##### Table of Contents






SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

(Mark One)


|  |                                                     
|- | ----------------------------------------------------
|X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2000,

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 1-7310

Michigan Consolidated Gas
Company, a Michigan corporation, meets the conditions set forth
in General Instruction I(1)(a) and (b) of
Form 10-K and is, therefore, filing this form with the
reduced disclosure format.

MICHIGAN CONSOLIDATED GAS COMPANY

(Exact name of registrant as specified in its
charter)


|                                                                               |  |                                                
|------------------------------------------------------------------------------ |  | -----------------------------------------------
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Michigan(State or other jurisdiction of
	incorporation or organization)        |  | 38-0478040(I.R.S. Employer
	Identification No.)
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|500 Griswold Street, Detroit, Michigan(Address of principal executive offices) |  | 48226(Zip Code)                                

313-965-2430

(Registrants telephone number, including
area code)


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

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

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.  Yes  X  No

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

All of the registrants 10,300,000 outstanding shares of
common stock, par value $1 per share, are indirectly owned by
MCN Energy Group Inc.

Documents Incorporated by Reference:





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GLOSSARY



|                            |  |                                                                                                                                                                                                                                                                                                                                                        
|--------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Antrim Gas                  |  | Natural gas produced from shallow wells in the Devonian (Antrim)
	shale formations.                                                                                                                                                                                                                                                                    
|                           
|Customer Choice Program     |  | A three-year program that began in April 1999 which allows
	a limited number of customers to purchase gas from suppliers
	other than MichCon.                                                                                                                                                                                                          
|                           
|End User Transportation     |  | A gas delivery service historically provided to large-volume
	commercial and industrial customers who purchase natural gas
	directly from producers or brokerage companies. Under
	MichCons Customer Choice Program that began in 1999, this
	service is also provided to residential customers and
	small-volume commercial and industrial customers.
|                           
|FERC                        |  | Federal Energy Regulatory Commission; a federal agency that
	determines the rates and regulations of interstate pipelines.                                                                                                                                                                                                                             
|                           
|Gas Sales Program           |  | A three-year program that began in January 1999 under which
	MichCons gas sales rate includes a gas commodity component
	that is fixed at $2.95 per Mcf.                                                                                                                                                                                              
|                           
|Gas Storage                 |  | For MichCon, the process of injecting, storing and withdrawing
	natural gas from a depleted underground natural gas field.                                                                                                                                                                                                                             
|                           
|GCR                         |  | Gas Cost Recovery; a process, in effect through 1998, by which
	MichCon, through annual gas cost proceedings before the Michigan
	Public Service Commission, was allowed to recover its reasonable
	and prudent cost of gas sold.                                                                                                                      
|                           
|Intermediate Transportation |  | A gas delivery service provided to producers, brokers and other
	gas companies that own the natural gas, but are not the ultimate
	consumers.                                                                                                                                                                                                          
|                           
|MCN                         |  | MCN Energy Group Inc. and its subsidiaries.                                                                                                                                                                                                                                                                                                            
|                           
|MichCon                     |  | Michigan Consolidated Gas Company; an indirect, wholly owned
	natural gas distribution and intrastate transmission subsidiary
	of MCN.                                                                                                                                                                                                                 
|                           
|MichCon Pipeline            |  | MichCon Pipeline Co., a wholly owned subsidiary of MichCon that
	engages in pipeline projects through its subsidiaries.                                                                                                                                                                                                                                
|                           
|MPSC                        |  | Michigan Public Service Commission; a state agency that
	regulates, among other things, the intrastate aspects of the
	natural gas industry within Michigan.                                                                                                                                                                                           

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GLOSSARY(CONCLUDED)




|                       |  |                                                                                                                                                                                                                                                                                                      
|---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Normal Weather         |  | The average daily temperature within MichCons service area
	during a recent 30-year period.                                                                                                                                                                                                         
|                      
|Regulatory Reform Plan |  | The plan approved by the MPSC in April 1998 that provided
	for: (i) the Gas Sales Program, (ii) the Customer
	Choice Program and (iii) an income sharing provision that
	allows customers to share in profits when actual returns on
	equity from utility operations exceed predetermined thresholds.
|                      
|Spot Market            |  | The buying and selling of natural gas on a short-term basis,
	typically month-to-month.                                                                                                                                                                                                              
|                      
|Units of Measurement:  |  |                                                                                                                                                                                                                                                                                                      
|                      
|Bcf                    |  | Billion cubic feet of gas.                                                                                                                                                                                                                                                                           
|                      
|Mcf                    |  | Thousand cubic feet of gas.                                                                                                                                                                                                                                                                          
|                      
|MMcf                   |  | Million cubic feet of gas.                                                                                                                                                                                                                                                                           
|                      
|/d                     |  | Added to various units of measure to denote units per day.                                                                                                                                                                                                                                           

ii



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TABLE OF CONTENTS



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



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TABLE OF CONTENTS

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|CONTENTS   |           |  |                                                                                        |       
|PART I     |           |  |                                                                                        |       
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|           | Item  1.  |  | Business                                                                               |        |  | 1  | 
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|           | Item  2.  |  | Properties                                                                             |        |  | 11 | 
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|           | Item  3.  |  | Legal Proceedings                                                                      |        |  | 11 | 
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|           | Item  4.  |  | Submission of Matters to a Vote of Security Holders                                    |        |  | 12 | 
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|PART II    |           |  |                                                                                        |       
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|           | Item  5.  |  | Market for Registrants Common Equity and Related
	Stockholder Matters                 |        |  | 13 | 
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|           | Item  6.  |  | Selected Financial Data                                                                |        |  | 14 | 
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|           | Item  7.  |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |        |  | 15 | 
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|           | Item  7A. |  | Quantitative and Qualitative Disclosures About Market Risk                             |        |  | 28 | 
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|           | Item  8.  |  | Financial Statements and Supplementary Data                                            |        |  | 29 | 
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|           | Item  9.  |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |        |  | 57 | 
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|PART III   |           |  |                                                                                        |       
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|           | Item  10. |  | Directors and Executive Officers of the Registrant                                     |        |  | 57 | 
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|           | Item  11. |  | Executive Compensation                                                                 |        |  | 57 | 
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|           | Item  12. |  | Security Ownership of Certain Beneficial Owners and Management                         |        |  | 57 | 
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|           | Item  13. |  | Certain Relationships and Related Transactions                                         |        |  | 57 | 
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|PART IV    |           |  |                                                                                        |       
|          
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|           | Item  14. |  | Exhibits, Financial Statement Schedule, and Reports on Form 8-K                        |        |  | 58 | 
|          
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|SIGNATURES |           |  | 61                                                                                     |       

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FORWARD-LOOKING STATEMENTS

This Form 10-K includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve certain risks and
uncertainties that may cause actual future results to differ
materially from those contemplated, projected, estimated or
budgeted in such forward-looking statements. Factors that may
impact forward-looking statements include, but are not limited
to, the following: (i) the effects of weather and other
natural phenomena; (ii) increased competition from other
energy suppliers as well as alternative forms of energy;
(iii) the capital intensive nature of MichCons
business; (iv) economic climate and growth in the
geographic areas in which MichCon does business; (v) the
uncertainty of gas reserve estimates; (vi) the timing and
extent of changes in commodity prices for natural gas,
electricity and crude oil; (vii) conditions of capital
markets and equity markets; (viii) the effects of changes
in governmental policies and regulatory actions, including
income taxes, environmental compliance and authorized rates; and
(ix) the timing and completion of the pending merger.






PART I







ITEM 1. BUSINESS


Michigan Consolidated Gas Company (MichCon or the Company) is a
Michigan corporation organized in 1898 and with its
predecessors, has been in business for more than 150 years.
MichCon, an indirect, wholly owned subsidiary of MCN Energy
Group Inc. (MCN), is a natural gas utility primarily engaged in
the distribution and transmission of natural gas in the State of
Michigan. MichCon also has subsidiaries involved in the
gathering and transmission of natural gas in northern Michigan.
MichCon operates one of the largest natural gas distribution and
transmission systems in the United States and the largest in
Michigan. MichCons non-regulated operations are not
significant.

MichCon serves approximately 1.2 million residential, commercial
and industrial customers in the Detroit, Grand Rapids, Ann
Arbor, Traverse City, Marquette and Muskegon metropolitan areas
and in various other communities throughout Michigan. MichCon
had approximately $2.3 billion in assets at December 31,
2000 and revenues of approximately $1.1 billion in 2000. On
December 31, 2000, MichCon had 2,707 employees.

PENDING MERGER

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

1



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


FINANCIAL AND OPERATING INFORMATION

MichCons earnings for 2000 were $109.5 million, an
increase of $3.2 million from 1999 earnings of $106.3 million.
The comparison was impacted by costs in both the 2000 and 1999
periods associated with the merger between MCN and DTE.
Excluding merger costs, 2000 earnings declined $10.7 million
from 1999 results reflecting lower gross margins and higher
operating costs. The lower gross margins were due to reduced
earnings from the gas sales program, partially offset by the
impact of more favorable weather. MichCons return on
equity of 14.9% in 2000 as compared to 15.4% in 1999 and 12.2%
in 1998 continues its record of solid financial performance.

MichCons earnings in 1999 were $29.3 million higher than
earnings in 1998. In addition to the comparison being impacted
by merger costs, 1998 results included the write-down of certain
gas gathering properties. The 1999 earnings improvement reflects
contributions from the gas sales program that began in
January 1999, as well as the impact of more favorable
weather.

For a detailed discussion of MichCons results of
operations refer to Item 7. Managements
Discussion & Analysis (MD&A) of this report. A
discussion of the services provided by MichCon, and the amount
and percentage of revenue contributed from such services follows:




Revenue by Service(in Thousands)

|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|--------------------------- |  | ---- | --------- | ---- |  | ---- | ----- | - |  | - | --------- |  |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                            |  |      |           |      |  |     
|                            |  | 2000 |           | 1999 |  | 1998
|                            |  |      |           |      |  |     
|                            |  |      |           |      |  |      |       |   |  |  
|                           
|                           
|                           
|                           
|Gas Sales                   |  | $    | 909,270   |      |  |      | 79.5  | % |  | $ | 907,471   |  |  |  | 79.9  | % |  | $ | 823,746   |  |  |  | 79.7  | %
|                           
|                           
|                           
|                           
|End User Transportation     |  |      | 117,116   |      |  |      | 10.2  |   |  |   | 103,556   |  |  |  | 9.1   |   |  |   | 82,016    |  |  |  | 7.9   |  
|                           
|                           
|                           
|                           
|Intermediate Transportation |  |      | 52,577    |      |  |      | 4.6   |   |  |   | 57,783    |  |  |  | 5.1   |   |  |   | 63,218    |  |  |  | 6.1   |  
|                           
|                           
|                           
|                           
|Other                       |  |      | 65,379    |      |  |      | 5.7   |   |  |   | 66,929    |  |  |  | 5.9   |   |  |   | 64,678    |  |  |  | 6.3   |  
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  
|                            |  | $    | 1,144,342 |      |  |      | 100.0 | % |  | $ | 1,135,739 |  |  |  | 100.0 | % |  | $ | 1,033,658 |  |  |  | 100.0 | %
|                            |  |      |           |      |  |      |       |   |  |   |           |  |  |  |       |   |  |   |           |  |  |  |       |  






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gas Sales Includes the sale and delivery of
	natural gas primarily to residential and small-volume commercial
	and industrial customers.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| | End User Transportation A gas delivery
	service provided primarily to large-volume commercial and
	industrial customers. Additionally, the service is provided to
	residential customers, and small-volume commercial and
	industrial customers who have elected to participate in
	MichCons experimental three-year Customer Choice Program
	that began in April 1999. End user transportation customers
	purchase natural gas directly from producers or brokerage
	companies and utilize MichCons pipeline network to
	transport the gas to their facilities or homes.
| 
| | Intermediate Transportation A gas delivery
	service provided to producers, brokers and other gas companies
	that own the natural gas, but are not the ultimate consumers.
	Intermediate transportation customers utilize MichCons
	gathering and high pressure transmission system to transport the
	gas to storage fields, processing plants, pipeline
	interconnections or other locations.                                                                                                                                                                             

2



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)




|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
| | Other Includes revenues from providing
	appliance maintenance, facility development, meter reading, and
	other energy-related services.

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

|                            |  |      |       |      |  |      |       |  |  |  |       | 
|--------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                           
|                           
|                            |  |      |       |     
|                            |  | 2000 |       | 1999 |  | 1998
|                            |  |      |       |      |  |     
|Operating Statistics(Bcf)   |  |      |       |      |  |      |       |  |  |  |       | 
|                           
|                           
|                           
|                           
|                           
|Gas Sales                   |  |      | 178.9 |      |  |      | 178.2 |  |  |  | 168.9 | 
|                           
|                           
|                           
|                           
|                           
|End User Transportation     |  |      | 163.5 |      |  |      | 151.7 |  |  |  | 140.1 | 
|                           
|                           
|                           
|                           
|                           
|Intermediate Transportation |  |      | 598.9 |      |  |      | 531.9 |  |  |  | 537.5 | 
|                            |  |      |       |      |  |      |       |  |  |  |       | 
|                            |  |      | 941.3 |      |  |      | 861.8 |  |  |  | 846.5 | 
|                            |  |      |       |      |  |      |       |  |  |  |       | 
|                           

GAS SALES

Strategy and Competitive Environment

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

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

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

MichCon continues to take steps to become the preferred provider
of natural gas and high-value energy services within Michigan in
order to achieve competitive financial results. To accomplish
this, MichCon continues to position itself to respond to changes
in regulation and increased competition by reducing its cost of
operations, maintaining a safe and reliable system for
customers, and focusing on meeting the needs of the marketplace.

3



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


Business Developments

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

The gas sales service in 2000 represented approximately 19% of
total deliveries, 80% of total revenues and 63% of total gross
margins.

END USER TRANSPORTATION

Strategy and Competitive Environment

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

Business Developments

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

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

4



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


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

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

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

INTERMEDIATE TRANSPORTATION

Strategy and Competitive Environment

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

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

Business Developments

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

5



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


acquisitions were needed to meet increased demand for
intermediate transportation services and to generate significant
off-system transportation opportunities.

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

Effect of Weather

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

Gas Supply

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

Following is a listing of MichCons sources of gas supply:

|                                   |                      |      |       |      |  |      |       |      |  |  |       |      | 
|---------------------------------- | -------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                  
|                                  
|                                   |                      |      |       |     
|                                   |                      | 2000 |       | 1999 |  | 1998
|                                   |                      |      |       |      |  |     
|Gas Supply(Bcf)                    |                      |      |       |      |  |      |       |      |  |  |       |     
|                                  
|Long Term                          |                      |      |       |      |  |      |       |      |  |  |       |     
|                                  
|                                  
|                                  
|                                  
|                                  
|                                   | Michigan suppliers   |      |       | 73.5 |  |      |       | 99.4 |  |  |       | 94.4 | 
|                                  
|                                  
|                                  
|                                  
|                                  
|                                   | Interstate suppliers |      |       | 56.1 |  |      |       | 63.9 |  |  |       | 17.6 | 
|                                  
|                                  
|                                  
|                                  
|                                  
|                                   | Canadian suppliers   |      |       | 28.0 |  |      |       | 29.9 |  |  |       | 25.9 | 
|                                  
|                                  
|                                  
|                                  
|                                  
|Spot Market                        |                      |      | 1.2   |      |  |      | 1.2   |      |  |  | 26.5  |     
|                                  
|                                  
|                                  
|                                  
|                                  
|Exchange Gas Receipts (Deliveries) |                      |      | (1.0  | )    |  |      | (7.5  | )    |  |  | 11.2  |     
|                                  
|                                  
|                                  
|                                  
|                                  
|Gas From (To) Storage              |                      |      | 24.5  |      |  |      | (7.6  | )    |  |  | (4.7  | )   
|                                   |                      |      |       |      |  |      |       |      |  |  |       |     
|                                   |                      |      | 182.3 |      |  |      | 179.3 |      |  |  | 170.9 |     
|                                   |                      |      |       |      |  |      |       |      |  |  |       |     
|                                  

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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


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

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

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

Regulatory, Rate and Governmental
Matters

MichCon is subject to the jurisdiction of the MPSC as to various
phases of its operations, including gas sales and transportation
rates, service and accounting. MichCon is subject to the
requirements of other regulatory agencies with respect to
safety, the environment and health.

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

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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


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

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

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

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

The proposed permanent choice program would expand customer
participation to be phased in over a three-year period. In year
one, 40% of MichCons customers could elect to purchase gas
from suppliers other than MichCon. In year two, 60% of customers
would be eligible and, by year three, all of MichCons 1.2
million customers could participate in the program. Under the
proposed GCR mechanism, MichCons gas sales rates would
include a gas commodity component designed to recover its actual
gas costs. MichCon could no longer profit from selling gas to
customers who choose not to participate in the permanent choice
program. Under the proposal, MichCon could sell

8



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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


its fixed-price supply contracts that are at prices
significantly below current market prices and refund any
proceeds to eligible customers. Additionally, MichCon could
refund all or a portion of the income earned from selling gas at
$2.95 per Mcf under the current experimental Gas Sales Program.

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

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

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

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

Other Rate Matters:In March 2000, several
shippers on MichCons northern Michigan gathering system
filed a complaint requesting that the MPSC issue an order
reducing the rate charged for Antrim gas transportation services
from $.090 per Mcf to approximately $.039 to $.031 per Mcf. The
complaint also included a request for refunds of approximately
$21.0 million for periods during which the rate was in effect.
The presiding MPSC Administrative Law Judge (ALJ) found
that no refunds of prior rates are required. The MPSC staff
filed a proposed rate of $.049 per Mcf which would result in an
annual revenue reduction of approximately $4.5 million. In
February 2001, the ALJ issued a proposal for decision
supporting the MPSC staffs position. MichCon is defending
its proposed rate of $.088 per Mcf, however, it is unable to
predict the outcome of this complaint.

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

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##### Table of Contents



ITEM 1. BUSINESS(CONTINUED)


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

Environmental Matters

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

Franchises

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

As for the 35 franchises that are currently expired,
MichCons gas distribution systems were installed and are
maintained with the consent or acquiescence of the
municipalities. While MichCon could be ordered to remove its
property by any municipality in which its franchise has expired,
it could lose ownership only by its consent and the payment of
an agreed-upon price, or by condemnation and the payment of the
fair value of such property. Should any of these municipalities
seek to terminate MichCons operations therein and
substitute another gas utility operation, publicly or privately
owned, the municipality must either (i) acquire and operate
MichCons system, (ii) construct a new system or
(iii) grant a franchise to another privately owned utility
to construct or acquire its own distribution system.

Other

Collective Bargaining Agreements:MichCon has five
collective bargaining agreements that cover slightly less than
half of its labor force. In December 2000, MichCon negotiated
and signed two

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##### Table of Contents



ITEM 1.  BUSINESS(CONCLUDED)


agreements that are in effect through October 2004. The
three remaining agreements expire in June 2001 and are
subject to pending negotiations.

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






ITEM 2.  PROPERTIES


MichCon operates natural gas distribution, transmission and
storage facilities in Michigan. At December 31, 2000,
MichCons distribution system included 17,313 miles of
distribution mains, 1,109,528 service lines and 1,222,287 active
meters. MichCon owns 2,604 miles of transmission and production
lines that deliver natural gas to the distribution districts and
interconnect its storage fields with the sources of supply and
the market areas. MichCon owns properties relating to four
underground storage fields with an aggregate storage capacity of
approximately 124 Bcf. Additionally, MichCon owns district
office buildings, service buildings and gas receiving and
metering stations. MichCon also owns its principal office
building in Detroit (the Guardian Building) and occupies an
office building in Grand Rapids under a long-term lease.
Portions of these buildings are subleased to affiliates and
others.

Most of MichCons properties are held in fee, by easement,
or under lease agreements expiring at various dates to 2006,
with renewal options extending beyond that date. The principal
plants and properties of MichCon are held subject to the lien of
MichCons Indenture of Mortgage and Deed of Trust under
which MichCons First Mortgage Bonds are issued. Some
properties are being fully utilized, and new properties are
being added to meet the expansion requirements of existing
areas. MichCons capital investments for 2000 totaled $118
million, which compares with $136 million in 1999 and $153
million in 1998.

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






ITEM 3.  LEGAL PROCEEDINGS


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

Environmental

MichCon originally received a general notice of liability letter
from the United States Environmental Protection Agency
(EPA) in 1994, stating that it was one of two potentially

11



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##### Table of Contents



ITEM 3.  LEGAL PROCEEDINGS(CONCLUDED)


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

Other

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

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






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


Omitted per general instruction I(2)(c) of Form 10-K
for wholly owned subsidiaries (reduced disclosure format).

12



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##### Table of Contents






PART II






ITEM 5. MARKET FOR REGISTRANTS
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

All of the 10,300,000 issued and outstanding shares of common
stock of MichCon, par value $1 per share, are indirectly owned
by MCN, and constitute 100% of the voting securities of MichCon.
Therefore, no market exists for MichCons common stock.

MichCon paid cash dividends of $100.0 million in 2000, $17.5
million in 1999 and $46.1 million in 1998 on its common stock.
MichCon paid cash dividends of $75.0 million in February 2001.

13



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##### Table of Contents






ITEM 6. SELECTED FINANCIAL DATA




|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |        | 
|--------------------------------------------- | ------------------ | ---- | --------- | ------- | - | ---- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | --- |  | - | --------- | ------ | 
|Selected Financial Data                       |                    | 2000 |           | 1999    |   | 1998 |           | 1997    |   | 1996
|                                              |                    |      |           |         |   |      |           |         |   |     
|                                             
|(Dollars in Thousands)                       
|                                             
|                                             
|                                             
|                                             
|Income Available for Common Stock             |                    | $    | 109,534   |         |   | $    | 106,336   |         |   | $    | 76,976    |         |   | $ | 79,020    |     |  | $ | 79,824    |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Cash Dividends Declared on Common Stock       |                    | $    | 100,000   |         |   | $    | 17,500    |         |   | $    | 46,084    |         |   | $ | 40,000    |     |  | $ | 11,263    |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Return on Average Common Shareholders Equity |                    |      | 14.9      | %       |   |      | 15.4      | %       |   |      | 12.2      | %       |   |   | 13.3      | %   |  |   | 14.7      | %     
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Property, Plant and Equipment                 |                    | $    | 2,980,627 |         |   | $    | 2,988,318 |         |   | $    | 2,889,020 |         |   | $ | 2,790,352 |     |  | $ | 2,668,294 |       
|                                             
|                                             
|                                             
|                                             
|Less  Accumulated depreciation and depletion |                    |      | 1,538,311 |         |   |      | 1,463,706 |         |   |      | 1,396,940 |         |   |   | 1,322,392 |     |  |   | 1,243,060 |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Net property, plant and equipment             |                    | $    | 1,442,316 |         |   | $    | 1,524,612 |         |   | $    | 1,492,080 |         |   | $ | 1,467,960 |     |  | $ | 1,425,234 |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Total Assets                                  |                    | $    | 2,311,938 |         |   | $    | 2,282,728 |         |   | $    | 2,172,525 |         |   | $ | 2,136,336 |     |  | $ | 2,058,344 |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Capital Expenditures                          |                    | $    | 117,645   |         |   | $    | 135,933   |         |   | $    | 153,475   |         |   | $ | 155,208   |     |  | $ | 212,668   |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Capitalization                                |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|Long-term debt                                |                    | $    | 639,109   |         |   | $    | 677,517   |         |   | $    | 615,419   |         |   | $ | 611,763   |     |  | $ | 536,561   |       
|                                             
|                                             
|                                             
|                                             
|Long-term capital lease obligations           |                    |      | 2,260     |         |   |      | 3,392     |         |   |      | 4,416     |         |   |   | 5,344     |     |  |   | 13,757    |       
|                                             
|                                             
|                                             
|                                             
|Common shareholders equity                   |                    |      | 736,897   |         |   |      | 735,502   |         |   |      | 646,843   |         |   |   | 616,024   |     |  |   | 577,004   |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Total capitalization                          |                    | $    | 1,378,266 |         |   | $    | 1,416,411 |         |   | $    | 1,266,678 |         |   | $ | 1,233,131 |     |  | $ | 1,127,322 |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Sources of Operating Revenues                 |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|Gas sales                                     |                    | $    | 909,270   |         |   | $    | 907,471   |         |   | $    | 853,463   |         |   | $ | 1,079,530 |     |  | $ | 1,058,499 |       
|                                             
|                                             
|                                             
|                                             
|Application of (provision for) refunds-net    |                    |      |          |         |   |      |          |         |   |      | (29,717   | )       |   |   | (16,736   | )   |  |   | 27,346    |       
|                                             
|                                             
|                                             
|                                             
|End user transportation                       |                    |      | 117,116   |         |   |      | 103,556   |         |   |      | 82,016    |         |   |   | 84,516    |     |  |   | 82,210    |       
|                                             
|                                             
|                                             
|                                             
|Intermediate transportation                   |                    |      | 52,577    |         |   |      | 57,783    |         |   |      | 63,218    |         |   |   | 55,221    |     |  |   | 48,570    |       
|                                             
|                                             
|                                             
|                                             
|Storage services                              |                    |      | 2,555     |         |   |      | 3,906     |         |   |      | 7,243     |         |   |   | 7,630     |     |  |   | 6,956     |       
|                                             
|                                             
|                                             
|                                             
|Conservation and other assistance programs    |                    |      |          |         |   |      |          |         |   |      |          |         |   |   | (2,914    | )   |  |   | (2,483    | )     
|                                             
|                                             
|                                             
|                                             
|Other                                         |                    |      | 62,824    |         |   |      | 63,023    |         |   |      | 57,435    |         |   |   | 46,432    |     |  |   | 37,687    |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Total operating revenues                      |                    | $    | 1,144,342 |         |   | $    | 1,135,739 |         |   | $    | 1,033,658 |         |   | $ | 1,253,679 |     |  | $ | 1,258,785 |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Disposition of Gas (MMcf)                     |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|Gas sales                                     |                    |      | 178,906   |         |   |      | 178,202   |         |   |      | 168,906   |         |   |   | 205,760   |     |  |   | 217,672   |       
|                                             
|                                             
|                                             
|                                             
|End user transportation                       |                    |      | 163,565   |         |   |      | 151,715   |         |   |      | 140,051   |         |   |   | 144,963   |     |  |   | 146,662   |       
|                                             
|                                             
|                                             
|                                             
|Intermediate transportation                   |                    |      | 598,868   |         |   |      | 531,913   |         |   |      | 537,532   |         |   |   | 586,496   |     |  |   | 527,510   |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                              |                    |      | 941,339   |         |   |      | 861,830   |         |   |      | 846,489   |         |   |   | 937,219   |     |  |   | 891,844   |       
|                                             
|                                             
|                                             
|                                             
|Company use and lost gas                      |                    |      | 5,955     |         |   |      | 5,687     |         |   |      | 4,811     |         |   |   | 3,896     |     |  |   | 5,746     |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Total disposition of gas                      |                    |      | 947,294   |         |   |      | 867,517   |         |   |      | 851,300   |         |   |   | 941,115   |     |  |   | 897,590   |       
|                                              |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|Effect of Weather                             |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|Percent colder (warmer) than normal           |                    |      | (5.5      | )%      |   |      | (9.0      | )%      |   |      | (19.3     | )%      |   |   | .8        | %   |  |   | 5.4       | %     
|                                             
|                                             
|                                             
|                                             
|Increase (decrease) from normal in:           |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|                                              | Gas markets (MMcf) |      |           | (12,352 | ) |      |           | (18,732 | ) |      |           | (40,272 | ) |   |           | 589 |  |   |           | 10,909 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Net income         |      | $         | (11,718 | ) |      | $         | (18,592 | ) |      | $         | (35,314 | ) |   | $         | 467 |  |   | $         | 9,886  | 
|                                             
|                                             
|                                             
|                                             
|Utility Customers                             |                    |      |           |         |   |      |           |         |   |      |           |         |   |   |           |     |  |   |           |       
|                                             
|                                             
|                                             
|                                             
|Residential                                   |                    |      | 1,090,209 |         |   |      | 1,066,249 |         |   |      | 1,104,033 |         |   |   | 1,092,334 |     |  |   | 1,087,450 |       
|                                             
|                                             
|                                             
|                                             
|Total                                         |                    |      | 1,218,654 |         |   |      | 1,204,125 |         |   |      | 1,190,508 |         |   |   | 1,178,543 |     |  |   | 1,169,690 |       
|                                             
|                                             
|                                             
|                                             
|Employees                                     |                    |      | 2,707     |         |   |      | 2,712     |         |   |      | 2,724     |         |   |   | 2,867     |     |  |   | 3,062     |       




14



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##### Table of Contents






ITEM 7.  MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Results reflect lower earnings from Gas Sales Program and
higher operating costs, partially offset by more favorable
weather MichCons earnings for 2000
were $109.5 million, an increase of $3.2 million from 1999
earnings of $106.3 million. As subsequently discussed, the
comparison was impacted by costs in both the 2000 and 1999
periods associated with the merger between MichCons parent
company, MCN Energy Group Inc. (MCN), and DTE Energy Company
(Note 2). Excluding merger costs, 2000 earnings declined $10.7
million from 1999 results reflecting lower gross margins and
higher operating costs. The lower gross margins were due to
reduced earnings from the Gas Sales Program, partially offset by
the impact of more favorable weather. MichCons return on
equity of 14.9% in 2000 as compared to 15.4% in 1999 and 12.2%
in 1998 continues its record of solid financial performance.

MichCons earnings in 1999 were $29.3 million higher than
earnings in 1998. In addition to the comparison being impacted
by merger costs, 1998 results included the write-down of certain
gas gathering properties. The 1999 earnings improvement reflects
contributions from the Gas Sales Program that began in
January 1999, as well as the impact of more favorable
weather.




|                            |  |                                   |       |                        |  |        |       |         |  |   |       |   |  |  |       |  
|--------------------------- |  | --------------------------------- | ----- | ---------------------- |  | ------ | ----- | ------- |  | - | ----- | - |  |  | ----- | -
|                            |  |                                  
|                            |  | Earnings Components (in Millions)
|                            |  |                                  
|                            |  |                                   |       |                       
|                            |  | Comparing 2000 to 1999            |       | Comparing 1999 to 1998
|                            |  |                                   |       |                       
|                            |  | Dollar                            |       | Percent                |  | Dollar |       | Percent
|                            |  | Change                            |       | Change                 |  | Change |       | Change 
|                            |  |                                   |       |                        |  |        |       |        
|Operating Revenues          |  | $                                 | 8.6   |                        |  |        | .8    | %       |  | $ | 102.0 |   |  |  | 9.9   | %
|                           
|                           
|                           
|                           
|Cost of Gas                 |  |                                   | 22.6  |                        |  |        | 4.7   |         |  |   | 32.4  |   |  |  | 7.2   |  
|                           
|                           
|                           
|                           
|Gross Margin                |  |                                   | (14.0 | )                      |  |        | (2.2  | )       |  |   | 69.6  |   |  |  | 12.0  |  
|                           
|                           
|                           
|                           
|Operation and Maintenance   |  |                                   | (13.0 | )                      |  |        | (4.9  | )       |  |   | 13.7  |   |  |  | 5.4   |  
|                           
|                           
|                           
|                           
|Depreciation and Depletion  |  |                                   | 4.8   |                        |  |        | 4.8   |         |  |   | 6.0   |   |  |  | 6.5   |  
|                           
|                           
|                           
|                           
|Property and Other Taxes    |  |                                   | 16.0  |                        |  |        | 35.4  |         |  |   | (10.2 | ) |  |  | (18.4 | )
|                           
|                           
|                           
|                           
|Merger Costs                |  |                                   | (21.4 | )                      |  |        | (84.0 | )       |  |   | 25.4  |   |  |  | N/A   |  
|                           
|                           
|                           
|                           
|Property Write-down         |  |                                   |      |                        |  |        | N/A   |         |  |   | (24.8 | ) |  |  | N/A   |  
|                           
|                           
|                           
|                           
|Other Income and Deductions |  |                                   | (2.1  | )                      |  |        | (3.9  | )       |  |   | 9.5   |   |  |  | 21.7  |  
|                           
|                           
|                           
|                           
|Income Tax Provision        |  |                                   | (1.5  | )                      |  |        | (2.7  | )       |  |   | 20.7  |   |  |  | 57.7  |  
|                           
|                           
|                           
|                           
|Net Income                  |  |                                   | 3.2   |                        |  |        | 3.0   |         |  |   | 29.3  |   |  |  | 38.1  |  




Gross Margin

Gross margin (operating revenues less cost of gas) decreased
$14.0 million in 2000 and increased $69.6 million in 1999. Gross
margins reflect varying contributions from MichCons Gas
Sales Program and the impact of more favorable weather.

MichCons three-year Gas Sales Program is part of its
Regulatory Reform Plan (Note 8a) which was implemented in
January 1999. Margins generated under the sales program
were lower in 2000 as compared to 1999. Under the Gas Sales
Program, MichCons gas sales rates include a gas commodity
component that is fixed at $2.95 per thousand cubic feet (Mcf).
As part of its gas acquisition strategy, MichCon entered into
fixed-price contracts at costs below $2.95 per Mcf for a

15



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


substantial portion of its gas supply requirements in 2000 and
1999. The cost of gas purchased in 2000 was higher than in 1999
resulting in reduced margins. As discussed in the
Outlook section that follows, MichCon has requested
that the Michigan Public Service Commission (MPSC) modify
the Gas Sales Program, effective April 2001 (Note 8b).

Margins generated under the Gas Sales Program were also affected
by the number of customers who chose to purchase their gas from
other suppliers under MichCons three-year Customer Choice
Program, which is also a part of its Regulatory Reform Plan.
Year one of this program began in April 1999, with
approximately 70,000 customers choosing to participate. Year two
commenced in April 2000, with the number of customers
participating declining to approximately 55,000. Distribution
margins were retained from these customers as MichCon continued
to transport and deliver the gas to the customers
premises. Although year three of the program is scheduled to
commence in April 2001 where up to 225,000 customers could
participate, MichCon has proposed to the MPSC to modify the
program by expanding the number of customers who could choose to
purchase their gas from other suppliers (Note 8b).

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




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




Gas sales and end user transportationrevenues in total
increased $15.4 million in 2000 and $105.2 million in
1999. Revenues reflect higher gas sales and end user
transportation deliveries that increased 12.5 billion cubic
feet (Bcf) in 2000 and 20.9 Bcf in 1999 due primarily to
weather, which was 3.5% colder in 2000 and 10.3% colder in 1999
compared to the previous years.

The revenue comparison for 1999 and 1998 was also impacted by
variations in the cost of the gas commodity component of gas
sales rates. As previously discussed, this gas commodity
component was fixed under MichCons Gas Sales Program at
$2.95 per Mcf beginning in January 1999. Prior to 1999,
MichCons sales rates were set to recover all of its
reasonably and prudently incurred gas costs. Therefore, the
effect of any fluctuations in cost of gas sold prior to 1999 was
substantially offset by a change in gas sales revenues. The gas
commodity component of MichCons sales rates increased $.24
per Mcf (9%) in 1999.

16



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)




---

|                                 |                             |      |         |       |  |      |         |       |  |   |         |       | 
|-------------------------------- | --------------------------- | ---- | ------- | ----- |  | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                 |                             | 2000 |         | 1999  |  | 1998
|                                 |                             |      |         |       |  |     
|Operating Revenues (in Millions) |                             |      |         |       |  |      |         |       |  |   |         |      
|                                
|                                
|                                
|                                
|                                 | Gas Sales                   |      | $       | 909.3 |  |      | $       | 907.5 |  |   | $       | 823.8 | 
|                                
|                                
|                                
|                                
|                                 | End User Transportation     |      |         | 117.1 |  |      |         | 103.5 |  |   |         | 82.0  | 
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      
|                                 |                             |      | 1,026.4 |       |  |      | 1,011.0 |       |  |   | 905.8   |      
|                                
|                                
|                                
|                                
|                                 | Intermediate Transportation |      |         | 52.6  |  |      |         | 57.8  |  |   |         | 63.2  | 
|                                
|                                
|                                
|                                
|                                 | Other                       |      |         | 65.3  |  |      |         | 66.9  |  |   |         | 64.7  | 
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      
|                                 |                             | $    | 1,144.3 |       |  | $    | 1,135.7 |       |  | $ | 1,033.7 |      
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      
|Gas Markets (Bcf)                |                             |      |         |       |  |      |         |       |  |   |         |      
|                                
|                                
|                                
|                                
|                                 | Gas Sales                   |      |         | 178.9 |  |      |         | 178.2 |  |   |         | 168.9 | 
|                                
|                                
|                                
|                                
|                                 | End User Transportation     |      |         | 163.5 |  |      |         | 151.7 |  |   |         | 140.1 | 
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      
|                                 |                             |      | 342.4   |       |  |      | 329.9   |       |  |   | 309.0   |      
|                                
|                                
|                                
|                                
|                                 | Intermediate Transportation |      |         | 598.9 |  |      |         | 531.9 |  |   |         | 537.5 | 
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      
|                                 |                             |      | 941.3   |       |  |      | 861.8   |       |  |   | 846.5   |      
|                                 |                             |      |         |       |  |      |         |       |  |   |         |      




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

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

Other operating revenuesdecreased $1.6 million in 2000
and increased $2.2 million in 1999. The comparisons reflect
higher revenues from storage and facility development services
in 1999. The decline in 2000 was mitigated by an increase in
late payment fees, appliance maintenance services and other
gas-related services.

Cost of Gas

Cost of gas is affected by variations in sales volumes and the
cost of purchased gas as well as related transportation costs.
Under the Gas Cost Recovery (GCR) mechanism that was in effect
through

17



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


1998 (Note 8c), MichCons sales rates were set to
recover all of its reasonably and prudently incurred gas costs.
Therefore, fluctuations in cost of gas sold had little effect on
gross margins. Under MichCons Gas Sales Program, the gas
commodity component of its sales rates is fixed. Accordingly,
beginning in 1999, changes in cost of gas sold directly impacted
gross margins and earnings.

Cost of gas sold increased $22.6 million in 2000 and $32.4
million in 1999, primarily as a result of higher weather-driven
sales volumes. The increases attributable to weather in 2000 and
1999 were partially offset by reductions in gas sales volumes as
a result of customers who have chosen to purchase their gas from
other suppliers under MichCons Customer Choice Program. As
previously discussed, MichCon retains margins from these
customers by continuing to transport and deliver the gas to the
customers premises. Additionally, cost of gas sold was
impacted by average prices paid, which increased $.08 (3%) per
Mcf in 2000 and $.02 (1%) per Mcf in 1999. The cost of gas sold
increase in 2000 was tempered by a 24.5 Bcf liquidation of
inventory gas that was priced significantly below 2000 average
purchase rates (Note 4).

Other Operating Expenses

Operation and maintenanceexpenses declined $13.0 million
in 2000 and increased $13.7 million in 1999. The decrease in
2000 is due primarily to lower employee benefit costs, primarily
pension costs, as well as the receipt of insurance proceeds
resulting from the settlement of environmental claims with
certain insurance carriers. The settlement has allowed MichCon
to recover previously incurred costs and resolved the
carriers liabilities for future costs of environmental
investigation and remediation. The decrease in 2000 also
reflects lower advertising costs, partially offset by higher
uncollectible gas accounts expense.

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

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

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

MichCons uncollectible gas accounts expense is directly
affected by the level of government funded heating assistance
its qualifying customers receive. The State of Michigan provides
this assistance in

18



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


the form of Michigan Home Heating Credits which are funded
almost exclusively by the Federal Low-Income Home Energy
Assistance Program (LIHEAP). Congress approved funding for the
1998, 1999 and 2000 fiscal years at $1.1 billion each year, with
additional emergency funding available only upon Presidential
order. The State of Michigans LIHEAP funds were increased
from $59 million in fiscal year 1999 to $64 million in 2000.
MichCon received $15.1 million of these funds in 2000, compared
to $12.6 million in 1999. Home Heating Credits assisted 75,600
MichCon customers in 2000, nearly 7,000 more customers than in
1999. For the fiscal year beginning in October 2001,
Congress increased the LIHEAP funding level to $1.4 billion and
provided an additional $300 million in emergency funds. Unlike
prior years, these funds have not been advanced to states for
use in the next fiscal year. While this creates some
uncertainty, both Congress and President George W. Bush have
pledged continued support for the program. Any future changes in
LIHEAP funding may impact MichCons uncollectible gas
accounts expense.

Depreciation and depletionincreased $4.8 million in 2000
and $6.0 million in 1999. The increases reflect higher plant
balances resulting from capital expenditures of $117.6 million
in 2000 and $135.9 million in 1999.

Property and other taxesincreased $16.0 million in 2000
and decreased $10.2 million in 1999, reflecting a change in the
calculation of the value of personal property subject to
taxation by local taxing jurisdictions. In 1998, MichCon began
filing its personal property tax valuation information excluding
intangible costs from the value of personal property. A number
of local taxing jurisdictions accepted the revised calculation,
and MichCon recorded lower property tax expense in 1999 and 1998
associated with the accepting jurisdictions. MichCon also filed
appeals to recover excess payments made in 1996 and 1997 based
on the revised calculation and recorded lower property tax
expense as a result of the filings. At the end of 2000, a number
of the previously accepting jurisdictions protested the revised
calculation. As a result, in 2000 MichCon reversed the reduction
in property tax expense that was associated with prior
years excess payments made to those jurisdictions.

Property tax expense in 2000 was favorably impacted by new
valuation tables approved by the Michigan State Tax Commission
(STC) in November 1999. Several local taxing jurisdictions
have taken legal action against the State of Michigan to prevent
the STC from implementing the new valuation tables
(Note 7a).

Merger coststotaled $4.0 million in 2000 compared to
$25.4 million in 1999. The costs represent legal, consulting,
accounting, employee benefit and other expenses associated with
the pending merger between MCN and DTE Energy Company
(Note 2).

Property write-downof $24.8 million in 1998 reflects the
impairment of certain gas gathering properties in northern
Michigan (Note 3). As a result of the need to divert
certain untreated gas away from the gathering system, a new gas
reserve analysis was performed. This analysis revealed that
projected cash flows from the gathering system were not
sufficient to cover the systems carrying value. Therefore,
an impairment loss was recorded representing the amount by which
the carrying value of the system exceeded its estimated fair
value.

19



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


Other Income and Deductions

Other income and deductions decreased $2.1 million in 2000 and
increased $9.5 million in 1999. The 2000 improvement reflects
higher investment income from the Grantor Trust (Note 10c)
and joint venture earnings from the 25%-owned Blue Lake gas
storage project, partially offset by an increase in interest
expense. The 1999 comparison was affected by a 1998 change in
minority interest due to the joint venture partners share
of the write-down of certain gas gathering properties (Note 3).
The change in 1999 is also attributable to lower interest income
resulting from the repayment of funds loaned to MCN.

Income Taxes

Income taxes decreased $1.5 million in 2000 and increased $20.7
million in 1999 (Note 14). Income tax comparisons were
affected by variations in pre-tax earnings, tax credits and tax
adjustments recorded upon filing MichCons tax returns.
Additionally, 2000 was impacted by higher non-taxable investment
income.

Outlook

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

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

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 approximately 70,000 customers chose to purchase natural gas
from suppliers other than MichCon. Year two of the program began
in April 2000, and the number of participating customers
declined to 55,000. Although year three of the program is
scheduled to begin in April 2001, permitting up to 225,000
customers to participate, MichCon has requested the MPSC to
modify the program to encourage greater participation as
subsequently discussed. Under the existing program, there is
also a volume limitation of 30 Bcf on commercial and
industrial participants in 2001. MichCon will continue to
transport and deliver the gas to the participating
customers premises at prices that generate favorable
margins.

20



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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


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

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

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

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

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

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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


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

Accounting for Regulation  As described
in Note 8d to the consolidated financial statements,
MichCon complies with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of
Regulation. Future regulatory changes or changes in
the competitive environment could result in MichCon
discontinuing the application of SFAS No. 71 for all or
part of its business and would require the write-off of the
portion of any regulatory asset or liability that was no longer
probable of recovery or refund. If MichCon were to discontinue
application of SFAS No. 71 for all of its operations as of
December 31, 2000, it would have an extraordinary non-cash
increase to net income of approximately $62.9 million. Factors
that could give rise to the discontinuance of SFAS No. 71
include (i) increasing competition that restricts
MichCons ability to establish prices to recover specific
costs, and (ii) a significant change in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. Based on a current evaluation of the
various factors and conditions that are expected to impact
future regulation, management believes currently available facts
support the continued application of SFAS No. 71.

Environmental Matters

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

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

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

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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


determined with respect to one other former MGP site that
MichCon is not a responsible party for the purpose of assessing
remediation expenditures. MichCon and the MDEQ are in
discussions on whether MichCon is a responsible party for one
other former MGP site.

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

MichCon employed outside consultants to evaluate remediation
alternatives for these sites, to assist in estimating its
potential liabilities and to review its archived insurance
policies. The findings of these investigations indicate that the
estimated total expenditures for investigation and remediation
activities for these sites could range from $30 million to $170
million based on undiscounted 1995 costs. As a result of these
studies, MichCon accrued an additional liability and a
corresponding regulatory asset of $32 million during 1995.

MichCon notified more than 40 current and former insurance
carriers of the environmental conditions at these former MGP
sites. MichCon concluded settlement negotiations with certain
carriers in 1996 and 1997 and has received payments from several
carriers. In October 1997, MichCon filed suit against major
non-settling carriers seeking recovery of incurred costs and a
declaratory judgment of the carriers liability for future
costs of environmental investigation and remediation costs at
former MGP sites. Settlements were reached with a number of
carriers, with payments received in 2000.

During 2000, 1999 and 1998, MichCon spent $1.3 million, $.7
million and $1.6 million, respectively, investigating and
remediating these former MGP sites. At December 31, 2000,
the reserve balance was $30.1 million, of which $4.5 million is
classified as current. Any significant change in assumptions,
such as remediation techniques, nature and extent of
contamination and regulatory requirements, could impact the
estimate of remedial action costs for the sites and, therefore,
have an effect on MichCons financial position and cash
flows. However, management believes that the cost deferral and
rate recovery mechanism approved by the MPSC will prevent
environmental costs from having a material adverse impact on
MichCons results of operations.

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

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

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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


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

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

CAPITAL RESOURCES AND LIQUIDITY




|                                                     |                      |      |     |        |   |      |     |        |   |   |      |        |  
|---------------------------------------------------- | -------------------- | ---- | --- | ------ | - | ---- | --- | ------ | - | - | ---- | ------ | -
|                                                     |                      | 2000 |     | 1999   |   | 1998
|                                                     |                      |      |     |        |   |     
|Cash and Cash Equivalents(in Millions)               |                      |      |     |        |   |      |     |        |   |   |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flow Provided From (Used For):                  |                      |      |     |        |   |      |     |        |   |   |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating activities |      | $   | 227.4  |   |      | $   | 120.6  |   |   | $    | 217.9  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Financing activities |      |     | (101.8 | ) |      |     | 26.5   |   |   |      | (39.8  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investing activities |      |     | (122.6 | ) |      |     | (144.0 | ) |   |      | (185.8 | )
|                                                     |                      |      |     |        |   |      |     |        |   |   |      |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                      | $    | 3.0 |        |   | $    | 3.1 |        |   | $ | (7.7 | )     
|                                                     |                      |      |     |        |   |      |     |        |   |   |      |       




Operating Activities

Cash flow from operating activities increased $106.8 million in
2000 and decreased $97.3 million in 1999. Both comparisons
reflect changes in working capital requirements and higher
earnings after adjusting for noncash items (depreciation,
deferred taxes and the property write-down).

Financing Activities

Cash flow related to financing activities decreased $128.3
million in 2000 and increased $66.3 million in 1999. The
decrease in 2000 is due to the issuance of less long- and
short-term debt and an

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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


increase in dividends paid to MCN. The increase in 1999 is due
to higher borrowings, net of repayments, and lower dividends
paid to MCN. A summary of MichCons financing strategy to
meet working capital requirements, as well as its significant
financing activities during the 1998  2000 period
follows.

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

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

During 1999, MichCon issued $110 million of senior secured notes
(Note 6a). Proceeds from the issuances were used to
refinance long-term debt, short-term obligations and for general
corporate purposes. MichCon also repaid $68 million of first
mortgage bonds during 1999.

During 1998, MichCon issued $150 million of remarketable debt
securities (Note 6a). Proceeds from these issuances were used to
retire first mortgage bonds, fund capital expenditures and for
general corporate purposes. Also during 1998, MichCon repaid
$109.7 million of first mortgage bonds.

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

The following table sets forth the ratings as of
December 31, 2000 for securities issued by MichCon:




|                      |  |          |     |         |  |       |     |  |  |  |     | 
|--------------------- |  | -------- | --- | ------- |  | ----- | --- |  |  |  | --- | 
|                      |  | Standard |     |         |  |      
|                      |  | & Poors  |     | Moodys |  | Fitch
|                      |  |          |     |         |  |      
|Commercial paper      |  |          | A2  |         |  |       | P1  |  |  |  | F1  | 
|                     
|                     
|                     
|                     
|                     
|First mortgage bonds  |  |          | A-  |         |  |       | A2  |  |  |  | A   | 
|                     
|                     
|                     
|                     
|                     
|Senior secured notes* |  |          | AAA |         |  |       | Aaa |  |  |  | AAA | 
|                     

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

MichCon paid a cash dividend of $75 million in February 2001.

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

CONDITION AND RESULTS OF OPERATIONS(CONTINUED)


Investing Activities

MichCons cash flow related to investing activities
decreased $21.4 million in 2000 and $41.8 million in 1999. The
comparisons for both years were affected by lower capital
expenditures. Additionally, the 1999 comparison reflects a $28.2
million investment in a Grantor Trust in 1998 to meet future
cash flow obligations related to certain postretirement
healthcare costs.

MichCons capital expenditures totaled $117.6 million in
2000 and $135.9 million in 1999, decreases of $18.3 million and
$17.6 million from prior years. Capital expenditures primarily
represent the construction of new distribution lines to attach
new customers, new computer systems and improvements to storage,
distribution and transmission systems. Capital expenditures for
2001 are expected to total $110 million.

It is managements opinion that MichCon will have
sufficient capital resources, both internal and external, to
meet anticipated capital requirements.

MARKET RISK INFORMATION

MichCons primary market risk arises from fluctuations in
natural gas prices. MichCon manages natural gas price risk by
entering into fixed-price contracts for a large portion of its
expected supply requirements. If MichCon did not enter into
these fixed-price supply contracts, its exposure to such risk
would be substantially higher. See the Outlook
section for a further discussion of MichCons risks
associated with natural gas prices.

MichCon also has market risk from fluctuations in interest
rates. MichCon manages interest rate risk through the use of
various derivative instruments and limits the use of such
instruments to hedging activities. If MichCon did not use
derivative instruments, its exposure to such risk would be
higher. A further discussion of MichCons risk management
activities is included in Note 11 to the Consolidated Financial
Statements. MichCon is subject to interest rate risk in
connection with the issuance of variable-and fixed-rate debt. In
order to manage interest costs, MichCon uses interest rate swap
agreements to exchange fixed-and variable-rate interest payment
obligations over the life of the agreements without exchange of
the underlying principal amounts. MichCons exposure to
interest rate risk arises primarily from changes in U.S.
Treasury rates and London Inter-Bank Offered Rates (LIBOR).

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

26



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##### Table of Contents



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

CONDITION AND RESULTS OF OPERATIONS(CONCLUDED)


The results of the sensitivity model calculations follow:




|                        |                                     |                             |     |              |      |              |    |              |     |               |     |      |      |   |    |       |     |  |           |            |            | 
|----------------------- | ----------------------------------- | --------------------------- | --- | ------------ | ---- | ------------ | -- | ------------ | --- | ------------- | --- | ---- | ---- | - | -- | ----- | --- |  | --------- | ---------- | ---------- | 
|                        |                                     |                             |     |              |      |             
|                        |                                     | 2000                        |     | 1999         |      |             
|                        |                                     |                             |     |              |      |             
|                        |                                     | Assuming                    |     | Assuming     |      | Assuming     |    | Assuming     |     |              
|                        |                                     | a 10%                       |     | a 10%        |      | a 10%        |    | a 10%        |     | Favorable    
|                        |                                     | Increase in                 |     | Decrease in  |      | Increase in  |    | Decrease in  |     | (Unfavorable)
|                        |                                     | Prices/Rates                |     | Prices/Rates |      | Prices/Rates |    | Prices/Rates |     | Change In    
|(in Millions)           |                                     |                             |     |              |      |              |    |              |     |              
|Market Risk             |                                     |                             |     |              |      |              |    |              |     |               |     |      |      |   |    |       |     |  |           |           
|Interest Rate Sensitive |                                     |                             |     |              |      |              |    |              |     |               |     |      |      |   |    |       |     |  |           |           
|                       
|                       
|                       
|                       
|                       
|                        | Debt  Fixed rate                   |                             | $   | 12.6         |      |              | $  | (12.6        | )   |               | $   | 19.7 |      |   | $  | (19.7 | )   |  |           | Fair Value |           
|                       
|                       
|                       
|                       
|Variable rate           |                                     | $                           | (.1 | )            |      | $            | .1 |              |     | $             | (.5 | )    |      | $ | .5 |       |     |  | Cash Flow |           
|                       
|                       
|                       
|                       
|                       
|                        | Swaps  Pay fixed/ receive variable |                             | $   |             |      |              | $  |             |     |               | $   | .2   |      |   | $  | (.2   | )   |  |           | Fair Value |           
|                       
|                       
|                       
|                       
|                        |                                     | Pay variable/ receive fixed |     | $            | (2.0 | )            |    | $            | 2.0 |               |     | $    | (1.9 | ) |    | $     | 1.9 |  |           |            | Fair Value | 
|                       

NEW ACCOUNTING PRONOUNCEMENT

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

MichCon has identified its interest rate swaps, firm-priced
supply contracts, and options embedded in certain debt
instruments as derivatives. The cumulative effect of adopting
SFAS No. 133 is not expected to be material. The adoption
will impact assets and liabilities recorded in the statement of
financial position.

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

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##### Table of Contents






ITEM 7A.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT

MARKET RISK


Quantitative and Qualitative Disclosures About Market Risk may
be found in Item 7. MD&A  Market Risk
Information.

28



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ITEM 8.  FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA


|                                                                               |                                                 |      |    |    | 
|------------------------------------------------------------------------------ | ----------------------------------------------- | ---- | -- | -- | 
|                                                                               |                                                 | Page
|                                                                               |                                                 |     
|Consolidated Statement of Income                                               |                                                 |      | 30 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Financial Position                                   |                                                 |      | 31 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Capitalization                                       |                                                 |      | 32 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Consolidated Statement of Cash Flows                                           |                                                 |      | 33 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Notes to Consolidated Financial Statements                                     |                                                 |      | 34 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Independent Auditors Report                                                   |                                                 |      | 54 |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Supplementary Financial Information  Quarterly
	Operating Results (Unaudited) |                                                 |      | 55 |   
|                                                                              
|Financial Statement Schedule -                                                 |                                                 |      |    |   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Schedule II  Valuation and Qualifying Accounts |      |    | 56 | 

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CONSOLIDATED STATEMENT OF INCOME




|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |         |           |  
|------------------------------ | --------------------------------------------- | ----------------------------------- | ------- | ------- | --------- | ---- | ------- | ------- | --------- | - | ------- | ------- | --------- | -
|                               |                                               |                                    
|                               |                                               | Year Ended December 31             
|                               |                                               |                                    
|                               |                                               | 2000                                |         | 1999    |           | 1998
|(in Thousands)                 |                                               |                                     |         |         |           |     
|                               |                                               |                                     |         |         |           |     
|                              
|                              
|                              
|                              
|Operating Revenues             |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                              
|                              
|                              
|                              
|                               | Gas Sales                                     |                                     | $       | 909,270 |           |      | $       | 907,471 |           |   | $       | 823,746 |          
|                              
|                              
|                              
|                              
|                               | Transportation and storage services (Note 13) |                                     |         | 172,248 |           |      |         | 165,245 |           |   |         | 152,477 |          
|                              
|                              
|                              
|                              
|                               | Other (Note 13)                               |                                     |         | 62,824  |           |      |         | 63,023  |           |   |         | 57,435  |          
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                              
|                               |                                               | Total Operating Revenues            |         |         | 1,144,342 |      |         |         | 1,135,739 |   |         |         | 1,033,658 |  
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|Operating Expenses             |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                              
|                              
|                              
|                              
|                               | Cost of gas                                   |                                     |         | 506,522 |           |      |         | 483,925 |           |   |         | 451,529 |          
|                              
|                              
|                              
|                              
|                               | Operation and maintenance (Note 13)           |                                     |         | 253,117 |           |      |         | 266,104 |           |   |         | 252,397 |          
|                              
|                              
|                              
|                              
|                               | Depreciation and depletion                    |                                     |         | 103,650 |           |      |         | 98,879  |           |   |         | 92,883  |          
|                              
|                              
|                              
|                              
|                               | Property and other taxes                      |                                     |         | 61,260  |           |      |         | 45,230  |           |   |         | 55,438  |          
|                              
|                              
|                              
|                              
|                               | Merger Costs (Note 2)                         |                                     |         | 4,058   |           |      |         | 25,429  |           |   |         |        |          
|                              
|                              
|                              
|                              
|                               | Property write-down (Note 3)                  |                                     |         |        |           |      |         |        |           |   |         | 24,800  |          
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                               |                                               | Total operating expenses            |         |         | 928,607   |      |         |         | 919,567   |   |         |         | 877,047   |  
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|Operating Income               |                                               |                                     | 215,735 |         |           |      | 216,172 |         |           |   | 156,611 |        
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|Other Income and (Deductions)  |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                              
|                              
|                              
|                              
|                               | Interest income (Note 13)                     |                                     |         | 3,247   |           |      |         | 2,604   |           |   |         | 5,688   |          
|                              
|                              
|                              
|                              
|                               | Interest on long-term debt                    |                                     |         | (48,320 | )         |      |         | (47,265 | )         |   |         | (44,884 | )        
|                              
|                              
|                              
|                              
|                               | Other interest expense                        |                                     |         | (11,501 | )         |      |         | (8,626  | )         |   |         | (12,113 | )        
|                              
|                              
|                              
|                              
|                               | Minority interest (Note 3)                    |                                     |         | (486    | )         |      |         | (1,020  | )         |   |         | 5,727   |          
|                              
|                              
|                              
|                              
|                               | Equity in earnings of joint ventures          |                                     |         | 3,453   |           |      |         | 1,976   |           |   |         | 1,946   |          
|                              
|                              
|                              
|                              
|                               | Other                                         |                                     |         | 2,359   |           |      |         | (1,016  | )         |   |         | (182    | )        
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|                               |                                               | Total other income and (deductions) |         |         | (51,248   | )    |         |         | (53,347   | ) |         |         | (43,818   | )
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|Income Before Income Taxes     |                                               |                                     | 164,487 |         |           |      | 162,825 |         |           |   | 112,793 |        
|                              
|                              
|                              
|                              
|Income Tax Provision (Note 14) |                                               |                                     | 54,953  |         |           |      | 56,489  |         |           |   | 35,817  |        
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        
|Net Income                     |                                               | $                                   | 109,534 |         |           | $    | 106,336 |         |           | $ | 76,976  |        
|                               |                                               |                                     |         |         |           |      |         |         |           |   |         |        



---

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


30



---



##### Table of Contents



CONSOLIDATED STATEMENT OF FINANCIAL
POSITION




|                                                |                                                                                                 |             |           |           |  |   |           |           | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------- | ----------- | --------- | --------- |  | - | --------- | --------- | 
|                                                |                                                                                                 |            
|                                                |                                                                                                 | December 31
|                                                |                                                                                                 |            
|                                                |                                                                                                 | 2000        |           | 1999     
|(in Thousands)                                  |                                                                                                 |             |           |          
|ASSETS                                          |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|Current Assets                                  |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|                                                | Cash and cash equivalents                                                                       |             | $         | 12,673    |  |   | $         | 9,705     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts receivable, less allowance for doubtful accounts of
	$18,912 and $17,777, respectively |             |           | 157,793   |  |   |           | 147,412   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued unbilled revenues                                                                       |             |           | 135,465   |  |   |           | 98,866    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Gas in inventory (Note 4)                                                                       |             |           | 13,586    |  |   |           | 74,150    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Property taxes assessed applicable to future periods                                            |             |           | 54,767    |  |   |           | 60,589    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                           |             |           | 35,468    |  |   |           | 31,594    | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 409,752   |           |  |   | 422,316   |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|Deferred Charges and Other Assets               |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|                                                | Investment in and advances to joint ventures                                                    |             |           | 20,068    |  |   |           | 19,115    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Long-term investments                                                                           |             |           | 70,643    |  |   |           | 67,210    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Investment in capital lease (Note 9)                                                            |             |           | 76,395    |  |   |           |          | 
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred environmental costs (Notes 7b and 8d)                                                  |             |           | 26,372    |  |   |           | 28,639    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Prepaid benefit costs (Note 10a)                                                                |             |           | 214,068   |  |   |           | 156,290   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                           |             |           | 52,324    |  |   |           | 64,546    | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 459,870   |           |  |   | 335,800   |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|Property, Plant and Equipment, at cost          |                                                                                                 |             | 2,980,627 |           |  |   | 2,988,318 |          
|                                               
|                                               
|                                               
|                                               
|                                                | Less  Accumulated depreciation and depletion                                                   |             |           | 1,538,311 |  |   |           | 1,463,706 | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 1,442,316 |           |  |   | 1,524,612 |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 | $           | 2,311,938 |           |  | $ | 2,282,728 |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|LIABILITIES AND CAPITALIZATION                  |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|Current Liabilities                             |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts payable                                                                                |             | $         | 98,357    |  |   | $         | 93,549    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Notes payable (Note 5)                                                                          |             |           | 278,762   |  |   |           | 237,785   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Current portion of long-term debt and capital lease obligations
	(Notes 6a and 9)               |             |           | 24,652    |  |   |           | 27,984    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Federal income, property and other taxes payable                                                |             |           | 67,636    |  |   |           | 71,415    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Customer deposits                                                                               |             |           | 17,696    |  |   |           | 17,698    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                           |             |           | 59,366    |  |   |           | 68,339    | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 546,469   |           |  |   | 516,770   |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|Deferred Credits and Other Liabilities          |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred income taxes (Note 14)                                                                 |             |           | 141,552   |  |   |           | 105,351   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Unamortized investment tax credits                                                              |             |           | 25,867    |  |   |           | 27,778    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Tax benefits amortizable to customers (Note 8d)                                                 |             |           | 138,161   |  |   |           | 136,236   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued environmental costs (Note 7b)                                                           |             |           | 25,608    |  |   |           | 25,068    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Minority interest                                                                               |             |           | 635       |  |   |           | 8,716     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                           |             |           | 55,380    |  |   |           | 46,398    | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 387,203   |           |  |   | 349,547   |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|Commitments and Contingencies(Notes 7, 8 and 9) |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|Capitalization (see accompanying statement)     |                                                                                                 |             |           |           |  |   |           |          
|                                               
|                                               
|                                               
|                                               
|                                                | Long-term debt, including capital lease obligations
	(Notes 6a and 9)                           |             |           | 641,369   |  |   |           | 680,909   | 
|                                               
|                                               
|                                               
|                                               
|                                                | Common shareholders equity                                                                     |             |           | 736,897   |  |   |           | 735,502   | 
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 |             | 1,378,266 |           |  |   | 1,416,411 |          
|                                                |                                                                                                 |             |           |           |  |   |           |          
|                                                |                                                                                                 | $           | 2,311,938 |           |  | $ | 2,282,728 |          
|                                                |                                                                                                 |             |           |           |  |   |           |          




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


31



---



##### Table of Contents



CONSOLIDATED STATEMENT OF
CAPITALIZATION




|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |         |        | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------------------- | --------- | -------- | ------ | ---- | --------- | ------- | ------ | - | --------- | ------- | ------ | 
|                                                          |                                                                                                                        |                       
|                                                          |                                                                                                                        | Year Ended December 31
|                                                          |                                                                                                                        |                       
|                                                          |                                                                                                                        | 2000                   |           | 1999     |        | 1998
|(in Thousands)                                            |                                                                                                                        |                        |           |          |        |     
|Long-Term Debt, excluding current requirements
	(Note 6a) |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | First Mortgage Bonds, interest payable semi-annually
	5.75% series due 2001                                            |                        | $         |         |        |      | $         | 20,000  |        |   | $         | 40,000  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 8% series due 2002     |           |          | 17,314 |      |           |         | 17,314 |   |           |         | 17,314 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.72% series due 2003  |           |          | 4,150  |      |           |         | 4,150  |   |           |         | 4,150  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.8% series due 2003   |           |          | 15,850 |      |           |         | 15,850 |   |           |         | 15,850 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 9.125% series due 2004 |           |          |       |      |           |         |       |   |           |         | 18,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7.15% series due 2006  |           |          | 40,000 |      |           |         | 40,000 |   |           |         | 40,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7.21% series due 2007  |           |          | 30,000 |      |           |         | 30,000 |   |           |         | 30,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7.06% series due 2012  |           |          | 40,000 |      |           |         | 40,000 |   |           |         | 40,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 8.25% series due 2014  |           |          | 80,000 |      |           |         | 80,000 |   |           |         | 80,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7.6% series due 2017   |           |          | 14,747 |      |           |         | 14,932 |   |           |         | 14,980 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7.5% series due 2020   |           |          | 28,663 |      |           |         | 29,352 |   |           |         | 29,641 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 9.5% series due 2021   |           |          | 40,000 |      |           |         | 40,000 |   |           |         | 40,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.75% series due 2023  |           |          | 15,301 |      |           |         | 15,982 |   |           |         | 16,617 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 7% series due 2025     |           |          | 40,000 |      |           |         | 40,000 |   |           |         | 40,000 | 
|                                                          | Remarketable securities, interest payable semi-annually                                                                |                        |           |          |        |      |           |         |        |   |           |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.2% series due 2038   |           |          | 75,000 |      |           |         | 75,000 |   |           |         | 75,000 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.45% series due 2038  |           |          | 75,000 |      |           |         | 75,000 |   |           |         | 75,000 | 
|                                                          | Senior notes, interest payable quarterly                                                                               |                        |           |          |        |      |           |         |        |   |           |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.85% series due 2038  |           |          | 53,732 |      |           |         | 54,863 |   |           |         |       | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                        | 6.85% series due 2039  |           |          | 55,000 |      |           |         | 55,000 |   |           |         |       | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Long-term capital lease obligations (Note 9)                                                                           |                        |           | 2,260    |        |      |           | 3,392   |        |   |           | 4,416   |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other long-term debt                                                                                                   |                        |           | 11,876   |        |      |           | 27,465  |        |   |           | 36,126  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net unamortized premium (discount)                                                                                     |                        |           | 2,476    |        |      |           | 2,609   |        |   |           | 2,741   |       
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|                                                          | Total                                                                                                                  |                        |           | 641,369  |        |      |           | 680,909 |        |   |           | 619,835 |       
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|Common Shareholders Equity                               |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common Stock, par value $1 per share  15,100,000
	shares authorizedand 10,300,000 shares outstanding for all
	periods |                        |           | 10,300   |        |      |           | 10,300  |        |   |           | 10,300  |       
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|Additional Paid-In Capital                                |                                                                                                                        |                        | 231,949   |          |        |      | 230,399   |         |        |   | 230,399   |        
|                                                         
|                                                         
|                                                         
|                                                         
|Retained Earnings                                         |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Balance  beginning of period                                                                                          |                        |           | 494,803  |        |      |           | 406,144 |        |   |           | 375,325 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net income                                                                                                             |                        |           | 109,534  |        |      |           | 106,336 |        |   |           | 76,976  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock dividends declared                                                                                        |                        |           | (109,689 | )      |      |           | (17,677 | )      |   |           | (46,157 | )     
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|                                                          | Balance  end of period                                                                                                |                        |           | 494,648  |        |      |           | 494,803 |        |   |           | 406,144 |       
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|Total common shareholders equity                         |                                                                                                                        |                        | 736,897   |          |        |      | 735,502   |         |        |   | 646,843   |        
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        
|Total capitalization                                      |                                                                                                                        | $                      | 1,378,266 |          |        | $    | 1,416,411 |         |        | $ | 1,266,678 |        
|                                                          |                                                                                                                        |                        |           |          |        |      |           |         |        |   |           |        




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


32



---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS




|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |          |        |        |          |  
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------- | ------------------------------------------------------ | ------- | ------- | -------- | -------- | -------- | ------ | -------- | -------- | ------ | ------ | -------- | -
|                                                                          |                                                                                          |                                                                          
|                                                                          |                                                                                          | Year Ended December 31                                                   
|                                                                          |                                                                                          |                                                                          
|                                                                          |                                                                                          | 2000                                                                      |                           | 1999                                                   |         | 1998   
|(in Thousands)                                                            |                                                                                          |                                                                           |                           |                                                        |         |        
|Cash Flow From Operating Activities                                       |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Net income                                                                               |                                                                           | $                         | 109,534                                                |         |         | $        | 106,336  |          |        | $        | 76,976   |       
|                                                                          | Adjustments to reconcile net income to net cash flow provided
	from operating activities |                                                                           |                           |                                                        |         |         |          |          |          |        |          |          |       
|                                                                          |                                                                                          | Depreciation and depletion                                                |                           |                                                        |         |         |          |          |          |        |          |          |        |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          |                                                                           | Per statement of income   |                                                        |         | 103,650 |          |          |          | 98,879 |          |          |        | 92,883 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          |                                                                           | Charged to other accounts |                                                        |         | 9,779   |          |          |          | 8,892  |          |          |        | 7,946  |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Property write-down, net (Note 3)                                         |                           |                                                        |        |         |          |          |         |        |          |          | 11,200 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Deferred income taxes  current                                           |                           |                                                        | (4,837  | )       |          |          | 1,416    |        |          |          | (961   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Deferred income taxes and investment tax credit, net                      |                           |                                                        | 36,215  |         |          |          | 20,894   |        |          |          | 15,005 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Other                                                                     |                           |                                                        | (4,985  | )       |          |          | (823     | )      |          |          | (4,430 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Changes in assets and liabilities, exclusive of changes shown
	separately |                           |                                                        | (21,967 | )       |          |          | (115,005 | )      |          |          | 19,299 |       
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                          |                                                                                          |                                                                           |                           | Net cash provided from operating activities            |         |         | 227,389  |          |          |        | 120,589  |          |        |        | 217,918  |  
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Cash Flow From Financing Activities                                       |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of long-term debt (Note 6a)                                                     |                                                                           |                           |                                                       |         |         |          | 106,535  |          |        |          | 153,052  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Notes payable, net                                                                       |                                                                           |                           | 40,977                                                 |         |         |          | 16,616   |          |        |          | (20,522  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Retirement of long-term debt (Note 6a)                                                   |                                                                           |                           | (42,740                                                | )       |         |          | (79,097  | )        |        |          | (126,292 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Dividends paid                                                                           |                                                                           |                           | (100,000                                               | )       |         |          | (17,500  | )        |        |          | (46,084  | )     
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                          |                                                                                          |                                                                           |                           | Net cash provided from (used for) financing activities |         |         | (101,763 | )        |          |        | 26,554   |          |        |        | (39,846  | )
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Cash Flow From Investing Activities                                       |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Capital expenditures                                                                     |                                                                           |                           | (117,645                                               | )       |         |          | (135,933 | )        |        |          | (153,475 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other (Note 10c)                                                                         |                                                                           |                           | (5,013                                                 | )       |         |          | (8,108   | )        |        |          | (32,347  | )     
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                          |                                                                                          |                                                                           |                           | Net cash used for investing activities                 |         |         | (122,658 | )        |          |        | (144,041 | )        |        |        | (185,822 | )
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Net Increase (Decrease) in Cash and Cash Equivalents                      |                                                                                          |                                                                           | 2,968                     |                                                        |         |         | 3,102    |          |          |        | (7,750   | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash and Cash Equivalents, January 1                                      |                                                                                          |                                                                           | 9,705                     |                                                        |         |         | 6,603    |          |          |        | 14,353   |         
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Cash and Cash Equivalents, December 31                                    |                                                                                          | $                                                                         | 12,673                    |                                                        |         | $       | 9,705    |          |          | $      | 6,603    |         
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                                                 |                                                                           | $                         | (15,671                                                | )       |         | $        | (6,055   | )        |        | $        | 50,174   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                                                |                                                                           |                           | (36,599                                                | )       |         |          | (12,099  | )        |        |          | 5,129    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net (Notes 1, 8a
	and 8c)                   |                                                                           |                           | (241                                                   | )       |         |          | (14,980  | )        |        |          | 27,843   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory (Note 4)                                                                |                                                                           |                           | 60,564                                                 |         |         |          | (17,181  | )        |        |          | (16,768  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Property taxes assessed applicable to future periods                                     |                                                                           |                           | 5,822                                                  |         |         |          | 10,576   |          |        |          | (6,338   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid benefit costs, net                                                               |                                                                           |                           | (57,777                                                | )       |         |          | (42,411  | )        |        |          | (28,089  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                                         |                                                                           |                           | 4,808                                                  |         |         |          | (5,342   | )        |        |          | (30,617  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                                         |                                                                           |                           | (3,779                                                 | )       |         |          | 10,356   |          |        |          | (17,602  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Exchange gas payable                                                                     |                                                                           |                           | (1,366                                                 | )       |         |          | (21,739  | )        |        |          | 23,274   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                                                |                                                                           |                           | (2,153                                                 | )       |         |          | (1,701   | )        |        |          | 11,191   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                                               |                                                                           |                           | 24,425                                                 |         |         |          | (14,429  | )        |        |          | 1,102    |       
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                          |                                                                                          | $                                                                         | (21,967                   | )                                                      |         | $       | (115,005 | )        |          | $      | 19,299   |         
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|Supplemental Disclosures                                                  |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid for:                                                                           |                                                                           |                           |                                                        |         |         |          |          |          |        |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                          | Interest, net of amounts capitalized                                      |                           | $                                                      | 59,466  |         |          | $        | 58,467   |        |          | $        | 56,250 |       
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         
|                                                                          |                                                                                          | Federal income taxes                                                      |                           | $                                                      | 22,959  |         |          | $        | 25,340   |        |          | $        | 27,090 |       
|                                                                          |                                                                                          |                                                                           |                           |                                                        |         |         |          |          |          |        |          |         




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


33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



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

Company Description Michigan Consolidated Gas
Company (MichCon) is a public utility engaged in the
distribution and transmission of natural gas in the state of
Michigan. MichCon is subject to the accounting requirements of
and rate regulation by the Michigan Public Service Commission
(MPSC) with respect to the distribution and intrastate
transportation of natural gas. The major services provided by
MichCon are gas sales, end user transportation and intermediate
transportation. MichCon serves approximately 1.2 million
residential, commercial and industrial customers throughout
Michigan. Its principal markets are located in the Detroit,
Grand Rapids, Ann Arbor, Traverse City, Marquette, and Muskegon
metropolitan areas and in various other communities throughout
Michigan. MichCons non-regulated operations are not
significant. MichCon is an indirect, wholly owned subsidiary of
MCN Energy Group Inc. (MCN).

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

Principles of Consolidation The consolidated
financial statements include the accounts of MichCon and all of
its subsidiaries. Investments in 50% or less owned entities have
been accounted for under the equity method because MichCon has
significant but not controlling influence over these entities.

Revenues and Cost of Gas MichCon accrues
revenues for gas service provided but unbilled at month end.
Through December 31, 1998, MichCons accrued revenues
included a component for cost of gas sold that was recoverable
through the gas cost recovery (GCR) mechanism. Prior to 1999,
GCR proceedings before the MPSC permitted MichCon to recover the
prudent and reasonable cost of gas sold. Beginning in 1999,
MichCon implemented an MPSC approved Regulatory Reform Plan. The
Plan suspended the GCR mechanism and fixed the gas component of
MichCons sales rates for a three-year period that began in
January 1999 (Note 8a). Accordingly, MichCon no longer
accrues revenues under this mechanism.

Property, Plant and Equipment Property, plant
and equipment is stated at cost and includes amounts for labor,
materials, overhead, and an allowance for funds used during
construction. Upon retirement, the cost of property, plant and
equipment and net removal costs are charged to accumulated
depreciation.

MichCon records depreciation for a major portion of its
property, plant and equipment on the basis of straight-line
rates prescribed by the MPSC. Unit of production depreciation
and depletion is used for certain production and transmission
property. Depreciation rates vary by class of property. The
ratio of the provision for depreciation to the average cost of
depreciable property was 3.6% in 2000 and 3.5% in 1999 and 1998.

34



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


Allowance for Funds Used during Construction MichCon capitalizes an allowance for both debt and equity
funds used during construction in the cost of major additions to
utility plant. The total amount capitalized was $1,722,000,
$2,521,000 and $4,699,000 in 2000, 1999 and 1998, respectively.

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

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

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

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

Accounting For Derivative Instruments and Hedging
Activities As of January 1, 2001, MichCon
adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and
Hedging Activities  Deferral of the Effective Date of
FASB Statement No. 133, and SFAS No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities. Refer to Note 11c for
further discussion.



|   |                                              
|-- | ---------------------------------------------
|2. | MCN MERGER AGREEMENT WITH DTE ENERGY
	COMPANY

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

35



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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

As a result of the pending merger, MCN incurred merger-related
costs, a portion of which were allocated to MichCon.
Additionally, MichCon incurred merger-related costs. The
merger-related costs include legal, accounting, consulting,
employee benefit and other expenses that had the effect of
decreasing earnings by $4,058,000 pre-tax ($2,638,000 net of
taxes) and $25,429,000 pre-tax ($16,530,000 net of taxes) in
2000 and 1999, respectively.



|   |                    
|-- | -------------------
|3. | PROPERTY WRITE-DOWN

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



|   |                 
|-- | ----------------
|4. | GAS IN INVENTORY

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

36



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




|   |                                             
|-- | --------------------------------------------
|5. | CREDIT FACILITIES AND SHORT-TERM
	BORROWINGS

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



|   |               
|-- | --------------
|6. | CAPITALIZATION

a.  Long-Term Debt



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

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

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

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

37



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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

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

Maturities and sinking fund requirements during the next five
years for long-term debt outstanding at December 31, 2000
are $23,500,000 in 2001, $20,700,000 in 2002, $98,100,000 in
2003, $2,800,000 in 2004, and $2,400,000 in 2005.

b.  Cumulative Preferred and Preference Stock





|   |                              
|-- | -----------------------------
|7. | COMMITMENTS AND CONTINGENCIES

a.  Personal Property Taxes



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

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

38



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


b.  Environmental Matters

Former manufactured gas plant sites 


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

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

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

MichCon employed outside consultants to evaluate remediation
alternatives for these sites, to assist in estimating its
potential liabilities and to review its archived insurance
policies. The findings of these investigations indicate that the
estimated total expenditures for investigation and remediation
activities for these sites could range from $30,000,000 to
$170,000,000 based on undiscounted 1995 costs. As a result of
these studies, MichCon accrued an additional liability and a
corresponding regulatory asset of $32,000,000 during 1995.

MichCon notified more than 40 current and former insurance
carriers of the environmental conditions at these former MGP
sites. MichCon concluded settlement negotiations with certain
carriers in 1996 and 1997 and has received payments from several
carriers. In October 1997, MichCon filed suit against major
non-settling carriers seeking recovery of incurred costs and a
declaratory judgment of the carriers liability for future
costs of environmental investigation and remediation costs at
former MGP sites. Settlements were reached with a number of
carriers, with payments received during 2000.

During 2000, 1999 and 1998, MichCon spent $1,260,000, $724,000
and $1,649,000, respectively, investigating and remediating
these former MGP sites. At December 31, 2000, the reserve
balance was $30,108,000, of which $4,500,000 was classified as
current. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial
action costs for the sites and, therefore, have an effect on
MichCons financial position and cash flows. However,
management believes that the cost

39



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


deferral and rate recovery mechanism approved by the MPSC will
prevent environmental costs from having a material adverse
impact on MichCons results of operations.

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

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

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

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

c.  Guaranty



40



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


d.  Commitments



Capital investments for 2001 are expected to approximate
$110,000,000 and certain commitments have been made in
connection with such capital investments.

e.  Other





|   |                   
|-- | ------------------
|8. | REGULATORY MATTERS

a.  Regulatory Reform Plan



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

41



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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

b.  Proposed Regulatory Changes



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

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

c.  Gas Cost Recovery Proceedings



d.  Regulatory Assets and Liabilities

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


42



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


customers through the ratemaking process. Regulatory liabilities
represent benefits that will be refunded to customers through
reduced rates.

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



---

|                        |                                        |      |         |         |  |   |         |         | 
|----------------------- | -------------------------------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                        |                                        | 2000 |         | 1999   
|(in Thousands)          |                                        |      |         |        
|                        |                                        |      |         |        
|                       
|                       
|                       
|                       
|Regulatory Assets:      |                                        |      |         |         |  |   |         |        
|                       
|                       
|                       
|                       
|                        | Deferred environmental costs (Note 7b) |      | $       | 26,372  |  |   | $       | 28,639  | 
|                       
|                       
|                       
|                       
|                        | Unamortized loss on retirement of debt |      |         | 14,655  |  |   |         | 15,241  | 
|                       
|                       
|                       
|                       
|                        | Other                                  |      |         | 474     |  |   |         | 247     | 
|                        |                                        |      |         |         |  |   |         |        
|                        |                                        | $    | 41,501  |         |  | $ | 44,127  |        
|                        |                                        |      |         |         |  |   |         |        
|Regulatory Liabilities: |                                        |      |         |         |  |   |         |        
|                       
|                       
|                       
|                       
|                        | Tax benefits amortizable to customers  |      | $       | 138,161 |  |   | $       | 136,236 | 
|                       
|                       
|                       
|                       
|                        | Other                                  |      |         | 97      |  |   |         | 88      | 
|                        |                                        |      |         |         |  |   |         |        
|                        |                                        | $    | 138,258 |         |  | $ | 136,324 |        
|                        |                                        |      |         |         |  |   |         |        




MichCon currently has regulatory precedents and orders in effect
which provide for the probable recovery or refund of its
regulatory assets and liabilities. Future regulatory changes or
changes in the competitive environment could result in MichCon
discontinuing the application of SFAS No. 71 for all or
part of its business and require the write-off of the portion of
any regulatory asset or liability which was no longer probable
of recovery or refund. If MichCon were to have discontinued the
application of SFAS No. 71 for all of its operations as of
December 31, 2000, it would have had an extraordinary,
non-cash increase to net income of approximately $62,900,000.
Management believes that currently available facts support the
continued application of SFAS No. 71.

e.  Other Rate Matters



9.  CAPITAL AND OPERATING
LEASES

Lessee  MichCon leases certain property
(principally a warehouse, office building and parking structure)
under capital lease arrangements expiring at various dates to
2006, with renewal options

43



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


extending beyond that date. Portions of the office building and
parking structure are subleased to various tenants. Long-term
capital lease obligations are not significant.

Operating lease payments for the years ended December 31,
2000, 1999 and 1998 were $2,233,000, $2,073,000 and $2,050,000,
respectively.

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

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

10.  RETIREMENT BENEFITS AND TRUSTEED
ASSETS

a.  Pension Plan Benefits



44



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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

|                               |                      |      |         |         |   |      |         |        |   |   |         |        |  
|------------------------------ | -------------------- | ---- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                              
|                              
|                               |                      | 2000 |         | 1999    |   | 1998
|(in Thousands)                 |                      |      |         |         |   |     
|Service Cost                   |                      | $    | 9,500   |         |   | $    | 11,686  |        |   | $ | 9,719   |       
|                              
|                              
|                              
|                              
|Interest Cost                  |                      |      | 35,896  |         |   |      | 34,764  |        |   |   | 36,195  |       
|                              
|                              
|                              
|                              
|Expected Return on Plan Assets |                      |      | (86,724 | )       |   |      | (78,489 | )      |   |   | (71,780 | )     
|Amortization of                |                      |      |         |         |   |      |         |        |   |   |         |       
|                              
|                              
|                              
|                              
|                               | Net gain             |      |         | (11,200 | ) |      |         | (5,263 | ) |   |         | (6,479 | )
|                              
|                              
|                              
|                              
|                               | Prior service cost   |      |         | 1,711   |   |      |         | 1,711  |   |   |         | 1,031  |  
|                              
|                              
|                              
|                              
|                               | Net transition asset |      |         | (4,821  | ) |      |         | (4,821 | ) |   |         | (4,938 | )
|                              
|                              
|                              
|                              
|Special Termination Benefits   |                      |      |        |         |   |      |        |        |   |   | 5,054   |       
|                              
|                              
|                              
|                              
|Settlements                    |                      |      | (2,140  | )       |   |      | (1,999  | )      |   |   | (6,935  | )     
|                               |                      |      |         |         |   |      |         |        |   |   |         |       
|Net Pension Credit             |                      | $    | (57,778 | )       |   | $    | (42,411 | )      |   | $ | (38,133 | )     
|                               |                      |      |         |         |   |      |         |        |   |   |         |       
|                              

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

|                                                            |                      |      |             |          |   |   |             |          |  
|----------------------------------------------------------- | -------------------- | ---- | ----------- | -------- | - | - | ----------- | -------- | -
|                                                           
|                                                           
|                                                            |                      | 2000 |             | 1999    
|(in Thousands)                                              |                      |      |             |         
|Measurement Date                                            |                      |      | October  31 |          |   |   | October  31 |         
|                                                           
|                                                           
|                                                           
|                                                           
|Accumulated Benefit Obligation at the End of the Period     |                      | $    | 413,702     |          |   | $ | 413,415     |         
|                                                            |                      |      |             |          |   |   |             |         
|Projected Benefit Obligation at the Beginning of the Period |                      | $    | 478,622     |          |   | $ | 534,836     |         
|                                                           
|                                                           
|                                                           
|                                                           
|Service Cost                                                |                      |      | 9,500       |          |   |   | 11,686      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Interest Cost                                               |                      |      | 35,896      |          |   |   | 34,764      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Actuarial (Gain) Loss                                       |                      |      | (2,793      | )        |   |   | (67,795     | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Settlements Due to Lump Sums                                |                      |      | (5,544      | )        |   |   | (5,469      | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Regular Benefits                                            |                      |      | (30,248     | )        |   |   | (29,400     | )       
|                                                            |                      |      |             |          |   |   |             |         
|Projected Benefit Obligation at the End of the Period       |                      | $    | 485,433     |          |   | $ | 478,622     |         
|                                                            |                      |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the Beginning of the Period    |                      | $    | 932,294     |          |   | $ | 872,390     |         
|                                                           
|                                                           
|                                                           
|                                                           
|Actual Return on Plan Assets                                |                      |      | 93,151      |          |   |   | 90,614      |         
|                                                           
|                                                           
|                                                           
|                                                           
|Settlements Due to Lump Sums                                |                      |      | (4,109      | )        |   |   | (1,310      | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Regular Benefits                                            |                      |      | (31,369     | )        |   |   | (29,400     | )       
|                                                            |                      |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the End of the Period          |                      | $    | 989,967     |          |   | $ | 932,294     |         
|                                                            |                      |      |             |          |   |   |             |         
|Funded Status of the Plans                                  |                      | $    | 504,534     |          |   | $ | 453,672     |         
|Unrecognized                                                |                      |      |             |          |   |   |             |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net gain             |      |             | (287,653 | ) |   |             | (291,309 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Prior service cost   |      |             | 15,876   |   |   |             | 17,587   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net transition asset |      |             | (18,689  | ) |   |             | (23,660  | )
|                                                            |                      |      |             |          |   |   |             |         
|Prepaid Pension Cost                                        |                      | $    | 214,068     |          |   | $ | 156,290     |         
|                                                            |                      |      |             |          |   |   |             |         
|                                                           

45



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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

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

MichCon also sponsors defined contribution retirement savings
plans. Participation in one of these plans is available to
substantially all union and nonunion employees. MichCon matches
employee contributions up to certain predefined limits based
upon salary and years of credited service. The cost of these
plans was $4,800,000 in 2000, $4,700,000 in 1999, and $4,800,000
in 1998.

b.  Other Postretirement Benefits



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




|                               |                           |      |         |        |   |      |         |        |   |   |         |        |  
|------------------------------ | ------------------------- | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                               |                           | 2000 |         | 1999   |   | 1998
|(in Thousands)                 |                           |      |         |        |   |     
|                               |                           |      |         |        |   |     
|                              
|                              
|                              
|                              
|Service Cost                   |                           | $    | 3,950   |        |   | $    | 4,272   |        |   | $ | 3,699   |       
|                              
|                              
|                              
|                              
|Interest Cost                  |                           |      | 18,779  |        |   |      | 16,180  |        |   |   | 16,423  |       
|                              
|                              
|                              
|                              
|Expected Return on Plan Assets |                           |      | (16,319 | )      |   |      | (14,788 | )      |   |   | (13,482 | )     
|Amortization of                |                           |      |         |        |   |      |         |        |   |   |         |       
|                              
|                              
|                              
|                              
|                               | Net gain                  |      |         | (5,364 | ) |      |         | (4,484 | ) |   |         | (5,684 | )
|                              
|                              
|                              
|                              
|                               | Net transition obligation |      |         | 12,702 |   |      |         | 12,702 |   |   |         | 12,702 |  
|                              
|                              
|                              
|                              
|Special Termination Benefits   |                           |      |        |        |   |      |        |        |   |   | 1,186   |       
|                               |                           |      |         |        |   |      |         |        |   |   |         |       
|Net Postretirement Cost        |                           | $    | 13,748  |        |   | $    | 13,882  |        |   | $ | 14,844  |       
|                               |                           |      |         |        |   |      |         |        |   |   |         |       




46



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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




|                                                                              |                           |      |             |          |   |   |             |          |  
|----------------------------------------------------------------------------- | ------------------------- | ---- | ----------- | -------- | - | - | ----------- | -------- | -
|                                                                              |                           | 2000 |             | 1999    
|(in Thousands)                                                                |                           |      |             |         
|Measurement Date                                                              |                           |      | October  31 |          |   |   | October  31 |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Accumulated Postretirement Benefit Obligation at the Beginning
	of the Period |                           | $    | 250,383     |          |   | $ | 248,937     |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Service Cost                                                                  |                           |      | 3,950       |          |   |   | 4,272       |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Interest Cost                                                                 |                           |      | 18,779      |          |   |   | 16,180      |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Actuarial (Gain) Loss                                                         |                           |      | (20,713     | )        |   |   | (6,691      | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Benefits Paid                                                                 |                           |      | (13,048     | )        |   |   | (12,315     | )       
|                                                                              |                           |      |             |          |   |   |             |         
|Accumulated Postretirement Benefit Obligation at the End of the
	Period       |                           | $    | 239,351     |          |   | $ | 250,383     |         
|                                                                              |                           |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the Beginning of the Period                      |                           | $    | 189,531     |          |   | $ | 173,148     |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Actual Return on Plan Assets                                                  |                           |      | 15,163      |          |   |   | 26,103      |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Company Contributions                                                         |                           |      |            |          |   |   | 2,000       |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Regular Benefits                                                              |                           |      | (11,945     | )        |   |   | (11,720     | )       
|                                                                              |                           |      |             |          |   |   |             |         
|Plan Assets at Fair Value at the End of the Period                            |                           | $    | 192,749     |          |   | $ | 189,531     |         
|                                                                              |                           |      |             |          |   |   |             |         
|Funded Status of the Plans                                                    |                           | $    | (46,602     | )        |   | $ | (60,852     | )       
|Unrecognized                                                                  |                           |      |             |          |   |   |             |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net gain                  |      |             | (142,936 | ) |   |             | (128,743 | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net transition obligation |      |             | 162,622  |   |   |             | 175,305  |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Regular Benefits Made After Measurement Date                                  |                           |      | (548        | )        |   |   |            |         
|                                                                              |                           |      |             |          |   |   |             |         
|Accrued Postretirement Liability                                              |                           | $    | (27,464     | )        |   | $ | (14,290     | )       
|                                                                              |                           |      |             |          |   |   |             |         




The rate at which healthcare costs are assumed to increase is
the most significant factor in estimating MichCons
postretirement benefit obligation. MichCon used a rate of 8% for
2001, and a rate that gradually declines each year until it
stabilizes at 5% in 2006. A one percentage point increase in the
assumed rates would increase the accumulated postretirement
benefit obligation at December 31, 2000 by $28,033,000
(12%) and increase the sum of the service and interest rate cost
by $2,706,000 (12%) for the year then ended. A one percentage
point decrease in the assumed rates would decrease the
accumulated postretirement benefit obligation at
December 31, 2000 by $24,854,000 (10%) and decrease the sum
of the service and interest rate cost by $2,370,000 (10%) for
the year then ended.

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

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

47



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


c.  Grantor Trust





|    |                                                                 
|--- | ----------------------------------------------------------------
|11. | RISK MANAGEMENT ACTIVITIES AND DERIVATIVE
	FINANCIAL INSTRUMENTS

a.  Natural Gas Price Hedging



Changes in the market value of the swap agreements were deferred
until the hedged transaction was completed, at which time the
realized gain or loss was included in the cost of gas. At
December 31, 2000 and December 31, 1999, MichCon did
not have any swap contracts.

b.  Interest Rate Hedging



At December 31, 2000, MichCon had interest rate swap
agreements with notional principal amounts totaling $80,000,000
(Note 6a) and a weighted average remaining life of
2.9 years. At December 31, 1999, MichCon had interest
rate swap agreements with notional principal amounts totaling
$104,333,000. The notional principal amounts are used solely to
calculate amounts to be paid or received under the interest rate
swap agreements and approximate the principal amount of the
underlying debt being hedged.

48



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


c.  New Accounting Pronouncement

Accounting for Derivative Instruments and Hedging
Activities


MichCon has identified its interest rate swaps, firm-priced
supply contracts, and options embedded in certain debt
instruments as derivatives. The cumulative effect of adopting
SFAS No. 133 is not expected to be material. The adoption
will also impact assets and liabilities recorded in the
statement of financial position.

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

12.  FAIR VALUE OF FINANCIAL AND OTHER
SIMILAR INSTRUMENTS

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

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




|                                     |                                                     |                        |   |            |   |          |   |            |       |  |   |         |   |  |   |         |      |  
|------------------------------------ | --------------------------------------------------- | ---------------------- | - | ---------- | - | -------- | - | ---------- | ----- |  | - | ------- | - |  | - | ------- | ---- | -
|                                     |                                                     |                        |   |           
|                                     |                                                     | 2000                   |   | 1999      
|                                     |                                                     |                        |   |           
|                                     |                                                     | Carrying               |   | Estimated  |   | Carrying |   | Estimated 
|                                     |                                                     | Amount                 |   | Fair Value |   | Amount   |   | Fair Value
|(in Thousands)                       |                                                     |                        |   |            |   |          |   |           
|Assets                               |                                                     |                        |   |            |   |          |   |            |       |  |   |         |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term investments                               |                        | $ | 70,643     |   |          | $ | 70,643     |       |  | $ | 67,210  |   |  | $ | 67,210  |     
|                                    
|                                    
|                                    
|                                    
|Liabilities and Shareholders Equity |                                                     |                        |   |            |   |          |   |            |       |  |   |         |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt, excluding capital lease obligations |                        |   | 639,109    |   |          |   | 632,097    |       |  |   | 677,517 |   |  |   | 651,080 |     
|                                    
|                                    
|                                    
|                                    
|Derivative Financial Instruments     |                                                     |                        |   |            |   |          |   |            |       |  |   |         |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest rate swaps:                                |                        |   |            |   |          |   |            |       |  |   |         |   |  |   |         |     
|                                    
|                                    
|                                    
|                                    
|                                     |                                                     | with unrealized gains  |   |            |  |          |   |            | 1,806 |  |   |         |  |  |   |         | 165  |  
|                                    
|                                    
|                                    
|                                    
|                                     |                                                     | with unrealized losses |   |            |  |          |   |            |      |  |   |         |  |  |   |         | (173 | )




49



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


The fair values are determined based on the following:



|  |                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Long-term investments  carrying amount
	approximates fair value taking into consideration interests
	rates available to MichCon for investments with similar
	provisions.                                
| 
| | Long-term debt  interest rates available to
	MichCon for issuance of debt with similar terms and remaining
	maturities.                                                                                  
| 
| | Interest rate swaps  estimated amounts that
	MichCon would receive or pay to terminate the swap agreements,
	taking into account current interest rates and the
	credit-worthiness of the counterparties.
| 
| | Guaranty  management is unable to practicably
	estimate the fair value of the Harbortown guaranty
	(Note 7c) due to the nature of the transaction.                                                       

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

13.  RELATED PARTY TRANSACTIONS

MichCon had transactions with affiliated companies to provide
transportation and storage services and for the purchase natural
gas. Under a service agreement with MCN, MichCon receives
various tax, financial and legal services and provides
construction, engineering, human resources, information
technology and other services. The following is a summary of
transactions with affiliated companies:




|                                    |                                                     |      |        |        |  |      |        |        |  |   |        |        | 
|----------------------------------- | --------------------------------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                    |                                                     | 2000 |        | 1999   |  | 1998
|(in Thousands)                      |                                                     |      |        |        |  |     
|Revenues                            |                                                     |      |        |        |  |      |        |        |  |   |        |       
|                                   
|                                   
|                                   
|                                   
|Transportation and storage services |                                                     | $    | 13,293 |        |  | $    | 13,810 |        |  | $ | 11,566 |       
|                                   
|                                   
|                                   
|                                   
|                                    | Other services                                      |      |        | 4,558  |  |      |        | 6,057  |  |   |        | 6,820  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Interest                                            |      |        | 587    |  |      |        | 390    |  |   |        | 1,502  | 
|Costs                               |                                                     |      |        |        |  |      |        |        |  |   |        |       
|                                   
|                                   
|                                   
|                                   
|                                    | Gas purchases                                       |      |        | 77,542 |  |      |        | 75,151 |  |   |        | 395    | 
|                                   
|                                   
|                                   
|                                   
|                                    | Corporate expenses, merger costs and other services |      |        | 19,017 |  |      |        | 30,809 |  |   |        | 10,634 | 




MichCons accounts receivable from affiliated companies
totaled $7,186,000 and $11,509,000, and accounts payable to
affiliated companies totaled $13,852,000 and $18,850,000 at
December 31, 2000 and 1999, respectively.

MichCon is a participant in an intercompany credit agreement
whereby it can borrow needed cash from and loan available cash
to MCN and its subsidiaries. The outstanding balance of notes
receivable from affiliated companies at December 31, 2000
was $423,000 with interest at the prime rate of 9.5%. The
outstanding balance of notes receivable from affiliated
companies at December 31,

50



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


1999 was $7,946,000 with interest at the prime rate of 8.5%. The
outstanding balance of notes payable to affiliated companies at
December 31, 2000 was $33,000. The outstanding balance of
notes payable to affiliated companies at December 31, 1999
was $40,000.

14.  SUMMARY OF INCOME TAXES

MichCon is part of the consolidated federal income tax return of
MCN. The federal income tax expense for MichCon and its
subsidiaries is determined on an individual company basis with
no allocation of tax benefits or expenses from other affiliates
of MCN.




|                                                         |                                                |      |        |        |   |      |        |        |   |   |        |        |  
|-------------------------------------------------------- | ---------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                         |                                                | 2000 |        | 1999   |   | 1998
|(in Thousands)                                           |                                                |      |        |        |   |     
|Effective Federal Income Tax Rate                        |                                                |      | 33.2   | %      |   |      | 34.4   | %      |   |   | 31.5   | %     
|Income Taxes Consist of                                  |                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Current provision                              |      | $      | 23,575 |   |      | $      | 34,180 |   |   | $      | 27,768 |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Deferred provision                             |      |        | 33,289 |   |      |        | 24,316 |   |   |        | 11,010 |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Investment tax credits                         |      |        | (1,911 | ) |      |        | (2,007 | ) |   |        | (2,961 | )
|                                                         |                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                         |                                                | $    | 54,953 |        |   | $    | 56,489 |        |   | $ | 35,817 |       
|                                                         |                                                |      |        |        |   |      |        |        |   |   |        |       
|Reconciliation Between Statutory and Actual Income Taxes |                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|Statutory Federal Income Taxes at a Rate of 35%          |                                                | $    | 57,570 |        |   | $    | 56,989 |        |   | $ | 39,477 |       
|Adjustments to Federal Tax Expense                       |                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Book over tax depreciation                     |      |        | 3,150  |   |      |        | 2,018  |   |   |        | 1,071  |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Adjustments to taxes provided in prior periods |      |        | (1,332 | ) |      |        | 850    |   |   |        | 1,080  |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Investment tax credits                         |      |        | (1,911 | ) |      |        | (2,007 | ) |   |        | (2,961 | )
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Other  net                                    |      |        | (2,524 | ) |      |        | (1,361 | ) |   |        | (2,850 | )
|                                                         |                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                         |                                                | $    | 54,953 |        |   | $    | 56,489 |        |   | $ | 35,817 |       
|                                                         |                                                |      |        |        |   |      |        |        |   |   |        |       




Deferred tax assets and liabilities are recognized for the
estimated future tax effect of temporary differences between the
tax basis of assets or liabilities and the reported amounts in
the financial statements. Deferred tax assets and liabilities
are classified as current or noncurrent according to the
classification of the related assets or liabilities.

51



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


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




|                                           |                                                                |      |         |        |  |   |         |        | 
|------------------------------------------ | -------------------------------------------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                           |                                                                | 2000 |         | 1999  
|(in Thousands)                             |                                                                |      |         |       
|Deferred Tax Assets                        |                                                                |      |         |        |  |   |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Employee benefits                                              |      | $       | 6,493  |  |   | $       | 8,039  | 
|                                          
|                                          
|                                          
|                                          
|                                           | Uncollectibles                                                 |      |         | 6,619  |  |   |         | 6,222  | 
|                                          
|                                          
|                                          
|                                          
|                                           | Vacation accrual                                               |      |         | 2,448  |  |   |         | 2,362  | 
|                                          
|                                          
|                                          
|                                          
|                                           | Postretirement benefits                                        |      |         | 7,472  |  |   |         | 5,424  | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                                          |      |         | 1,135  |  |   |         | 1,227  | 
|                                           |                                                                |      |         |        |  |   |         |       
|                                           |                                                                |      | 24,167  |        |  |   | 23,274  |       
|                                           |                                                                |      |         |        |  |   |         |       
|Deferred Tax Liabilities                   |                                                                |      |         |        |  |   |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Depreciation and other property related basis differences, net |      |         | 60,227 |  |   |         | 54,202 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Pensions                                                       |      |         | 72,977 |  |   |         | 52,755 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Property taxes                                                 |      |         | 13,823 |  |   |         | 18,005 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                                          |      |         | 24,522 |  |   |         | 14,330 | 
|                                           |                                                                |      |         |        |  |   |         |       
|                                           |                                                                |      | 171,549 |        |  |   | 139,292 |       
|                                           |                                                                |      |         |        |  |   |         |       
|Net Deferred Tax Liability                 |                                                                |      | 147,382 |        |  |   | 116,018 |       
|                                          
|                                          
|                                          
|                                          
|Less: Net Deferred Tax Liability  Current |                                                                |      | 5,830   |        |  |   | 10,667  |       
|                                           |                                                                |      |         |        |  |   |         |       
|Net Deferred Tax Liability  Noncurrent    |                                                                | $    | 141,552 |        |  | $ | 105,351 |       
|                                           |                                                                |      |         |        |  |   |         |       




15.  STOCK INCENTIVE PLAN

MCNs Stock Incentive Plan authorizes the use of
performance units, stock options, restricted stock or other
stock-related awards to key employees, primarily management.
Stock-based awards encourage a strategic focus of long-term
performance and have high employee retention value. Prior to
1999, MichCons policy was to issue all stock based awards
in the form of performance units. In 1999, MichCon revised its
policy whereby 50% of any stock-related awards would be in the
form of stock options. The remaining 50% of any awards would
continue to be in the form of performance units.

As a result of MCN shareholders approving the pending merger
with DTE (Note 2) in December 1999, provisions of the
Stock Incentive Plan provided for the immediate vesting of all
performance units and stock options outstanding. The performance
unit grants outstanding vested at no less than 100%, and were
based on MCNs total shareholder return relative to its
peer group at the date of the shareholders vote. Subject
to stock ownership guidelines, participants had a one-time
choice to have the value of their options and performance units
paid in cash at a weighted value of $25.12 per share.

No awards were made under the Plan in 2000 as a result of the
proposed merger. However, certain MichCon executives received
letters from DTE detailing a grant of DTE stock options and
performance shares to be made upon merger closing. During 1999
and 1998, MichCon granted 47,080 and 125,016 performance units,
respectively, with a weighted-average grant date fair value of

52



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONCLUDED)


$17.25 and $37.00 per unit, respectively. The performance units
were denominated in shares of MCN common stock and were
determined based on MCNs total shareholder return relative
to the peer group. Participants received dividend equivalents on
the units granted. Participants must retain 50% of any common
shares paid until certain stock ownership guidelines are met.

In 1999, MichCon granted 356,125 stock options with a grant date
fair value of $2.67 per option. Each option allows the
participant to purchase one share of MCN common stock at $17.25,
which was the market price of MCNs common shares on the
grant date. The options were set to vest ratably over the three
years following date of grant and expire in the tenth year
following date of grant. During 2000, participants elected to
have the value of 221,690 options paid in cash. Additionally,
875 options were exercised in 2000 resulting in 104,685
options outstanding at December 31, 2000. During 1999,
28,875 options were forfeited and no options were exercised
resulting in 327,250 options outstanding at December 31,
1999.

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

There was no stock-based compensation cost recognized in 2000.
Stock-based compensation cost recognized during 1999 for all
awards outstanding totaled $8,692,000. MichCons 1999
compensation expense includes the effect of the accelerated
vesting of all awards outstanding. A stock-based compensation
benefit of $1,493,000 was recognized during 1998 for all awards
outstanding as a result of a reduction in the number of
performance units expected to vest.

53



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

Michigan Consolidated Gas Company:

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

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

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

DELOITTE & TOUCHE LLP





54



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##### Table of Contents



SUPPLEMENTARY FINANCIAL INFORMATION

Quarterly Operating Results
(Unaudited)

Due to the seasonal nature of MichCons business, revenues
and net income tend to be higher in the first and fourth
quarters of the calendar year.




|                        |  |         |         |         |  |         |         |         |  |   |         |   |  |   |         | 
|----------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | 
|                        |  | First   |         | Second  |  | Third   |         | Fourth 
|                        |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                        |  |         |         |         |  |        
|(in Thousands)          |  |         |         |         |  |        
|                       
|                       
|                       
|                       
|2000                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |         | 
|                       
|                       
|                       
|                       
|Operating Revenue       |  | $       | 442,747 |         |  | $       | 187,488 |         |  | $ | 132,269 |   |  | $ | 381,838 | 
|                       
|                       
|                       
|                       
|Operating Income (Loss) |  |         | 116,883 |         |  |         | 18,235  |         |  |   | (842    | ) |  |   | 81,459  | 
|                       
|                       
|                       
|                       
|Net Income (Loss)       |  |         | 66,940  |         |  |         | 3,987   |         |  |   | (8,811  | ) |  |   | 47,418  | 

|                        |  |   |         |  |  |   |         |  |  |   |         |   |  |   |         | 
|----------------------- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                       
|                       
|                       
|                       
|1999                    |  |   |         |  |  |   |         |  |  |   |         |   |  |   |         | 
|                       
|                       
|                       
|                       
|Operating Revenue       |  | $ | 498,090 |  |  | $ | 185,555 |  |  | $ | 122,635 |   |  | $ | 329,459 | 
|                       
|                       
|                       
|                       
|Operating Income (Loss) |  |   | 139,123 |  |  |   | 23,745  |  |  |   | (4,405  | ) |  |   | 57,709  | 
|                       
|                       
|                       
|                       
|Net Income (Loss)       |  |   | 83,973  |  |  |   | 8,165   |  |  |   | (13,540 | ) |  |   | 27,738  | 




55



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##### Table of Contents



SCHEDULE II

MICHIGAN CONSOLIDATED GAS COMPANY AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(Thousands of Dollars)


|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ---------- | - | --------------------- |  | -------------- | - | ------------- | - | --------- | - | --- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |              
|Column A                                                                                                                              |                                 | Column B   |   | Column C              |  | Column D       |   | Column E     
|                                                                                                                                      |                                 |            |   |                       |  |                |   |              
|                                                                                                                                      |                                 |            |   | Additions             |  |                |   |              
|                                                                                                                                      |                                 |            |   |                       |  |                |   |              
|                                                                                                                                      |                                 |            |   |                       |  |                |   |              
|                                                                                                                                      |                                 |            |   | Provisions charged to |  | Deductions     |   |              
|                                                                                                                                      |                                 |            |   |                       |  | for Purposes   |   |              
|                                                                                                                                      |                                 | Balance at |   |                       |  | Utility Plant/ |   | for Which the |   | Balance  
|                                                                                                                                      |                                 | Beginning  |   |                       |  | Regulatory     |   | Reserves Were |   | at End   
|Description                                                                                                                           |                                 | of Period  |   | Income                |  | Asset          |   | Provided      |   | of Period
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |          
|Year Ended December 31, 2000                                                                                                          |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                        |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Allowance for doubtful accounts |            | $ | 17,777                |  |                | $ | 14,148        |   |           | $ |    |  |  | $ | 13,013 |  |  | $ | 18,912 | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position: |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Environmental                   |            | $ | 31,368                |  |                | $ |              |   |           | $ | 350 |  |  | $ | 1,260  |  |  | $ | 30,458 | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Injuries and damages            |            | $ | 2,726                 |  |                | $ | 2,341         |   |           | $ | 627 |  |  | $ | 3,084  |  |  | $ | 2,610  | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Year Ended December 31, 1999                                                                                                          |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                        |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Allowance for doubtful accounts |            | $ | 8,928                 |  |                | $ | 11,512        |   |           | $ |    |  |  | $ | 2,663  |  |  | $ | 17,777 | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position: |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Environmental testing           |            | $ | 32,092                |  |                | $ |              |   |           | $ |    |  |  | $ | 724    |  |  | $ | 31,368 | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Injuries and damages            |            | $ | 2,515                 |  |                | $ | 1,716         |   |           | $ | 416 |  |  | $ | 1,921  |  |  | $ | 2,726  | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Year Ended December 31, 1998                                                                                                          |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|Reserve deducted from Assets in Consolidated Statement of
	Financial Position:                                                        |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Allowance for doubtful accounts |            | $ | 15,015                |  |                | $ | 13,029        |   |           | $ |    |  |  | $ | 19,116 |  |  | $ | 8,928  | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserve included in Current Liabilities  Other and in
	Accrued Environmental Costs in Consolidated Statement of
	Financial Position: |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Environmental testing           |            | $ | 33,741                |  |                | $ |              |   |           | $ |    |  |  | $ | 1,649  |  |  | $ | 32,092 | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|Reserves included in Deferred Credits and Other
	Liabilities  Other in Consolidated Statement of
	Financial Position:                |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                      | Injuries and damages            |            | $ | 4,838                 |  |                | $ | (328          | ) |           | $ | 438 |  |  | $ | 2,433  |  |  | $ | 2,515  | 
|                                                                                                                                      |                                 |            |   |                       |  |                |   |               |   |           |   |     |  |  |   |        |  |  |   |       

56



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##### Table of Contents



ITEM 9.  CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL
DISCLOSURE





None.






PART III







ITEM 10.  DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT


Omitted per general instruction I(2)(c) of Form 10-K
for wholly owned subsidiaries (reduced disclosure format).






ITEM 11.  EXECUTIVE
COMPENSATION


Omitted per general instruction I(2)(c) of Form 10-K
for wholly owned subsidiaries (reduced disclosure format).






|         |                                          
|-------- | -----------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN
	BENEFICIAL

OWNERS AND MANAGEMENT


Omitted per general instruction I(2)(c) of Form 10-K
for wholly owned subsidiaries (reduced disclosure format).






ITEM 13.  CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS


Omitted per general instruction I(2)(c) of Form 10-K
for wholly owned subsidiaries (reduced disclosure format).

57



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##### Table of Contents








PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
SCHEDULE, AND

REPORTS ON FORM 8-K





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



|   |                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | For a list of the financial statements included herein, see the
	section titled Financial Statements and Supplementary
	Data in Part II, Item  8 of this report.
|  
|2. | For the financial statement schedule included herein, see the
	section titled Financial Statements and Supplementary
	Data in Part II, Item  8 of this report.  

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

58



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##### Table of Contents



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
SCHEDULE, AND


REPORTS ON FORM 8-K(CONTINUED)


3.  Exhibits, including those incorporated by reference:

|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|        | 3-  | 1           |  | Restated Articles of Incorporation of MichCon (Exhibit 3-1
	to March 31, 1993 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 3-  | 2           |  | By-Laws of MichCon (Exhibit 3-2 to March 31, 1993
	Form  10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 4-  | 1           |  | MichCons Indenture of Mortgage and Deed of Trust dated
	March 1, 1944 (Exhibit 7-D to Registration Statement
	No.  2-5252); Twenty-ninth Supplemental Indenture, dated
	July  15, 1989 (Exhibit 4-1 to July 27, 1989
	Form 8-K); Thirtieth Supplemental Indenture, dated
	September 1, 1991 (Exhibit 4-1 to September 27,
	1991 Form 8-K); Thirty-first Supplemental Indenture, dated
	December 15, 1991 (Exhibit 4-1 to February 28,
	1992 Form 8-K); Thirty-second Supplemental Indenture, dated
	January 5, 1993 (Exhibit 4-1 to 1992 Form 10-K);
	Thirty-third Supplemental Indenture, dated May 1, 1995
	(Exhibit 4-2 to Registration Statement No. 33-59093);
	Thirty-fourth Supplemental Indenture, dated November 1,
	1996 (Exhibit 4-2 to Registration Statement
	No. 333-16285, and Thirty-fifth Supplemental Indenture,
	dated June 18, 1998 (Exhibit 4-2 to June 18, 1998
	Form 8-K).
|       
|        | 4-  | 2           |  | Senior Debt Securities Indenture between Michigan Consolidated
	Gas Company and Citibank, N.A., as Trustee, dated June 1,
	1998 (Exhibit 4-1 to Amendment No. 2 to Registration
	Statement No. 333-56333); First Supplemental Indenture
	dated June 18, 1998 (Exhibit 4-1 to June 18, 1998
	Form 8-K); and Second Supplemental Indenture dated
	June 9, 1999 (Exhibit 4-1 to June 4, 1999
	Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 4-  | 3           |  | MichCon hereby agrees to furnish to the SEC, upon request, a
	copy of any instruments defining the rights of holders of
	long-term debt issued by MichCon.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 10- | 1           |  | MCN Stock Option Plan Post-Effective Amendment No. 1 (MCN
	Registration Statement No. 33-21930-99).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | 10- | 2           |  | Form of Employment Agreement (Exhibit 99-2 to MCNs
	June  30, 1997 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 10- | 3           |  | MCN Energy Group Inc. Executive Annual Performance Plan, as
	amended (Exhibit 4-3 to MCNs 1998 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        | 10- | 4           |  | MCN Energy Group Inc. Stock Incentive Plan, as amended
	(Exhibit 10-4 to 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10- | 5           |  | MichCon Supplemental Death Benefit and Retirement Income Plan,
	as amended (Exhibit 10-6 to 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 10- | 6           |  | MCN Energy Group Inc. Supplemental Retirement Plan, as amended
	(Exhibit 10-7 to 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10- | 7           |  | MCN Mandatory Deferred Compensation Plan, as amended
	(Exhibit 10-8 to 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 10- | 8           |  | MCN Energy Group Inc. Long-Term Incentive Performance Share
	Plan, as amended (Exhibit 10-10 to 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10- | 9           |  | MCN Energy Group Savings and Stock Ownership Plan, as amended
	(Exhibit 10-11 to 1998 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10- | 10          |  | MichCon Investment and Stock Ownership Plan, as amended
	(Exhibit 10-12 to 1998 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

59



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##### Table of Contents



ITEM 14.  EXHIBITS, FINANCIAL
STATEMENT SCHEDULE, AND


REPORTS ON FORM 8-K(Concluded)


|        |     |             |  |                                                                                                                                                                                                                                     
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|        | 10- | 11          |  | Reset Remarketing Agreement, dated as of June 23, 1998, by
	and between Michigan Consolidated Gas Company and Salomon
	Brothers Inc. (Exhibit 10-1 to June 18, 1998
	Form 8-K).                                                     
|       
|        | 10- | 12          |  | Reset Remarketing Agreement, dated as of June 23, 1998, by
	and between Michigan Consolidated Gas Company and Merrill
	Lynch & Co./ Merrill Lynch, Pierce, Fenner and Smith
	Incorporated (Exhibit 10-2 to June 18, 1998
	Form 8-K).
|       
|        | 10- | 13          |  | MCN Executive Deferred Compensation Plan, as amended.*                                                                                                                                                                              
|       
|        | 10- | 14          |  | MCN Energy Group Inc. Supplemental Savings Plan, as amended.*                                                                                                                                                                       
|       
|        | 10- | 15          |  | MCN Energy Group Inc. Severance Allowance Plan, as amended.*                                                                                                                                                                        
|       
|        | 12- | 1           |  | Computation of Ratio of Earnings to Fixed Charges.*                                                                                                                                                                                 
|       
|        | 23- | 1           |  | Independent Auditors Consent  Deloitte &
	Touche LLP.*                                                                                                                                                                            
|       
|        | 24- | 1           |  | Powers of Attorney.*                                                                                                                                                                                                                



|  |                                   
|- | ----------------------------------
|* | Indicates document filed herewith.

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

(B)  Reports on Form 8-K:

None.

60



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##### Table of Contents








SIGNATURES


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



| |                      
| | ---------------------
| | MICHIGAN CONSOLIDATED
| | GAS COMPANY          
| |                      
| | (Registrant)         



| |     |                  
| | --- | -----------------
| | By: | /s/ ROBERT KASLIK

| |               
| | --------------
| |               
| | Robert Kaslik 
| | Controller    
| | March 14, 2001

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

|                                                    |  |                                                                            |  |               
|--------------------------------------------------- |  | -------------------------------------------------------------------------- |  | --------------
|                                                    |  | Title                                                                      |  | Date          
|                                                    |  |                                                                            |  |               
|*Alfred R. Glancy III                               |  | Director and Chairman                                                      |  | March 14, 2001
|*Stephen E. Ewing                                   |  | Director, President and Chief Executive Officer                            |  | March 14, 2001
|*Howard L. Dow III                                  |  | Director, Executive Vice President, Chief Financial Officer and
	Treasurer |  | March 14, 2001
|*Daniel L. Schiffer                                 |  | Director, Senior Vice President, General Counsel and Secretary             |  | March 14, 2001
|/s/ ROBERT KASLIKRobert Kaslik                      |  | Controller                                                                 |  | March 14, 2001
|*By: /s/ ROBERT KASLIKRobert KaslikAttorney-in-Fact |  |                                                                            |  |               

61