|                                
|                                
|                                
|Deduct  Cash Dividends Declared |  |                    | 23,064   |      |  |   | 21,719   |  
|                                 |  |                    |          |      |  |   |          |  
|Balance  End of Period          |  | $                  | (80,601  | )    |  | $ | (71,885  | )
|                                 |  |                    |          |      |  |   |          |  




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


20



---



##### Table of Contents



CONSOLIDATED STATEMENT OF FINANCIAL POSITION(UNAUDITED)




|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |           | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -------- | --------- | ----------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                              |                                                                                                          |          |           |            
|                                              |                                                                                                          | March 31 |           | December 31
|                                              |                                                                                                          |          |           |            
|                                              |                                                                                                          | 2001     |           | 2000        |  | 2000
|(in Thousands)                                |                                                                                                          |          |           |             |  |     
|ASSETS                                        |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|Current Assets                                |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents, at cost (which approximates market
	value)                                    |          | $         | 21,568      |  |      | $         | 23,996    |  |   | $         | 63,389    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, less allowance for doubtful accounts of
	$32,693, $21,339 and $33,604, respectively |          |           | 756,990     |  |      |           | 459,046   |  |   |           | 791,196   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Assets from risk management and trading activities (Note  3)                                             |          |           | 321,948     |  |      |           | 32,488    |  |   |           | 240,969   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accrued unbilled revenues                                                                                |          |           | 90,377      |  |      |           | 68,710    |  |   |           | 137,473   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas in inventory                                                                                         |          |           | 38,088      |  |      |           | 59,357    |  |   |           | 253,599   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Property taxes assessed applicable to future periods                                                     |          |           | 47,084      |  |      |           | 51,018    |  |   |           | 57,103    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |          |           |            |  |      |           | 38,578    |  |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |          |           | 69,469      |  |      |           | 51,794    |  |   |           | 52,660    | 
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          |          | 1,345,524 |             |  |      | 784,987   |           |  |   | 1,596,389 |          
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|Deferred Charges and Other Assets             |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |          |           |            |  |      |           |          |  |   |           | 44,936    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Assets from risk management and trading activities (Note  3)                                             |          |           | 271,690     |  |      |           | 48,360    |  |   |           | 173,672   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in debt and equity securities                                                                |          |           | 168,571     |  |      |           | 96,754    |  |   |           | 186,772   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in leases                                                                                    |          |           | 84,399      |  |      |           |          |  |   |           | 76,395    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred environmental costs                                                                             |          |           | 27,583      |  |      |           | 28,602    |  |   |           | 28,675    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Prepaid benefit costs                                                                                    |          |           | 230,842     |  |      |           | 170,600   |  |   |           | 214,473   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |          |           | 86,056      |  |      |           | 95,743    |  |   |           | 82,289    | 
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          |          | 869,141   |             |  |      | 440,059   |           |  |   | 807,212   |          
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|Investments in and Advances to Joint Ventures |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |          |           | 536,415     |  |      |           | 527,236   |  |   |           | 523,864   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power                                                                                           |          |           | 29,660      |  |      |           | 45,986    |  |   |           | 38,776    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing                                                                                         |          |           | 22,717      |  |      |           | 22,077    |  |   |           | 23,158    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |          |           | 3,671       |  |      |           | 2,844     |  |   |           | 3,383     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |          |           | 17,092      |  |      |           | 18,061    |  |   |           | 17,377    | 
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          |          | 609,555   |             |  |      | 616,204   |           |  |   | 606,558   |          
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|Property, Plant and Equipment                 |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |          |           | 45,780      |  |      |           | 46,325    |  |   |           | 46,463    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production                                                                                 |          |           | 593,756     |  |      |           | 569,448   |  |   |           | 588,512   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |          |           | 3,022,764   |  |      |           | 3,032,993 |  |   |           | 3,008,216 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |          |           | 26,966      |  |      |           | 76,243    |  |   |           | 26,798    | 
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          |          | 3,689,266 |             |  |      | 3,725,009 |           |  |   | 3,669,989 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Less  Accumulated depreciation and depletion                                                            |          |           | 1,829,498   |  |      |           | 1,727,727 |  |   |           | 1,802,401 | 
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          |          | 1,859,768 |             |  |      | 1,997,282 |           |  |   | 1,867,588 |          
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          
|                                              |                                                                                                          | $        | 4,683,988 |             |  | $    | 3,838,532 |           |  | $ | 4,877,747 |          
|                                              |                                                                                                          |          |           |             |  |      |           |           |  |   |           |          




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


21



---



##### Table of Contents



CONSOLIDATED STATEMENT OF FINANCIAL POSITION(UNAUDITED)




|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |           |  
|----------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------- | --------- | ----------- | - | ---- | --------- | ------- | - | - | --------- | --------- | -
|                                                                                                            |                                                                   |          |           |            
|                                                                                                            |                                                                   | March 31 |           | December 31
|                                                                                                            |                                                                   |          |           |            
|                                                                                                            |                                                                   | 2001     |           | 2000        |   | 2000
|(in Thousands)                                                                                              |                                                                   |          |           |             |   |     
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                        |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Current Liabilities                                                                                         |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accounts payable                                                  |          | $         | 555,109     |   |      | $         | 264,464 |   |   | $         | 697,870   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Notes payable                                                     |          |           | 391,002     |   |      |           | 169,016 |   |   |           | 576,392   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Current portion of long-term debt and capital lease obligations   |          |           | 130,151     |   |      |           | 86,250  |   |   |           | 184,652   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Liabilities from risk management and trading activities
	(Note 3) |          |           | 330,326     |   |      |           | 35,181  |   |   |           | 271,092   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas inventory equalization (Note 4)                               |          |           | 67,187      |   |      |           | 80,844  |   |   |           |          |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Federal income, property and other taxes payable                  |          |           | 50,849      |   |      |           | 45,659  |   |   |           | 70,645    |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas payable                                                       |          |           | 9,361       |   |      |           | 8,044   |   |   |           | 62,427    |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Customer deposits                                                 |          |           | 15,972      |   |      |           | 16,960  |   |   |           | 17,708    |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                             |          |           | 96,427      |   |      |           | 124,064 |   |   |           | 175,215   |  
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                            |                                                                   |          | 1,646,384 |             |   |      | 830,482   |         |   |   | 2,056,001 |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|Deferred Credits and Other Liabilities                                                                      |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred income taxes                                             |          |           | 20,091      |   |      |           | 22,465  |   |   |           |          |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Liabilities from risk management and trading activities
	(Note 3) |          |           | 391,440     |   |      |           | 65,874  |   |   |           | 239,207   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Unamortized investment tax credit                                 |          |           | 25,602      |   |      |           | 27,537  |   |   |           | 26,084    |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Tax benefits amortizable to customers                             |          |           | 137,917     |   |      |           | 135,616 |   |   |           | 138,161   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accrued environmental costs                                       |          |           | 27,828      |   |      |           | 27,711  |   |   |           | 28,250    |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interest                                                 |          |           | 1,120       |   |      |           | 7,116   |   |   |           | 1,166     |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                             |          |           | 94,199      |   |      |           | 103,413 |   |   |           | 88,997    |  
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                            |                                                                   |          | 698,197   |             |   |      | 389,732   |         |   |   | 521,865   |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|Long-Term Debt, including capital lease obligations                                                         |                                                                   |          | 1,054,714 |             |   |      | 1,347,195 |         |   |   | 1,056,825 |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|MCN-Obligated Mandatorily Redeemable Preferred Securities of
	Subsidiaries Holding Solely Debentures of MCN |                                                                   |          | 272,556   |             |   |      | 402,994   |         |   |   | 272,484   |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|Contingencies(Note 11)                                                                                      |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common Shareholders Equity                                                                                 |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock                                                      |          |           | 902         |   |      |           | 857     |   |   |           | 902       |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Additional paid-in capital                                        |          |           | 1,093,020   |   |      |           | 961,591 |   |   |           | 1,093,153 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Retained deficit                                                  |          |           | (80,601     | ) |      |           | (71,885 | ) |   |           | (100,856  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accumulated other comprehensive income (loss) (Note  10)          |          |           | 21,228      |   |      |           | (146    | ) |   |           | (215      | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Yield enhancement, contract and issuance costs                    |          |           | (22,412     | ) |      |           | (22,288 | ) |   |           | (22,412   | )
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                            |                                                                   |          | 1,012,137 |             |   |      | 868,129   |         |   |   | 970,572   |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          
|                                                                                                            |                                                                   | $        | 4,683,988 |             |   | $    | 3,838,532 |         |   | $ | 4,877,747 |          
|                                                                                                            |                                                                   |          |           |             |   |      |           |         |   |   |           |          



---

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


22



---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)




|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |          |         |        |          |  
|----------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------- | ------------------------------------------- | ------- | ------ | -------- | -------- | ------- | ------ | -------- | -
|                                          |                                                                                     |                                                                          
|                                          |                                                                                     | Three Months Ended                                                       
|                                          |                                                                                     | March 31                                                                 
|                                          |                                                                                     |                                                                          
|                                          |                                                                                     | 2001                                                                      |                             | 2000                                       
|(in Thousands)                            |                                                                                     |                                                                           |                             |                                            
|Cash Flow From Operating Activities       |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                         
|                                         
|                                         
|                                         
|                                          | Net income                                                                          |                                                                           | $                           | 43,319                                      |         |        | $        | 69,511   |        
|                                          | Adjustments to reconcile net income to net cash provided from
	operating activities |                                                                           |                             |                                             |         |        |          |          |        
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Depreciation, depletion and amortization:                                 |                             |                                             |         |        |          |          |         |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     |                                                                           | Per statement of operations |                                             |         | 33,921 |          |          |         | 34,219 |         
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     |                                                                           | Charged to other accounts   |                                             |         | 2,595  |          |          |         | 2,483  |         
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Unusual items, net of taxes (Note 6)                                      |                             |                                             | (83,483 | )      |          |          | (7,037  | )     
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Cumulative effect of accounting change for derivatives
	(Note 3)          |                             |                                             | 100,644 |        |          |          |        |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Extraordinary item  loss on redemption of debt (Note
	5)                 |                             |                                             | 2,549   |        |          |          |        |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Deferred income taxes  current                                           |                             |                                             | (25,787 | )      |          |          | (6,286  | )     
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Deferred income taxes and investment tax credits, net                     |                             |                                             | 73,588  |        |          |          | 32,585  |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Equity in earnings of joint ventures, net of distributions                |                             |                                             | 1,900   |        |          |          | (6,931  | )     
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Other                                                                     |                             |                                             | (384    | )      |          |          | (3,837  | )     
|                                         
|                                         
|                                         
|                                         
|                                          |                                                                                     | Changes in assets and liabilities, exclusive of changes shown
	separately |                             |                                             | 103,097 |        |          |          | 130,728 |       
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                          |                                                                                     |                                                                           |                             | Net cash provided from operating activities |         |        | 251,959  |          |         |        | 245,435  |  
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|Cash Flow From Financing Activities       |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                         
|                                         
|                                         
|                                         
|                                          | Notes payable, net                                                                  |                                                                           |                             | (185,390                                    | )       |        |          | (448,739 | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Dividends paid                                                                      |                                                                           |                             | (23,064                                     | )       |        |          | (21,719  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Issuance of common stock                                                            |                                                                           |                             |                                            |         |        |          | 2,897    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Reacquisition of common stock                                                       |                                                                           |                             |                                            |         |        |          | (1,655   | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Long-term commercial paper and bank borrowings, net                                 |                                                                           |                             |                                            |         |        |          | (34,138  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Retirement of long-term debt and preferred securities                               |                                                                           |                             | (61,583                                     | )       |        |          | (17,963  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Other                                                                               |                                                                           |                             | (288                                        | )       |        |          |         |        
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                          |                                                                                     |                                                                           |                             | Net cash used for financing activities      |         |        | (270,325 | )        |         |        | (521,317 | )
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|Cash Flow From Investing Activities       |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                         
|                                         
|                                         
|                                         
|                                          | Capital expenditures                                                                |                                                                           |                             | (26,329                                     | )       |        |          | (23,671  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Investment in debt and equity securities, net                                       |                                                                           |                             | 9,201                                       |         |        |          | (2,893   | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Investment in joint ventures                                                        |                                                                           |                             | (6,810                                      | )       |        |          | (28,641  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Sale of property and joint venture interests (Note 7)                               |                                                                           |                             | 3,205                                       |         |        |          | 295,476  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other                                                                               |                                                                           |                             | (2,722                                      | )       |        |          | 241      |        
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                          |                                                                                     |                                                                           |                             | Net cash provided from investing activities |         |        | (23,455  | )        |         |        | 240,512  |  
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|Net Decrease in Cash and Cash Equivalents |                                                                                     |                                                                           | (41,821                     | )                                           |         |        | (35,370  | )       
|                                         
|                                         
|                                         
|                                         
|Cash and Cash Equivalents, January 1      |                                                                                     |                                                                           | 63,389                      |                                             |         |        | 59,366   |         
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|Cash and Cash Equivalents, March 31       |                                                                                     | $                                                                         | 21,568                      |                                             |         | $      | 23,996   |         
|                                          |                                                                                     |                                                                           |                             |                                             |         |        |          |         
|                                         

23



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##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)





|                                                                          |                                                                     |                                      |         |          |        |   |         |         |        | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------ | ------- | -------- | ------ | - | ------- | ------- | ------ | 
|                                                                          |                                                                     |                                     
|                                                                          |                                                                     | Three Months Ended                  
|                                                                          |                                                                     | March 31                            
|                                                                          |                                                                     |                                     
|                                                                          |                                                                     | 2001                                 |         | 2000    
|(in Thousands)                                                            |                                                                     |                                      |         |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                     |                                      |         |          |        |   |         |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                            |                                      | $       | 120,826  |        |   | $       | (37,291 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                           |                                      |         | 47,096   |        |   |         | 31,729  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                                    |                                      |         | 215,511  |        |   |         | 120,469 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid/accrued benefit costs, net                                  |                                      |         | (16,369  | )      |   |         | (13,760 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Property taxes assessed applicable to future periods                |                                      |         | 10,019   |        |   |         |        |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                    |                                      |         | (141,113 | )      |   |         | (18,975 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                    |                                      |         | (18,423  | )      |   |         | (22,841 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                                         |                                      |         | (53,066  | )      |   |         | (15,378 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Assets and liabilities from risk management and trading
	activities |                                      |         | (100,834 | )      |   |         | (3,482  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas inventory equalization                                          |                                      |         | 67,187   |        |   |         | 80,844  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                           |                                      |         | (24,283  | )      |   |         | (14,873 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                          |                                      |         | (3,454   | )      |   |         | 24,286  |       
|                                                                          |                                                                     |                                      |         |          |        |   |         |        
|                                                                          |                                                                     | $                                    | 103,097 |          |        | $ | 130,728 |        
|                                                                          |                                                                     |                                      |         |          |        |   |         |        
|Supplemental Disclosures                                                  |                                                                     |                                      |         |          |        |   |         |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid during the year for:                                      |                                      |         |          |        |   |         |         |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                     | Interest, net of amounts capitalized |         | $        | 24,578 |   |         | $       | 32,495 | 
|                                                                          |                                                                     |                                      |         |          |        |   |         |        
|                                                                          |                                                                     | Federal income taxes                 |         | $        |       |   |         | $       |       | 
|                                                                          |                                                                     |                                      |         |          |        |   |         |        




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


24



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  GENERAL

The accompanying consolidated financial statements should be
read in conjunction with the MCN Energy Group Inc. (MCN) 2000
Annual Report on Form 10-K. Certain reclassifications have
been made to the prior years financial statements to
conform to the 2001 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

As discussed in MCNs 2000 Annual Report on Form 10-K,
MCN and DTE Energy Company (DTE) have signed a definitive
merger agreement, dated October 4, 1999, which was amended
on February 28, 2001, under which DTE will acquire all
outstanding shares of MCN common stock. The amended merger
agreement imposes more stringent restrictions on MCNs
ability to take significant actions without DTEs consent.

The boards of directors of both companies approved the merger
under the October 1999 and the February 2001 merger
agreements. In December 1999, shareholders of both
companies approved the merger under the terms of the
October 1999 agreement. The revised merger agreement is
subject to the approval of MCN shareholders at a special meeting
scheduled for May 15, 2001. In March 2001, the
proposed merger received clearance from the Federal Trade
Commission. The transaction is also subject to the approval of
the Securities and Exchange Commission which has set a
May 17, 2001 deadline for public comments. Although no
assurances can be given, and the merger may be completed later,
MCN and DTE are currently targeting May 31, 2001 as the
completion date for the merger. Under any circumstances, DTE
intends to issue a press release that will provide shareholders
with five business days notice of the definitive
closing date.

As a result of the pending merger, MCN has incurred
merger-related costs which include legal, accounting,
consulting, employee benefit and other expenses. These costs had
the effect of decreasing earnings by $1,203,000 pre-tax
($782,000 net of taxes) and $362,000 pre-tax ($235,000 net of
taxes) for the three-month period ended March 31, 2001 and
2000, respectively.

3.  CHANGE IN ACCOUNTING FOR DERIVATIVES

a.  New Accounting Pronouncement

Accounting for Derivative Instruments and Hedging
Activities.


25



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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 identified interest rate swaps, options embedded in certain
debt instruments, commodity forward contracts, commodity futures
and swaps, certain transportation contracts and a foreign
currency forward contract as derivatives. The cumulative effect
of adopting SFAS No. 133 was a $154,836,000 pre-tax
($100,644,000 net of taxes) decrease in earnings, and a
$99,679,000 pre-tax ($64,791,000 net of taxes) increase in other
comprehensive income. The amount recorded in other comprehensive
income will be taken to earnings as the transactions that the
derivatives relate to occur. MCN estimates that $33,100,000
pre-tax ($21,500,000 net of taxes) of other comprehensive income
will be recorded to earnings over the April 2001 to
March 2002 period.

b.  Risk Management Policy



Commodity Price Risk Natural gas 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, gas production, and gas inventories. MCN
has determined that this risk minimization strategy will be
accounted for by marking-to-market its commodity forwards,
financial derivatives, and corresponding physical positions so
there are substantial offsetting amounts. This fair value
accounting better aligns financial reporting for the Diversified
Energy group with the way such business is managed and its
performance measured. Certain Energy Marketing gas sales
contracts with power generation customers are designated and
qualify for the normal sales, exception under SFAS
No. 133 and are therefore not accounted for as derivatives.
Additionally, MCN has certain transportation contracts that are
considered derivatives and marked to market under SFAS
No. 133. Unrealized gains and losses resulting from marking
to market commodity-related derivatives are recorded as an
adjustment to revenues in the Consolidated Statement of
Operations.

Although it attempts to maintain a balanced or flat book from an
economic standpoint, Diversified Energy experiences earnings
volatility as a result of its owned gas reserves, as well as
from open positions related to its long-term transportation and
storage assets. Gas produced from owned reserves does not meet
the definition of a derivative under SFAS No. 133.
Accordingly, earnings volatility results from marking to market
sales contracts with certain power generation customers without
recording an offsetting amount from marking to market gas
reserves that supply such contracts.

MichCon has firm-priced contracts for a substantial portion of
its expected gas supply requirements through 2001. These
contracts are designated and qualify for the normal
purchases exception under SFAS No.133. Accordingly,
MichCon does not account for such contracts as derivatives.

Interest Rate Risk In order to manage interest
rate costs, MCN has interest rate swap agreements to exchange
fixed- and variable-rate interest payment obligations over the
life of the agreements without the exchange of the underlying
principle amounts. While the swaps are effective in

26



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


managing MCNs interest costs, they do not qualify for
hedge accounting under SFAS No. 133. Accordingly, the
interest rate swaps are recorded at fair value with unrealized
gains or losses reflected as an adjustment to interest expense
in the Consolidated Statement of Operations. Furthermore, SFAS
No. 133 required adjusting the carrying value of the
related debt that substantially offset the transition adjustment
resulting from marking to market the interest rate swaps. The
adjustment to debt will be accreted to interest expense over the
life of the related swaps.

Foreign Currency Risks- A foreign currency forward
contract is used to mitigate risk associated with a note
receivable denominated in Canadian dollars. The forward contract
does not qualify for hedge accounting under SFAS No. 133
and is therefore recorded at fair value. MCN expects that the
change in fair value of the forward should substantially offset
the transaction gain or loss resulting from remeasuring the note
receivable at the spot rate in accordance with SFAS No. 52
Foreign Currency Translation.

Unrealized gains or losses resulting from marking to market this
derivative are recognized in other  other
income and (deductions) in the Consolidated Statement of
Operations.

Other Derivatives MCN has debt
outstanding with embedded options that will not be accounted for
as derivatives as a result of a grandfather
provision in SFAS No. 133.

The following table summarizes assets and liabilities from risk
management and trading activities, and deferred unrealized swap
gains and losses that are reflected in the Consolidated
Statement of Financial Position. As previously noted, SFAS
No. 133 requires all derivatives to be recognized in the
Statement of Financial Position as either assets or liabilities
measured at their fair value and requires that changes in the
fair value of derivatives be recognized currently in earnings
unless specific hedge accounting criteria are met. Prior to MCN
implementing SFAS No. 133, unrealized swap gains and losses
were deferred. Furthermore, there were certain derivatives that
were not recorded at fair value prior to implementing SFAS
No. 133.

|                                                        |                            |          |         |             |  |      |         |        |  |   |         |         | 
|------------------------------------------------------- | -------------------------- | -------- | ------- | ----------- |  | ---- | ------- | ------ |  | - | ------- | ------- | 
|                                                       
|                                                       
|                                                        |                            |          |         |            
|                                                        |                            | March 31 |         | December 31
|                                                        |                            |          |         |            
|                                                        |                            | 2001     |         | 2000        |  | 2000
|(in Thousands)                                          |                            |          |         |             |  |     
|Assets From Risk Management and Trading Activities      |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Risk management activities |          | $       | 593,638     |  |      | $       | 62,425 |  |   | $       | 327,231 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Trading activities         |          |         |            |  |      |         |       |  |   |         | 25,953  | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unrealized swap losses     |          |         |            |  |      |         | 18,423 |  |   |         | 61,457  | 
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                        |                            |          | 593,638 |             |  |      | 80,848  |        |  |   | 414,641 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Less  current portion     |          |         | 321,948     |  |      |         | 32,488 |  |   |         | 240,969 | 
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                        |                            | $        | 271,690 |             |  | $    | 48,360  |        |  | $ | 173,672 |        
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        
|Liabilities From Risk Management and Trading Activities |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Risk management activities |          | $       | 717,137     |  |      | $       | 77,261 |  |   | $       | 246,012 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Trading activities         |          |         | 4,629       |  |      |         |       |  |   |         | 108,523 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unrealized swap gains      |          |         |            |  |      |         | 23,794 |  |   |         | 155,764 | 
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                        |                            |          | 721,766 |             |  |      | 101,055 |        |  |   | 510,299 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Less  current portion     |          |         | 330,326     |  |      |         | 35,181 |  |   |         | 271,092 | 
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        
|                                                        |                            | $        | 391,440 |             |  | $    | 65,874  |        |  | $ | 239,207 |        
|                                                        |                            |          |         |             |  |      |         |        |  |   |         |        




27



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


4.  GAS IN INVENTORY

Inventory gas is priced using the fair value method for Energy
Marketing operations and on a last-in, first-out
(LIFO) basis for Gas Distribution operations. During the
first quarter of 2001, MichCon liquidated 43.9 billion
cubic feet (Bcf) of prior years LIFO layers. Approximately
18.9 Bcf of such liquidation will be replaced prior to
December 31, 2001 and the remaining 25.0 Bcf will not be
replaced prior to the end of the year. For the portion of the
interim inventory reduction that will be replaced, the cost of
gas for net withdrawals is recorded at the estimated average
purchase rate for the calendar year. The excess of these charges
over the LIFO cost is credited to the gas inventory equalization
account. During interim periods when there are net injections to
inventory the equalization account is reversed.

The 25.0 Bcf of prior years LIFO layers that will not be
replaced were liquidated at an average cost of $.38 per thousand
cubic feet (Mcf). MichCons estimated average gas purchase
rate in 2001 is $3.26 per Mcf higher than the average LIFO
liquidation rate. Applying LIFO costs in valuing the
liquidation, as opposed to using the estimated average gas
purchase rate, decreased 2001 reported cost of gas by
$81,508,000 and increased earnings by $52,980,000, net of taxes.

5.  EXTRAORDINARY ITEM  LOSS ON
REDEMPTION OF DEBT

In March 2001, MCN Energy Enterprises Inc. elected to
repurchase at a premium $100,000,000 of remarketable debt that
was subject to remarketing in April 2001, resulting in an
extraordinary loss totaling $3,922,000 pre-tax ($2,549,000 net
of taxes).

6.  UNUSUAL ITEMS

a.  Pipelines & Processing

Gain on Sale of Property:


Gains on Sale of Joint Ventures:In
January 2001, MCN recorded a $510,000 pre-tax ($331,000 net
of taxes) gain from the sale of its 33 1/3% interest in the
Black Marlin Pipeline System.

In March 2000, MCN recognized a $3,419,000 pre-tax ($2,222,000
net of taxes) gain from the sale of its 50% interest in the
Cardinal States Gathering Company.

b.  Electric Power

Gain on Sale of Joint Venture:


c.  Exploration & Production

Losses on Sale of Properties:


28



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


7.  ACQUISITIONS AND DISPOSITIONS

a.  Pipelines & Processing



In January 2001, MCN sold its 33 1/3% interest in the Black
Marlin Pipeline System for approximately $3,100,000.

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

b.  Electric Power



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

c.  Gas Distribution



8.  REGULATORY MATTERS

a.  Regulatory Reform Plan



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. Year two
of the program began in April 2000 with approximately 55,000
customers choosing to participate. Year three of the program
began in April 2001, and the number of participating
customers decreased to approximately 30,000. MichCon will
continue to transport and deliver the gas to the customers
premises at prices that generate favorable margins.

In addition, the Plan encompasses an income sharing mechanism
that allows customers to share profits when actual returns on
equity from utility operations exceed predetermined thresholds.

29



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


MichCon filed its income sharing report with the Michigan Public
Service Commission (MPSC) in March 2001, using the MPSC approved
formula, indicating that no income sharing was required for 2000.

b.  Proposed Regulatory Changes



In December 2000, MichCon filed applications with the MPSC to
modify the experimental Customer Choice and Gas Sales Programs
as outlined in the MPSCs October 2000 order. MichCon had
proposed the modifications to become effective in April 2001. On
March 22, 2001, MichCon withdrew its applications with the
MPSC. MichCon will return to a gas cost recovery mechanism in
January 2002 when the current Regulatory Reform Plan expires.

9.  EARNINGS PER SHARE COMPUTATION

MCN reports both basic and diluted earnings per share (EPS).
Basic EPS is computed by dividing income or loss available to
common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS assumes the
issuance of potentially 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. A reconciliation of both
calculations is shown below.




|                            |                                             |                                |   |                  |   |           |   |        |   |      |  |        |     |  |  |        |     |  |   |      |  |  |   |     |  | 
|--------------------------- | ------------------------------------------- | ------------------------------ | - | ---------------- | - | --------- | - | ------ | - | ---- |  | ------ | --- |  |  | ------ | --- |  | - | ---- |  |  | - | --- |  | 
|                            |                                             |                                |   |                  |   |           |   |        |   |     
|                            |                                             | Income Before                  |   |                  |   |           |   |        |   |     
|                            |                                             | Cumulative Effect of           |   |                  |   |          
|                            |                                             | Accounting Change              |   | Weighted Average |   | Earnings 
|                            |                                             | and Extraordinary Item         |   | Common Shares    |   | Per Share
|                            |                                             |                                |   |                  |   |          
|(in Thousands,              |                                             | 2001                           |   | 2000             |   | 2001      |   | 2000   |   | 2001 |  | 2000  
|Except Per Share Amounts)   |                                             |                                |   |                  |   |           |   |        |   |      |  |       
|Three Months Ended March 31 |                                             |                                |   |                  |   |           |   |        |   |      |  |        |     |  |  |        |     |  |   |      |  |  |   |    
|                           
|                           
|                           
|                           
|                            | Basic EPS                                   |                                | $ | 146,512          |   |           | $ | 69,511 |   |      |  | 90,178 |     |  |  | 85,506 |     |  | $ | 1.63 |  |  | $ | .81 | 
|                            |                                             |                                |   |                  |   |           |   |        |   |      |  |        |     |  |  |        |     |  |   |      |  |  |   |    
|                            | Effect of Dilutive Securities FELINE PRIDES |                                |   |                 |   |           |   | 1,561  |   |      |  |       |     |  |  | 4,560  |     |  |   |      |  |  |   |     | 
|                           
|                           
|                           
|                           
|                            |                                             | Stock-based compensation plans |   |                  |  |           |   |        |  |      |  |        | 560 |  |  |        | 882 |  |   |      |  |  |   |     |  | 
|                            |                                             |                                |   |                  |   |           |   |        |   |      |  |        |     |  |  |        |     |  |   |      |  |  |   |    
|                            | Diluted EPS                                 |                                | $ | 146,512          |   |           | $ | 71,072 |   |      |  | 90,738 |     |  |  | 90,948 |     |  | $ | 1.62 |  |  | $ | .78 | 
|                            |                                             |                                |   |                  |   |           |   |        |   |      |  |        |     |  |  |        |     |  |   |      |  |  |   |    




30



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


10.  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                                                   
|                                               |                                         | March 31                                                             
|                                               |                                         |                                                                      
|                                               |                                         | 2001                                                                  |        | 2000
|(in Thousands)                                 |                                         |                                                                       |        |     
|Comprehensive Income                           |                                         |                                                                       |        |      |        |   |        | 
|                                              
|                                              
|                                              
|                                              
|Net Income                                     |                                         | $                                                                     | 43,319 |      |        | $ | 69,511 | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|Other Comprehensive Income, Net of Taxes       |                                         |                                                                       |        |      |        |   |        | 
|                                               | Foreign currency translation adjustment |                                                                       |        |      |        |   |        |  |   
|                                              
|                                              
|                                              
|                                              
|                                               |                                         | Foreign currency translation adjustment                               |        |      | (89    | ) |        |  | 10 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                         | Less: reclassification for gains and losses recognized in
	net income |        |      |       |   |        |  |   | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|                                               |                                         |                                                                       | (89    | )    |        |   | 10     | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|                                               | Derivative instrument transactions      |                                                                       |        |      |        |   |        |  |   
|                                              
|                                              
|                                              
|                                              
|                                               |                                         | Cumulative effect of accounting change for derivatives                |        |      | 64,791 |   |        |  |   | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                         | Less: reclassification for gains recognized in net  income            |        |      | 43,259 |   |        |  |   | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|                                               |                                         |                                                                       | 21,532 |      |        |   |       | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|Total Other Comprehensive Income, Net of Taxes |                                         |                                                                       | 21,443 |      |        |   | 10     | 
|                                               |                                         |                                                                       |        |      |        |   |        | 
|Total Comprehensive Income                     |                                         | $                                                                     | 64,762 |      |        | $ | 69,521 | 
|                                               |                                         |                                                                       |        |      |        |   |        | 




11.  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. After
discussion with legal counsel, it is managements belief
that the ultimate resolution of those proceedings still pending
will not have a material adverse effect on MCNs financial
statements.

31



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


12.  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
|                                      |                                                        | March 31          
|                                      |                                                        |                   
|                                      |                                                        | 2001               |           | 2000    
|(in Thousands)                        |                                                        |                    |           |         
|Revenues From Unaffiliated Customers* |                                                        |                    |           |          |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                                 |                    | $         | 14,501   |   |   | $       | 6,365   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                                         |                    |           |         |   |   |         | 13,903  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                                       |                    |           | 685,658  |   |   |         | 438,832 |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production                               |                    |           | 989      |   |   |         | 4,616   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                                       |                    |           | 484,053  |   |   |         | 449,788 |  
|                                      |                                                        |                    |           |          |   |   |         |        
|                                      |                                                        |                    | 1,185,201 |          |   |   | 913,504 |        
|                                      |                                                        |                    |           |          |   |   |         |        
|Revenues From Affiliated Customers    |                                                        |                    |           |          |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                                 |                    |           | 1,024    |   |   |         | 176     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                                       |                    |           | 82,640   |   |   |         | 29,920  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production                               |                    |           | 14,646   |   |   |         | 13,145  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                                       |                    |           | 1,971    |   |   |         | 3,865   |  
|                                      |                                                        |                    |           |          |   |   |         |        
|                                      |                                                        |                    | 100,281   |          |   |   | 47,106  |        
|                                      |                                                        |                    |           |          |   |   |         |        
|Eliminations                          |                                                        |                    | (100,281  | )        |   |   | (47,106 | )      
|                                      |                                                        |                    |           |          |   |   |         |        
|Consolidated Operating Revenues       |                                                        | $                  | 1,185,201 |          |   | $ | 913,504 |        
|                                      |                                                        |                    |           |          |   |   |         |        
|Net Income (Loss)*                    |                                                        |                    |           |          |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                                 |                    | $         | 84,034   |   |   | $       | 2,720   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                                         |                    |           | (271     | ) |   |         | 4,441   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                                       |                    |           | (26,236  | ) |   |         | 1,634   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production                               |                    |           | 118      |   |   |         | 3,174   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                                       |                    |           | 98,511   |   |   |         | 66,691  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate & Other                                      |                    |           | (9,644   | ) |   |         | (9,149  | )
|                                      |                                                        |                    |           |          |   |   |         |        
|                                      |                                                        |                    | 146,512   |          |   |   | 69,511  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of accounting change for derivatives |                    |           | (100,644 | ) |   |         |        |  
|                                     
|                                     
|                                     
|                                     
|                                      | Extraordinary item  loss on redemption of debt        |                    |           | (2,549   | ) |   |         |        |  
|                                      |                                                        |                    |           |          |   |   |         |        
|Consolidated Net Income               |                                                        | $                  | 43,319    |          |   | $ | 69,511  |        
|                                      |                                                        |                    |           |          |   |   |         |        




|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|* | Electric Powers gas sales contracts were
	transferred to Energy Marketing in the 2001 first quarter.

13.  CONSOLIDATING FINANCIAL STATEMENTS

Debt securities issued by MCN Energy Enterprises Inc.
(MCNEE) are subject to a full and unconditional guaranty
between MCN and MCNEE. The following MCN consolidating financial
statements are presented and include separately MCN corporate,
MCNEE and all other subsidiaries. The other MCN subsidiaries
represent MichCon Holdings, Inc., Citizens Gas Fuel Company, MCN
Michigan Limited Partnership and various MCN Financing companies.

32



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |          |  
|---------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------- | ------ | ------------ | - | ------------ | -------- | --------- | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | --------- | -------- | -
|                                                                             |                                                          |                                  
|                                                                             |                                                          | Three Months Ended March 31, 2001
|                                                                             |                                                          |                                  
|                                                                             |                                                          |                                   |        | Eliminations |   |             
|                                                                             |                                                          | MCN                               |        |              |   | Other        |          | and       |   | Consolidated
|                                                                             |                                                          | Corporate                         |        | MCNEE        |   | Subsidiaries |          | Reclasses |   | Total       
|(in Thousands)                                                               |                                                          |                                   |        |              |   |              |          |           |   |             
|Operating Revenues                                                           |                                                          | $                                 |       |              |   | $            | 742,907  |           |   | $            | 486,023 |         |   | $ | (43,729 | )       |   | $ | 1,185,201 |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Operating Expenses                                                           |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cost of sales                                            |                                   |        |             |   |              |          | 749,325   |   |              |         | 214,623 |   |   |         | (42,018 | ) |   |           | 921,930  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Operation and maintenance                                |                                   |        | (962         | ) |              |          | 22,323    |   |              |         | 65,383  |   |   |         | (1,711  | ) |   |           | 85,033   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Depreciation, depletion and amortization                 |                                   |        | 489          |   |              |          | 6,879     |   |              |         | 26,553  |   |   |         |        |   |   |           | 33,921   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Property and other taxes                                 |                                   |        | 277          |   |              |          | 3,257     |   |              |         | 16,284  |   |   |         |        |   |   |           | 19,818   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of assets, net                  |                                   |        |             |   |              |          | (127,925  | ) |              |         |        |   |   |         |        |   |   |           | (127,925 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains from sale of tax credits                           |                                   |        |             |   |              |          | (2,379    | ) |              |         |        |   |   |         |        |   |   |           | (2,379   | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Merger costs                                             |                                   |        |             |   |              |          | 166       |   |              |         | 1,037   |   |   |         |        |   |   |           | 1,203    |  
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                             |                                                          |                                   | (196   | )            |   |              | 651,646  |           |   |              | 323,880 |         |   |   | (43,729 | )       |   |   | 931,601   |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Operating Income                                                             |                                                          |                                   | 196    |              |   |              | 91,261   |           |   |              | 162,143 |         |   |   |        |         |   |   | 253,600   |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Joint Venture Income                                                         |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Equity in earnings                                       |                                   |        | 42,857       |   |              |          | 880       |   |              |         | 714     |   |   |         | (42,869 | ) |   |           | 1,582    |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of joint venture interests, net |                                   |        |             |   |              |          | 510       |   |              |         |        |   |   |         |        |   |   |           | 510      |  
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                             |                                                          |                                   | 42,857 |              |   |              | 1,390    |           |   |              | 714     |         |   |   | (42,869 | )       |   |   | 2,092     |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Other Income and (Deductions)                                                |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest income                                          |                                   |        | 146          |   |              |          | 3,527     |   |              |         | 9,028   |   |   |         | (6,612  | ) |   |           | 6,089    |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest on long-term debt                               |                                   |        | 426          |   |              |          | (8,498    | ) |              |         | (10,194 | ) |   |         |        |   |   |           | (18,266  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other interest expense                                   |                                   |        | 64           |   |              |          | (14,206   | ) |              |         | (4,310  | ) |   |         | 6,612   |   |   |           | (11,840  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Dividends on preferred securities of subsidiaries        |                                   |        |             |   |              |          |          |   |              |         |        |   |   |         | (6,253  | ) |   |           | (6,253   | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Minority interest                                        |                                   |        |             |   |              |          | (27       | ) |              |         | (86     | ) |   |         |        |   |   |           | (113     | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other                                                    |                                   |        | (91          | ) |              |          | (730      | ) |              |         | 767     |   |   |         | (72     | ) |   |           | (126     | )
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                             |                                                          |                                   | 545    |              |   |              | (19,934  | )         |   |              | (4,795  | )       |   |   | (6,325  | )       |   |   | (30,509   | )       
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Income Before Income Taxes                                                   |                                                          |                                   | 43,598 |              |   |              | 72,717   |           |   |              | 158,062 |         |   |   | (49,194 | )       |   |   | 225,183   |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Income Tax Provision                                                         |                                                          |                                   | 279    |              |   |              | 25,340   |           |   |              | 53,052  |         |   |   |        |         |   |   | 78,671    |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                            
|Income Before Cumulative Effect of Accounting Change and
	Extraordinary Item |                                                          |                                   | 43,319 |              |   |              | 47,377   |           |   |              | 105,010 |         |   |   | (49,194 | )       |   |   | 146,512   |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cumulative Effect of Accounting Change for Derivatives                       |                                                          |                                   |       |              |   |              | (100,677 | )         |   |              | 33      |         |   |   |        |         |   |   | (100,644  | )       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Extraordinary Item  Loss on Redemption of Debt                              |                                                          |                                   |       |              |   |              | (2,549   | )         |   |              |        |         |   |   |        |         |   |   | (2,549    | )       
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|Net Income                                                                   |                                                          |                                   | 43,319 |              |   |              | (55,849  | )         |   |              | 105,043 |         |   |   | (49,194 | )       |   |   | 43,319    |         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Dividends on Preferred Securities                                            |                                                          |                                   |       |              |   |              |         |           |   |              | 6,253   |         |   |   | (6,253  | )       |   |   |          |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         
|                                                                            
|Net Income Available for Common Stock                                        |                                                          | $                                 | 43,319 |              |   | $            | (55,849  | )         |   | $            | 98,790  |         |   | $ | (42,941 | )       |   | $ | 43,319    |         
|                                                                             |                                                          |                                   |        |              |   |              |          |           |   |              |         |         |   |   |         |         |   |   |           |         

33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |         |  
|---------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------- | ------ | ------------ | - | ------------ | ------- | --------- | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                             |                                                          |                                  
|                                                                             |                                                          | Three Months Ended March 31, 2000
|                                                                             |                                                          |                                  
|                                                                             |                                                          |                                   |        | Eliminations |   |             
|                                                                             |                                                          | MCN                               |        |              |   | Other        |         | and       |   | Consolidated
|                                                                             |                                                          | Corporate                         |        | MCNEE        |   | Subsidiaries |         | Reclasses |   | Total       
|(in Thousands)                                                               |                                                          |                                   |        |              |   |              |         |           |   |             
|Operating Revenues                                                           |                                                          | $                                 |       |              |   | $            | 472,015 |           |   | $            | 453,653 |         |   | $ | (12,164 | )       |   | $ | 913,504 |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Expenses                                                           |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Cost of sales                                            |                                   |        |             |   |              |         | 433,000   |   |              |         | 224,229 |   |   |         | (11,407 | ) |   |         | 645,822 |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Operation and maintenance                                |                                   |        | (801         | ) |              |         | 26,314    |   |              |         | 66,636  |   |   |         | (757    | ) |   |         | 91,392  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Depreciation, depletion and amortization                 |                                   |        | 518          |   |              |         | 7,343     |   |              |         | 26,358  |   |   |         |        |   |   |         | 34,219  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Property and other taxes                                 |                                   |        | 50           |   |              |         | 2,333     |   |              |         | 19,210  |   |   |         |        |   |   |         | 21,593  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of assets, net                  |                                   |        |             |   |              |         | (3,735    | ) |              |         |        |   |   |         |        |   |   |         | (3,735  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains from sale of tax credits                           |                                   |        |             |   |              |         | (2,048    | ) |              |         |        |   |   |         |        |   |   |         | (2,048  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Merger costs                                             |                                   |        |             |   |              |         | 14        |   |              |         | 348     |   |   |         |        |   |   |         | 362     |  
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                             |                                                          |                                   | (233   | )            |   |              | 463,221 |           |   |              | 336,781 |         |   |   | (12,164 | )       |   |   | 787,605 |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Income                                                             |                                                          |                                   | 233    |              |   |              | 8,794   |           |   |              | 116,872 |         |   |   |        |         |   |   | 125,899 |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Joint Venture Income                                                         |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Equity in earnings                                       |                                   |        | 70,591       |   |              |         | 10,245    |   |              |         | 587     |   |   |         | (70,644 | ) |   |         | 10,779  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Gains and losses on sale of joint venture interests, net |                                   |        |             |   |              |         | 7,091     |   |              |         |        |   |   |         |        |   |   |         | 7,091   |  
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                             |                                                          |                                   | 70,591 |              |   |              | 17,336  |           |   |              | 587     |         |   |   | (70,644 | )       |   |   | 17,870  |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Other Income and (Deductions)                                                |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest income                                          |                                   |        | 136          |   |              |         | 2,178     |   |              |         | 9,406   |   |   |         | (8,972  | ) |   |         | 2,748   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest on long-term debt                               |                                   |        | 28           |   |              |         | (11,263   | ) |              |         | (12,274 | ) |   |         |        |   |   |         | (23,509 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other interest expense                                   |                                   |        | (1,665       | ) |              |         | (11,501   | ) |              |         | (3,160  | ) |   |         | 8,972   |   |   |         | (7,354  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Dividends on preferred securities of subsidiaries        |                                   |        |             |   |              |         |          |   |              |         |        |   |   |         | (8,622  | ) |   |         | (8,622  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Minority interest                                        |                                   |        |             |   |              |         | (346      | ) |              |         | (139    | ) |   |         |        |   |   |         | (485    | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other                                                    |                                   |        | (356         | ) |              |         | 109       |   |              |         | 325     |   |   |         | (72     | ) |   |         | 6       |  
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                             |                                                          |                                   | (1,857 | )            |   |              | (20,823 | )         |   |              | (5,842  | )       |   |   | (8,694  | )       |   |   | (37,216 | )      
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Income Before Income Taxes                                                   |                                                          |                                   | 68,967 |              |   |              | 5,307   |           |   |              | 111,617 |         |   |   | (79,338 | )       |   |   | 106,553 |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Income Tax Provision                                                         |                                                          |                                   | (544   | )            |   |              | 1,502   |           |   |              | 36,084  |         |   |   |        |         |   |   | 37,042  |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Income Before Cumulative Effect of Accounting Change and
	Extraordinary Item |                                                          |                                   | 69,511 |              |   |              | 3,805   |           |   |              | 75,533  |         |   |   | (79,338 | )       |   |   | 69,511  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cumulative Effect of Accounting Change for Derivatives                       |                                                          |                                   |       |              |   |              |        |           |   |              |        |         |   |   |        |         |   |   |        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Extraordinary Item  Loss on Redemption of Debt                              |                                                          |                                   |       |              |   |              |        |           |   |              |        |         |   |   |        |         |   |   |        |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income                                                                   |                                                          |                                   | 69,511 |              |   |              | 3,805   |           |   |              | 75,533  |         |   |   | (79,338 | )       |   |   | 69,511  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Dividends on Preferred Securities                                            |                                                          |                                   |       |              |   |              |        |           |   |              | 8,622   |         |   |   | (8,622  | )       |   |   |        |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income Available for Common Stock                                        |                                                          | $                                 | 69,511 |              |   | $            | 3,805   |           |   | $            | 66,911  |         |   | $ | (70,716 | )       |   | $ | 69,511  |        
|                                                                             |                                                          |                                   |        |              |   |              |         |           |   |              |         |         |   |   |         |         |   |   |         |        

34



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | --------- | ------------ | - | ------------ | --------- | --------- | ------ | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                      |                                       
|                                                                |                                                      | March 31, 2001                        
|                                                                |                                                      |                                       
|                                                                |                                                      |                                        |           | Eliminations |   |             
|                                                                |                                                      | MCN                                    |           |              |   | Other        |           | and       |        | Consolidated
|                                                                |                                                      | Corporate                              |           | MCNEE        |   | Subsidiaries |           | Reclasses |        | Total       
|(in Thousands)                                                  |                                                      |                                        |           |              |   |              |           |           |        |             
|ASSETS                                                          |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at  cost                  |                                        | $         | 3,991        |   |              | $         | 13,989    |        |              | $         | 7,562     |        |   | $          | (3,974   | ) |   | $         | 21,568    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                  |                                        |           | 12,500       |   |              |           | 560,373   |        |              |           | 239,947   |        |   |            | (23,137  | ) |   |           | 789,683   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less  Allowance for doubtful accounts |           |              |  |              |           |           | 11,408 |              |           |           | 21,285 |   |            |          |  |   |           |           | 32,693 | 
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                             |                                        |           | 12,500       |   |              |           | 548,965   |        |              |           | 218,662   |        |   |            | (23,137  | ) |   |           | 756,990   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           |             |   |              |           | 321,948   |        |              |           |          |        |   |            |         |   |   |           | 321,948   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                            |                                        |           |             |   |              |           |          |        |              |           | 90,377    |        |   |            |         |   |   |           | 90,377    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                     |                                        |           |             |   |              |           | 35,697    |        |              |           | 2,391     |        |   |            |         |   |   |           | 38,088    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods |                                        |           | 83           |   |              |           | 1,229     |        |              |           | 45,772    |        |   |            |         |   |   |           | 47,084    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           |          |        |              |           | 75        |        |   |            | (75      | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | 7,380        |   |              |           | 72,076    |        |              |           | 33,630    |        |   |            | (43,617  | ) |   |           | 69,469    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 23,954    |              |   |              | 993,904   |           |        |              | 398,469   |           |        |   | (70,803    | )        |   |   | 1,345,524 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 125,542   |        |              |           |          |        |   |            | (125,542 | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           | 500          |   |              |           | 271,190   |        |              |           |          |        |   |            |         |   |   |           | 271,690   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities            |                                        |           |             |   |              |           | 103,216   |        |              |           | 65,355    |        |   |            |         |   |   |           | 168,571   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in leases                                |                                        |           |             |   |              |           |          |        |              |           | 84,399    |        |   |            |         |   |   |           | 84,399    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                         |                                        |           |             |   |              |           |          |        |              |           | 27,583    |        |   |            |         |   |   |           | 27,583    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                |                                        |           | 4,295        |   |              |           |          |        |              |           | 231,897   |        |   |            | (5,350   | ) |   |           | 230,842   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | (413         | ) |              |           | 27,191    |        |              |           | 349,570   |        |   |            | (290,292 | ) |   |           | 86,056    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 4,382     |              |   |              | 527,139   |           |        |              | 758,804   |           |        |   | (421,184   | )        |   |   | 869,141   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                      |                                        | 1,265,330 |              |   |              | 585,105   |           |        |              | 20,779    |           |        |   | (1,261,659 | )        |   |   | 609,555   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment                                   |                                                      |                                        | 16,242    |              |   |              | 650,260   |           |        |              | 3,022,764 |           |        |   |           |          |   |   | 3,689,266 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion        |                                        |           | 9,754        |   |              |           | 249,727   |        |              |           | 1,570,017 |        |   |            |         |   |   |           | 1,829,498 |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 6,488     |              |   |              | 400,533   |           |        |              | 1,452,747 |           |        |   |           |          |   |   | 1,859,768 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      | $                                      | 1,300,154 |              |   | $            | 2,506,681 |           |        | $            | 2,630,799 |           |        | $ | (1,753,646 | )        |   | $ | 4,683,988 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          

35



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |           |  
|--------------------------------------------------- | --------------------------------------------------------------- | -------------- | --------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- |  | - | ---------- | ---------- | - | - | --------- | --------- | -
|                                                    |                                                                 |               
|                                                    |                                                                 | March 31, 2001
|                                                    |                                                                 |               
|                                                    |                                                                 |                |           | Eliminations |   |             
|                                                    |                                                                 | MCN            |           |              |   | Other        |           | and       |   | Consolidated
|                                                    |                                                                 | Corporate      |           | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                      |                                                                 |                |           |              |   |              |           |           |   |             
|LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|Current Liabilities                                 |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts payable                                                |                | $         | 1,881        |   |              | $         | 489,700   |   |              | $         | 84,545  |  |   | $          | (21,017    | ) |   | $         | 555,109   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Notes payable                                                   |                |           |             |   |              |           | 213,394   |   |              |           | 181,582 |  |   |            | (3,974     | ) |   |           | 391,002   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Current portion of long-term debt and capital lease obligations |                |           |             |   |              |           | 105,571   |   |              |           | 24,580  |  |   |            |           |   |   |           | 130,151   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                |           |             |   |              |           | 330,326   |   |              |           |        |  |   |            |           |   |   |           | 330,326   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas inventory equalization                                      |                |           |             |   |              |           |          |   |              |           | 67,187  |  |   |            |           |   |   |           | 67,187    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal income, property and other taxes payable                |                |           | (4,132       | ) |              |           | 5,914     |   |              |           | 88,765  |  |   |            | (39,698    | ) |   |           | 50,849    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas payable                                                     |                |           |             |   |              |           | 8,062     |   |              |           | 1,299   |  |   |            |           |   |   |           | 9,361     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Customer deposits                                               |                |           |             |   |              |           |          |   |              |           | 15,972  |  |   |            |           |   |   |           | 15,972    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                |           | 11,498       |   |              |           | 38,541    |   |              |           | 50,382  |  |   |            | (3,994     | ) |   |           | 96,427    |  
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                | 9,247     |              |   |              | 1,191,508 |           |   |              | 514,312   |         |  |   | (68,683    | )          |   |   | 1,646,384 |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities              |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income taxes                                           |                |           | (7,203       | ) |              |           |          |   |              |           | 152,836 |  |   |            | (125,542   | ) |   |           | 20,091    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                |           |             |   |              |           | 391,440   |   |              |           |        |  |   |            |           |   |   |           | 391,440   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Unamortized investment tax credit                               |                |           |             |   |              |           |          |   |              |           | 25,602  |  |   |            |           |   |   |           | 25,602    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Tax benefits amortizable to customers                           |                |           |             |   |              |           |          |   |              |           | 137,917 |  |   |            |           |   |   |           | 137,917   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued environmental costs                                     |                |           |             |   |              |           |          |   |              |           | 27,828  |  |   |            |           |   |   |           | 27,828    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Minority interest                                               |                |           |             |   |              |           | 477       |   |              |           | 643     |  |   |            |           |   |   |           | 1,120     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                |           | 307,201      |   |              |           | 23,674    |   |              |           | 60,959  |  |   |            | (297,635   | ) |   |           | 94,199    |  
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                | 299,998   |              |   |              | 415,591   |           |   |              | 405,785   |         |  |   | (423,177   | )          |   |   | 698,197   |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations |                                                                 |                |          |              |   |              | 413,282   |           |   |              | 641,432   |         |  |   |           |            |   |   | 1,054,714 |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries     |                                                                 |                |          |              |   |              |          |           |   |              | 272,556   |         |  |   |           |            |   |   | 272,556   |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Common Shareholders Equity                         |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock                                                    |                |           | 902          |   |              |           | 5         |   |              |           | 22,886  |  |   |            | (22,891    | ) |   |           | 902       |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Additional paid-in capital                                      |                |           | 1,093,020    |   |              |           | 830,021   |   |              |           | 248,058 |  |   |            | (1,078,079 | ) |   |           | 1,093,020 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Retained earnings (deficit)                                     |                |           | (80,601      | ) |              |           | (364,954  | ) |              |           | 525,770 |  |   |            | (160,816   | ) |   |           | (80,601   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accumulated other comprehensive income                          |                |           |             |   |              |           | 21,228    |   |              |           |        |  |   |            |           |   |   |           | 21,228    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Yield enhancement, contract and issuance costs                  |                |           | (22,412      | ) |              |           |          |   |              |           |        |  |   |            |           |   |   |           | (22,412   | )
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                | 990,909   |              |   |              | 486,300   |           |   |              | 796,714   |         |  |   | (1,261,786 | )          |   |   | 1,012,137 |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 | $              | 1,300,154 |              |   | $            | 2,506,681 |           |   | $            | 2,630,799 |         |  | $ | (1,753,646 | )          |   | $ | 4,683,988 |          
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          

36



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | --------- | ------------ | - | ------------ | --------- | --------- | ----- | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                      |                                       
|                                                                |                                                      | March 31, 2000                        
|                                                                |                                                      |                                       
|                                                                |                                                      |                                        |           | Eliminations |   |             
|                                                                |                                                      | MCN                                    |           |              |   | Other        |           | and       |       | Consolidated
|                                                                |                                                      | Corporate                              |           | MCNEE        |   | Subsidiaries |           | Reclasses |       | Total       
|(in Thousands)                                                  |                                                      |                                        |           |              |   |              |           |           |       |             
|ASSETS                                                          |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                   |                                        | $         | 5,701        |   |              | $         | 13,105    |       |              | $         | 10,874    |        |   | $          | (5,684   | ) |   | $         | 23,996    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                  |                                        |           | 12,821       |   |              |           | 257,599   |       |              |           | 223,456   |        |   |            | (13,491  | ) |   |           | 480,385   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less  Allowance for doubtful accounts |           |              |  |              |           |           | 2,887 |              |           |           | 18,452 |   |            |          |  |   |           |           | 21,339 | 
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                             |                                        |           | 12,821       |   |              |           | 254,712   |       |              |           | 205,004   |        |   |            | (13,491  | ) |   |           | 459,046   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           |             |   |              |           | 32,488    |       |              |           |          |        |   |            |         |   |   |           | 32,488    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                            |                                        |           |             |   |              |           |          |       |              |           | 68,710    |        |   |            |         |   |   |           | 68,710    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                     |                                        |           |             |   |              |           | 25,343    |       |              |           | 34,014    |        |   |            |         |   |   |           | 59,357    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods |                                        |           | 211          |   |              |           | 1,191     |       |              |           | 49,616    |        |   |            |         |   |   |           | 51,018    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           | (344         | ) |              |           | 45,294    |       |              |           | (6,372    | )      |   |            |         |   |   |           | 38,578    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | 7,405        |   |              |           | 46,116    |       |              |           | 26,906    |        |   |            | (28,633  | ) |   |           | 51,794    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 25,794    |              |   |              | 418,249   |           |       |              | 388,752   |           |        |   | (47,808    | )        |   |   | 784,987   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 89,760    |       |              |           | 154       |        |   |            | (89,914  | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           |             |   |              |           | 48,360    |       |              |           |          |        |   |            |         |   |   |           | 48,360    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities            |                                        |           |             |   |              |           | 28,026    |       |              |           | 68,728    |        |   |            |         |   |   |           | 96,754    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in leases                                |                                        |           |             |   |              |           |          |       |              |           |          |        |   |            |         |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                         |                                        |           |             |   |              |           |          |       |              |           | 28,602    |        |   |            |         |   |   |           | 28,602    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                |                                        |           | 3,294        |   |              |           |          |       |              |           | 171,490   |        |   |            | (4,184   | ) |   |           | 170,600   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | (1,275       | ) |              |           | 28,867    |       |              |           | 492,469   |        |   |            | (424,318 | ) |   |           | 95,743    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 2,019     |              |   |              | 195,013   |           |       |              | 761,443   |           |        |   | (518,416   | )        |   |   | 440,059   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                      |                                        | 1,267,782 |              |   |              | 593,558   |           |       |              | 19,801    |           |        |   | (1,264,937 | )        |   |   | 616,204   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment                                   |                                                      |                                        | 16,228    |              |   |              | 675,789   |           |       |              | 3,032,992 |           |        |   |           |          |   |   | 3,725,009 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion        |                                        |           | 7,691        |   |              |           | 221,994   |       |              |           | 1,498,042 |        |   |            |         |   |   |           | 1,727,727 |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 8,537     |              |   |              | 453,795   |           |       |              | 1,534,950 |           |        |   |           |          |   |   | 1,997,282 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      | $                                      | 1,304,132 |              |   | $            | 1,660,615 |           |       | $            | 2,704,946 |           |        | $ | (1,831,161 | )        |   | $ | 3,838,532 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |       |              |           |           |        |   |            |          |   |   |           |          

37



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |         |  
|--------------------------------------------------- | --------------------------------------------------------------- | -------------- | --------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- |  | - | ---------- | -------- | - | - | --------- | ------- | -
|                                                    |                                                                 |               
|                                                    |                                                                 | March 31, 2000
|                                                    |                                                                 |               
|                                                    |                                                                 |                |           | Eliminations |   |             
|                                                    |                                                                 | MCN            |           |              |   | Other        |           | and       |   | Consolidated
|                                                    |                                                                 | Corporate      |           | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                      |                                                                 |                |           |              |   |              |           |           |   |             
|LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                   
|                                                   
|                                                   
|                                                   
|Current Liabilities                                 |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts payable                                                |                | $         | 4,544        |   |              | $         | 190,311   |   |              | $         | 81,144  |  |   | $          | (11,535  | ) |   | $         | 264,464 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Notes payable                                                   |                |           |             |   |              |           | 89,783    |   |              |           | 87,994  |  |   |            | (8,761   | ) |   |           | 169,016 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Current portion of long-term debt and capital lease obligations |                |           |             |   |              |           | 60,100    |   |              |           | 26,150  |  |   |            |         |   |   |           | 86,250  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                |           |             |   |              |           | 35,181    |   |              |           |        |  |   |            |         |   |   |           | 35,181  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas inventory equalization                                      |                |           |             |   |              |           |          |   |              |           | 80,844  |  |   |            |         |   |   |           | 80,844  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal income, property and other taxes payable                |                |           | (7,075       | ) |              |           | 3,057     |   |              |           | 76,978  |  |   |            | (27,301  | ) |   |           | 45,659  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas payable                                                     |                |           |             |   |              |           | 5,996     |   |              |           | 2,048   |  |   |            |         |   |   |           | 8,044   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Customer deposits                                               |                |           |             |   |              |           |          |   |              |           | 16,960  |  |   |            |         |   |   |           | 16,960  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                |           | 8,034        |   |              |           | 68,812    |   |              |           | 48,586  |  |   |            | (1,368   | ) |   |           | 124,064 |  
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                    |                                                                 |                | 5,503     |              |   |              | 453,240   |           |   |              | 420,704   |         |  |   | (48,965    | )        |   |   | 830,482   |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|Deferred Credits and Other Liabilities              |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income taxes                                           |                |           | (6,679       | ) |              |           |          |   |              |           | 119,058 |  |   |            | (89,914  | ) |   |           | 22,465  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                |           |             |   |              |           | 65,874    |   |              |           |        |  |   |            |         |   |   |           | 65,874  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Unamortized investment tax credit                               |                |           |             |   |              |           |          |   |              |           | 27,537  |  |   |            |         |   |   |           | 27,537  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Tax benefits amortizable to customers                           |                |           |             |   |              |           |          |   |              |           | 135,616 |  |   |            |         |   |   |           | 135,616 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued environmental costs                                     |                |           |             |   |              |           |          |   |              |           | 27,711  |  |   |            |         |   |   |           | 27,711  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Minority interest                                               |                |           |             |   |              |           | 2,107     |   |              |           | 6,524   |  |   |            | (1,515   | ) |   |           | 7,116   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                |           | 437,033      |   |              |           | 31,775    |   |              |           | 60,281  |  |   |            | (425,676 | ) |   |           | 103,413 |  
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                    |                                                                 |                | 430,354   |              |   |              | 99,756    |           |   |              | 376,727   |         |  |   | (517,105   | )        |   |   | 389,732   |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|Long-Term Debt, including capital lease obligations |                                                                 |                |          |              |   |              | 682,409   |           |   |              | 664,786   |         |  |   |           |          |   |   | 1,347,195 |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|Redeemable Preferred Securities of Subsidiaries     |                                                                 |                |          |              |   |              |          |           |   |              | 402,994   |         |  |   |           |          |   |   | 402,994   |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|Common Shareholders Equity                         |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock                                                    |                |           | 857          |   |              |           | 5         |   |              |           | 22,882  |  |   |            | (22,887  | ) |   |           | 857     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Additional paid-in capital                                      |                |           | 961,591      |   |              |           | 740,746   |   |              |           | 247,238 |  |   |            | (987,984 | ) |   |           | 961,591 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Retained earnings (deficit)                                     |                |           | (71,885      | ) |              |           | (315,395  | ) |              |           | 569,615 |  |   |            | (254,220 | ) |   |           | (71,885 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accumulated other comprehensive loss                            |                |           |             |   |              |           | (146      | ) |              |           |        |  |   |            |         |   |   |           | (146    | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Yield enhancement, contract and issuance costs                  |                |           | (22,288      | ) |              |           |          |   |              |           |        |  |   |            |         |   |   |           | (22,288 | )
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                    |                                                                 |                | 868,275   |              |   |              | 425,210   |           |   |              | 839,735   |         |  |   | (1,265,091 | )        |   |   | 868,129   |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        
|                                                    |                                                                 | $              | 1,304,132 |              |   | $            | 1,660,615 |           |   | $            | 2,704,946 |         |  | $ | (1,831,161 | )        |   | $ | 3,838,532 |        
|                                                    |                                                                 |                |           |              |   |              |           |           |   |              |           |         |  |   |            |          |   |   |           |        

38



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | --------- | ------------ | - | ------------ | --------- | --------- | ------ | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                      |                                       
|                                                                |                                                      | December 31, 2000                     
|                                                                |                                                      |                                       
|                                                                |                                                      |                                        |           | Eliminations |   |             
|                                                                |                                                      | MCN                                    |           |              |   | Other        |           | and       |        | Consolidated
|                                                                |                                                      | Corporate                              |           | MCNEE        |   | Subsidiaries |           | Reclasses |        | Total       
|(in Thousands)                                                  |                                                      |                                        |           |              |   |              |           |           |        |             
|ASSETS                                                          |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                   |                                        | $         | 8,230        |   |              | $         | 50,419    |        |              | $         | 12,952    |        |   | $          | (8,212   | ) |   | $         | 63,389    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                  |                                        |           | 14,156       |   |              |           | 651,769   |        |              |           | 180,137   |        |   |            | (21,262  | ) |   |           | 824,800   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less  Allowance for doubtful accounts |           |              |  |              |           |           | 14,465 |              |           |           | 19,139 |   |            |          |  |   |           |           | 33,604 | 
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                             |                                        |           | 14,156       |   |              |           | 637,304   |        |              |           | 160,998   |        |   |            | (21,262  | ) |   |           | 791,196   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           |             |   |              |           | 240,969   |        |              |           |          |        |   |            |         |   |   |           | 240,969   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                            |                                        |           |             |   |              |           |          |        |              |           | 137,473   |        |   |            |         |   |   |           | 137,473   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                     |                                        |           |             |   |              |           | 240,013   |        |              |           | 13,586    |        |   |            |         |   |   |           | 253,599   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods |                                        |           |             |   |              |           | 2,313     |        |              |           | 54,790    |        |   |            |         |   |   |           | 57,103    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           |          |        |              |           | (1,126    | )      |   |            | 1,126    |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | 5,803        |   |              |           | 19,789    |        |              |           | 28,186    |        |   |            | (1,118   | ) |   |           | 52,660    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 28,189    |              |   |              | 1,190,807 |           |        |              | 406,859   |           |        |   | (29,466    | )        |   |   | 1,596,389 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                |                                        |           |             |   |              |           | 179,371   |        |              |           |          |        |   |            | (134,435 | ) |   |           | 44,936    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from risk management and trading activities   |                                        |           |             |   |              |           | 173,672   |        |              |           |          |        |   |            |         |   |   |           | 173,672   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities            |                                        |           |             |   |              |           | 103,393   |        |              |           | 83,379    |        |   |            |         |   |   |           | 186,772   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in leases                                |                                        |           |             |   |              |           |          |        |              |           | 76,395    |        |   |            |         |   |   |           | 76,395    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                         |                                        |           |             |   |              |           |          |        |              |           | 28,675    |        |   |            |         |   |   |           | 28,675    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                |                                        |           | 4,100        |   |              |           |          |        |              |           | 215,519   |        |   |            | (5,146   | ) |   |           | 214,473   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                |                                        |           | (542         | ) |              |           | 32,340    |        |              |           | 345,264   |        |   |            | (294,773 | ) |   |           | 82,289    |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 3,558     |              |   |              | 488,776   |           |        |              | 749,232   |           |        |   | (434,354   | )        |   |   | 807,212   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                      |                                        | 1,238,919 |              |   |              | 583,108   |           |        |              | 20,067    |           |        |   | (1,235,536 | )        |   |   | 606,558   |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment                                   |                                                      |                                        | 16,223    |              |   |              | 645,550   |           |        |              | 3,008,216 |           |        |   |           |          |   |   | 3,669,989 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion        |                                        |           | 9,264        |   |              |           | 243,267   |        |              |           | 1,549,870 |        |   |            |         |   |   |           | 1,802,401 |       
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      |                                        | 6,959     |              |   |              | 402,283   |           |        |              | 1,458,346 |           |        |   |           |          |   |   | 1,867,588 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                      | $                                      | 1,277,625 |              |   | $            | 2,664,974 |           |        | $            | 2,634,504 |           |        | $ | (1,699,356 | )        |   | $ | 4,877,747 |          
|                                                                |                                                      |                                        |           |              |   |              |           |           |        |              |           |           |        |   |            |          |   |   |           |          

39



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |           |  
|--------------------------------------------------- | --------------------------------------------------------------- | ----------------- | --------- | ------------ | - | ------------ | --------- | --------- | - | ------------ | --------- | ------- |  | - | ---------- | ---------- | - | - | --------- | --------- | -
|                                                    |                                                                 |                  
|                                                    |                                                                 | December 31, 2000
|                                                    |                                                                 |                  
|                                                    |                                                                 |                   |           | Eliminations |   |             
|                                                    |                                                                 | MCN               |           |              |   | Other        |           | and       |   | Consolidated
|                                                    |                                                                 | Corporate         |           | MCNEE        |   | Subsidiaries |           | Reclasses |   | Total       
|(in Thousands)                                      |                                                                 |                   |           |              |   |              |           |           |   |             
|LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|Current Liabilities                                 |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts payable                                                |                   | $         | 3,704        |   |              | $         | 616,059   |   |              | $         | 101,842 |  |   | $          | (23,735    | ) |   | $         | 697,870   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Notes payable                                                   |                   |           |             |   |              |           | 297,662   |   |              |           | 286,804 |  |   |            | (8,074     | ) |   |           | 576,392   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Current portion of long-term debt and capital lease obligations |                   |           |             |   |              |           | 160,000   |   |              |           | 24,652  |  |   |            |           |   |   |           | 184,652   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                   |           |             |   |              |           | 271,092   |   |              |           |        |  |   |            |           |   |   |           | 271,092   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas inventory equalization                                      |                   |           |             |   |              |           |          |   |              |           |        |  |   |            |           |   |   |           |          |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal income, property and other taxes payable                |                   |           | (4,294       | ) |              |           | 9,124     |   |              |           | 65,815  |  |   |            |           |   |   |           | 70,645    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas payable                                                     |                   |           |             |   |              |           | 60,195    |   |              |           | 2,232   |  |   |            |           |   |   |           | 62,427    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Customer deposits                                               |                   |           |             |   |              |           |          |   |              |           | 17,708  |  |   |            |           |   |   |           | 17,708    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                   |           | 6,373        |   |              |           | 109,019   |   |              |           | 54,013  |  |   |            | 5,810      |   |   |           | 175,215   |  
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                   | 5,783     |              |   |              | 1,523,151 |           |   |              | 553,066   |         |  |   | (25,999    | )          |   |   | 2,056,001 |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities              |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income taxes                                           |                   |           | (6,147       | ) |              |           |          |   |              |           | 146,411 |  |   |            | (140,264   | ) |   |           |          |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Liabilities from risk management and trading activities         |                   |           |             |   |              |           | 239,207   |   |              |           |        |  |   |            |           |   |   |           | 239,207   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Unamortized investment tax credit                               |                   |           |             |   |              |           |          |   |              |           | 26,084  |  |   |            |           |   |   |           | 26,084    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Tax benefits amortizable to customers                           |                   |           |             |   |              |           |          |   |              |           | 138,161 |  |   |            |           |   |   |           | 138,161   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued environmental costs                                     |                   |           |             |   |              |           |          |   |              |           | 28,250  |  |   |            |           |   |   |           | 28,250    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Minority interest                                               |                   |           |             |   |              |           | 531       |   |              |           | 635     |  |   |            |           |   |   |           | 1,166     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                           |                   |           | 307,203      |   |              |           | 23,577    |   |              |           | 55,648  |  |   |            | (297,431   | ) |   |           | 88,997    |  
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                   | 301,056   |              |   |              | 263,315   |           |   |              | 395,189   |         |  |   | (437,695   | )          |   |   | 521,865   |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations |                                                                 |                   |          |              |   |              | 415,456   |           |   |              | 641,369   |         |  |   |           |            |   |   | 1,056,825 |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries     |                                                                 |                   |          |              |   |              |          |           |   |              | 272,484   |         |  |   |           |            |   |   | 272,484   |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|Common Shareholders Equity                         |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock                                                    |                   |           | 902          |   |              |           | 5         |   |              |           | 22,885  |  |   |            | (22,890    | ) |   |           | 902       |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Additional paid-in capital                                      |                   |           | 1,093,152    |   |              |           | 772,368   |   |              |           | 247,238 |  |   |            | (1,019,605 | ) |   |           | 1,093,153 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Retained earnings (deficit)                                     |                   |           | (100,856     | ) |              |           | (309,106  | ) |              |           | 502,273 |  |   |            | (193,167   | ) |   |           | (100,856  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accumulated other comprehensive loss                            |                   |           |             |   |              |           | (215      | ) |              |           |        |  |   |            |           |   |   |           | (215      | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Yield enhancement, contract and issuance costs                  |                   |           | (22,412      | ) |              |           |          |   |              |           |        |  |   |            |           |   |   |           | (22,412   | )
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 |                   | 970,786   |              |   |              | 463,052   |           |   |              | 772,396   |         |  |   | (1,235,662 | )          |   |   | 970,572   |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          
|                                                    |                                                                 | $                 | 1,277,625 |              |   | $            | 2,664,974 |           |   | $            | 2,634,504 |         |  | $ | (1,699,356 | )          |   | $ | 4,877,747 |          
|                                                    |                                                                 |                   |           |              |   |              |           |           |   |              |           |         |  |   |            |            |   |   |           |          

40



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------ | ------- | ------------ | ------- | --------- | ------- | ------------ | ------- | -------- | -------- | - | ------- | ------- | ------ | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Three Months Ended March 31, 2001                     
|                                                     |                                                                              |                                                       
|                                                     |                                                                              |                                                        |        | Eliminations |         |             
|                                                     |                                                                              | MCN                                                    |        |              |         | Other        |         | and       |         | Consolidated
|                                                     |                                                                              | Corporate                                              |        | MCNEE        |         | Subsidiaries |         | Reclasses |         | Total       
|(in Thousands)                                       |                                                                              |                                                        |        |              |         |              |         |           |         |             
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 76,929 |              |         | $            | 58,883  |           |         | $            | 196,696 |          |          | $ | (80,549 | )       |        | $ | 251,959 |         
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        |             |         |              |         | (84,268   | )       |              |         | (105,222 | )        |   |         | 4,100   |        |   |         | (185,390 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |        |             |         |              |         | 57,653    |         |              |         |         |          |   |         | (57,653 | )      |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (23,064      | )       |              |         |          |         |              |         | (75,000  | )        |   |         | 75,000  |        |   |         | (23,064  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        |             |         |              |         |          |         |              |         | (6,253   | )        |   |         | 6,253   |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        |             |         |              |         |          |         |              |         |         |          |   |         |        |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        |             |         |              |         |          |         |              |         |         |          |   |         |        |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |             |         |              |         |          |         |              |         |         |          |   |         |        |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        |             |         |              |         | (60,000   | )       |              |         | (1,584   | )        |   |         | 1       |        |   |         | (61,583  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | (132         | )       |              |         |          |         |              |         | 373      |          |   |         | (529    | )      |   |         | (288     | )       
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |              | (23,196 | )            |         |           | (86,615 | )            |         |          | (187,686 | ) |         |         | 27,172 |   |         |          | (270,325 | )
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        |             |         |              |         | (5,570    | )       |              |         | (20,759  | )        |   |         |        |        |   |         | (26,329  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |             |         |              |         | 177       |         |              |         | 9,024    |          |   |         |        |        |   |         | 9,201    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |        | (57,953      | )       |              |         | (6,510    | )       |              |         |         |          |   |         | 57,653  |        |   |         | (6,810   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |             |         |              |         | 3,205     |         |              |         |         |          |   |         |        |        |   |         | 3,205    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | (19          | )       |              |         |          |         |              |         | (2,665   | )        |   |         | (38     | )      |   |         | (2,722   | )       
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |              | (57,972 | )            |         |           | (8,698  | )            |         |          | (14,400  | ) |         |         | 57,615 |   |         |          | (23,455  | )
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (4,239 | )            |         |              | (36,430 | )         |         |              | (5,390  | )        |          |   | 4,238   |         |        |   | (41,821 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 8,230  |              |         |              | 50,419  |           |         |              | 12,952  |          |          |   | (8,212  | )       |        |   | 63,389  |         
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         
|Cash and Cash Equivalents, March 31                  |                                                                              | $                                                      | 3,991  |              |         | $            | 13,989  |           |         | $            | 7,562   |          |          | $ | (3,974  | )       |        | $ | 21,568  |         
|                                                     |                                                                              |                                                        |        |              |         |              |         |           |         |              |         |          |          |   |         |         |        |   |         |         

41



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONCLUDED)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------ | -------- | ------------ | ------- | --------- | -------- | ------------ | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Three Months Ended March 31, 2000                     
|                                                     |                                                                              |                                                       
|                                                     |                                                                              |                                                        |        | Eliminations |          |             
|                                                     |                                                                              | MCN                                                    |        |              |          | Other        |         | and       |          | Consolidated
|                                                     |                                                                              | Corporate                                              |        | MCNEE        |          | Subsidiaries |         | Reclasses |          | Total       
|(in Thousands)                                       |                                                                              |                                                        |        |              |          |              |         |           |          |             
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | (9,536 | )            |          | $            | 53,240  |           |          | $            | 216,552 |          |          | $ | (14,821 | )        |          | $ | 245,435 |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        | (200,000     | )        |              |         | (89,466   | )        |              |         | (166,139 | )        |   |         | 6,866    |          |   |         | (448,739 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |        |             |          |              |         | (228,987  | )        |              |         |         |          |   |         | 228,987  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (21,719      | )        |              |         |          |          |              |         |         |          |   |         |         |          |   |         | (21,719  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        |             |          |              |         |          |          |              |         | (8,622   | )        |   |         | 8,622    |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        | 2,897        |          |              |         |          |          |              |         |         |          |   |         |         |          |   |         | 2,897    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        | (1,655       | )        |              |         |          |          |              |         |         |          |   |         |         |          |   |         | (1,655   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |             |          |              |         | (34,138   | )        |              |         |         |          |   |         |         |          |   |         | (34,138  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        |             |          |              |         | (38       | )        |              |         | (17,925  | )        |   |         |         |          |   |         | (17,963  | )       
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |              | (220,477 | )            |         |           | (352,629 | )            |         |          | (192,686 | ) |         |          | 244,475  |   |         |          | (521,317 | )
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        |             |          |              |         | (2,330    | )        |              |         | (21,341  | )        |   |         |         |          |   |         | (23,671  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |             |          |              |         | (2,000    | )        |              |         | (893     | )        |   |         |         |          |   |         | (2,893   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |        | 228,987      |          |              |         | (28,641   | )        |              |         |         |          |   |         | (228,987 | )        |   |         | (28,641  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |             |          |              |         | 296,340   |          |              |         |         |          |   |         | (864     | )        |   |         | 295,476  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        |             |          |              |         | (66       | )        |              |         | (899     | )        |   |         | 1,206    |          |   |         | 241      |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |              | 228,987  |              |         |           | 263,303  |              |         |          | (23,133  | ) |         |          | (228,645 | ) |         |          | 240,512  |  
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (1,026 | )            |          |              | (36,086 | )         |          |              | 733     |          |          |   | 1,009   |          |          |   | (35,370 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 6,727  |              |          |              | 49,191  |           |          |              | 10,141  |          |          |   | (6,693  | )        |          |   | 59,366  |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         
|Cash and Cash Equivalents, March 31                  |                                                                              | $                                                      | 5,701  |              |          | $            | 13,105  |           |          | $            | 10,874  |          |          | $ | (5,684  | )        |          | $ | 23,996  |         
|                                                     |                                                                              |                                                        |        |              |          |              |         |           |          |              |         |          |          |   |         |          |          |   |         |         

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INDEPENDENT ACCOUNTANTS REPORT

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

We have reviewed the accompanying condensed consolidated
statements of financial position of MCN Energy Group Inc.
and subsidiaries (the Company) as of March 31,
2001 and 2000, and the related condensed consolidated statements
of operations, retained earnings (deficit) and cash flows for
the three-month periods ended March 31, 2001 and 2000.
These financial statements are the responsibility of the
Companys management.

We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical review procedures to the financial data and
of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which
is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.

We have previously audited, in accordance with auditing
standards generally accepted in the United States of America,
the consolidated statement of financial position of the Company
as of December 31, 2000, and the related consolidated
statements of operations, financial position, and cash flows for
the year then ended (not presented herein); and in our report
dated March 13, 2001, we expressed an unqualified opinion
on those consolidated financial statements and included an
explanatory paragraph relating to a change in accounting method
as described in Note 3 to those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated statement of financial
position as of December 31, 2000 is fairly stated, in all
material respects, in relation to the consolidated statement of
financial position from which it has been derived.

DELOITTE & TOUCHE LLP





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OTHER INFORMATION







EXHIBITS AND REPORTS ON FORM 8-K


(a)  Exhibits

|        |      |             |  |                                                  
|------- | ---- | ----------- |  | -------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 15-1 |             |  | Letter re Unaudited Interim Financial Information

(b)  Reports on Form 8-K

MCN filed a report on Form 8-K dated March 22, 2001,
under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that MichCon withdrew its request before
the Michigan Public Service Commission to eliminate the current
experimental Customer Choice and Gas Sales Programs and to
implement a permanent gas customer choice program effective
April 1, 2001.

MCN filed a report on Form 8-K dated March 30, 2001,
under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that MCN called a special meeting of common
shareholders to be held May 15, 2001 at 2 p.m. eastern
time at MCNs headquarters to approve the previously
announced amended merger agreement with DTE Energy Company (DTE).

MCN filed a report on Form 8-K dated April 3, 2001,
under Item 5, with respect to the issuance of a press
release. The press release, which was included in the
Form 8-K, noted that MCN completed the previously announced
sale of its 95% membership interests in four coal fines plants
to a unit of DTE. The final sale price for these facilities was
$100 million. In addition, MCN sold its interest in the
remaining two plants to the DTE subsidiary for $32 million.

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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.
| |                      
| | (Registrant)         



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

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

Date:  May 11, 2001

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Table of Contents

|        |  |                                                  
|------- |  | -------------------------------------------------
|Exhibit
|Number  |  | Description                                      
|        |  |                                                  
|15-1    |  | Letter re Unaudited Interim Financial Information