##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q

|                                                      |  |                                                                                          
|----------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|                                                     
|                                                     
|                                                     
|                                                     
|(Mark One)                                           
|[X]                                                   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                     
|For the quarterly period ended September 30, 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 1-10070

MCN ENERGY GROUP INC.

(Exact name of registrant as specified in its charter)

Michigan





500 Griswold Street, Detroit, Michigan



38-2820658






48226



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

No Changes

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

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.



Number of shares outstanding of
each of the registrants classes of common stock, as of
November 10, 2000:

Common Stock, par value $.01 per share: 90,212,588



---






---

TABLE OF CONTENTS



|                                                                                      |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Managements Discussion And Analysis of Financial Condition and Results of Operations
|MARKET RISK INFORMATION                                                              
|NEW ACCOUNTING PRONOUNCEMENTS                                                        
|FORWARD-LOOKING STATEMENTS                                                           
|AVAILABLE INFORMATION                                                                
|Consolidated Statement of Financial Position (Unaudited)                             
|Consolidated Statement of Financial Position (Unaudited)                             
|Consolidated Statement of Operations (Unaudited)                                     
|Consolidated Statement of Retained Earnings (Deficit) (Unaudited)                    
|Consolidated Statement of Cash Flows (Unaudited)                                     
|Notes to the Consolidated Financial Statements                                       
|Consolidating Statement of Financial Position                                        
|Consolidating Statements of Operations                                               
|Other Information Submission of Matters to a Vote of Security Holders                
|Signature                                                                            
|Exhibit Index                                                                        
|Letter Re Unaudited Interim Financial Infromation                                    
|Financial Data Schedule                                                              



---



INDEX TO FORM 10-Q

For Quarter Ended September 30, 2000

|                                                                                                               |  |        |    | 
|-------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                               |  | Page  
|                                                                                                               |  | Number
|                                                                                                               |  |       
|COVER                                                                                                          |  |        | i  | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|INDEX                                                                                                          |  |        | ii | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|PART I  FINANCIAL INFORMATION                                                                                 |  |        |    | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 1. Financial Statements                                                                                   |  |        | 22 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 2. Managements Discussion and Analysis of
	Financial
	            Condition and Results of 
	 Operations |  |        | 1  | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|PART II  OTHER INFORMATION                                                                                    |  |        |    | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 4. Submission of Matters to a Vote of Security Holders                                                    |  |        | 45 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 6. Exhibits and Reports on Form 8-K                                                                       |  |        | 45 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|SIGNATURE                                                                                                      |  |        | 46 | 

ii



---



##### Table of Contents








MANAGEMENTS DISCUSSION AND ANALYSIS


OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Results reflect Energy Marketing losses, asset sales and
increased Gas Distribution gross margins MCN had
a net loss for the 2000 third quarter of $24.9 million or
$.28 per share compared with a net loss of $23.2 million or
$.27 per share for the 1999 third quarter. Earnings for the 2000
nine-month period were $66.7 million or $.75 per diluted
share compared to losses of $13.0 million or $.16 per share
for the same 1999 period. Earnings for the 2000 twelve-month
period were $60.8 million or $.69 per diluted share
compared to earnings of $10.4 million or $.13 per diluted
share in the corresponding 1999 period. As subsequently
discussed, the comparability of earnings was affected by the
impact of several unusual items, merger costs and an accounting
change for start-up costs. Also affecting comparability was the
implementation of mark-to-market accounting for storage-related
trading activities in the 2000 second quarter, in combination
with a change in accounting for inventory (Notes 3 and 4).

|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |       |  
|--------------------------------------------- | ------------------------------------- | ------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ---- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                             
|                                             
|                                              |                                       |         |       |          |   |          
|                                              |                                       | Quarter |       | 9 Months |   | 12 Months
|                                              |                                       |         |       |          |   |          
|                                              |                                       | 2000    |       | 1999     |   | 2000      |       | 1999  |   | 2000 |      | 1999 
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |      
|(in Millions, Except Per Share Amounts)       |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|Diversified Energy:                           |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         | $     | (8.4     | ) |           | $     | (4.7  | ) |      | $    | (36.0 | ) |   | $     | 1.1   |   |   | $     | (52.3 | ) |   | $     | (6.3  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |       | .4       |   |           |       | (3.8  | ) |      |      | 51.1  |   |   |       | (87.2 | ) |   |       | 39.9  |   |   |       | (87.2 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       | (.4      | ) |           |       |      |   |      |      | (1.3  | ) |   |       |      |   |   |       | (7.2  | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (8.4  | )        |   |           | (8.5  | )     |   |      | 13.8 |       |   |   | (86.1 | )     |   |   | (19.6 | )     |   |   | (93.5 | )    
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|Gas Distribution:                             |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |       | (9.0     | ) |           |       | (14.7 | ) |      |      | 61.4  |   |   |       | 76.0  |   |   |       | 105.6 |   |   |       | 106.8 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5e)               |         |       | (6.4     | ) |           |       |      |   |      |      | (6.4  | ) |   |       |      |   |   |       | (6.4  | ) |   |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       | (1.1     | ) |           |       |      |   |      |      | (2.1  | ) |   |       |      |   |   |       | (18.8 | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (16.5 | )        |   |           | (14.7 | )     |   |      | 52.9 |       |   |   | 76.0  |       |   |   | 80.4  |       |   |   | 106.8 |      
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|Total Before Accounting Change:               |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |       | (17.4    | ) |           |       | (19.4 | ) |      |      | 25.4  |   |   |       | 77.1  |   |   |       | 53.3  |   |   |       | 100.5 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |       | (6.0     | ) |           |       | (3.8  | ) |      |      | 44.7  |   |   |       | (87.2 | ) |   |       | 33.5  |   |   |       | (87.2 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       | (1.5     | ) |           |       |      |   |      |      | (3.4  | ) |   |       |      |   |   |       | (26.0 | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (24.9 | )        |   |           | (23.2 | )     |   |      | 66.7 |       |   |   | (10.1 | )     |   |   | 60.8  |       |   |   | 13.3  |      
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-up Costs (Note 7) |                                       |         |      |          |   |           |      |       |   |      |     |       |   |   | (2.9  | )     |   |   |      |       |   |   | (2.9  | )    
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       | $       | (24.9 | )        |   | $         | (23.2 | )     |   | $    | 66.7 |       |   | $ | (13.0 | )     |   | $ | 60.8  |       |   | $ | 10.4  |      
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|Diluted Earnings (Loss) Per Share             |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|Diversified Energy:                           |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         | $     | (.09     | ) |           | $     | (.05  | ) |      | $    | (.41  | ) |   | $     | .01   |   |   | $     | (.59  | ) |   | $     | (.08  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |       |         |   |           |       | (.05  | ) |      |      | .58   |   |   |       | (1.05 | ) |   |       | .45   |   |   |       | (1.05 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       |         |   |           |       |      |   |      |      | (.02  | ) |   |       |      |   |   |       | (.08  | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (.09  | )        |   |           | (.10  | )     |   |      | .15  |       |   |   | (1.04 | )     |   |   | (.22  | )     |   |   | (1.13 | )    
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|Gas Distribution:                             |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |       | (.10     | ) |           |       | (.17  | ) |      |      | .69   |   |   |       | .92   |   |   |       | 1.20  |   |   |       | 1.29  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5e)               |         |       | (.07     | ) |           |       |      |   |      |      | (.07  | ) |   |       |      |   |   |       | (.07  | ) |   |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       | (.02     | ) |           |       |      |   |      |      | (.02  | ) |   |       |      |   |   |       | (.22  | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (.19  | )        |   |           | (.17  | )     |   |      | .60  |       |   |   | .92   |       |   |   | .91   |       |   |   | 1.29  |      
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|Total Before Accounting Change:               |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |       | (.19     | ) |           |       | (.22  | ) |      |      | .28   |   |   |       | .93   |   |   |       | .61   |   |   |       | 1.21  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |       | (.07     | ) |           |       | (.05  | ) |      |      | .51   |   |   |       | (1.05 | ) |   |       | .38   |   |   |       | (1.05 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |       | (.02     | ) |           |       |      |   |      |      | (.04  | ) |   |       |      |   |   |       | (.30  | ) |   |       |      |  
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       |         | (.28  | )        |   |           | (.27  | )     |   |      | .75  |       |   |   | (.12  | )     |   |   | .69   |       |   |   | .16   |      
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-up Costs (Note 7) |                                       |         |      |          |   |           |      |       |   |      |     |       |   |   | (.04  | )     |   |   |      |       |   |   | (.03  | )    
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                              |                                       | $       | (.28  | )        |   | $         | (.27  | )     |   | $    | .75  |       |   | $ | (.16  | )     |   | $ | .69   |       |   | $ | .13   |      
|                                              |                                       |         |       |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |       |      
|                                             

1



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Excluding the unusual items, merger costs and the accounting
change for start-up costs, MCNs earnings improved
$2.0 million or $.03 per share in the 2000 quarter, and
decreased $51.7 million or $.65 per diluted share in the
2000 nine-month period and $47.2 million or $.60 per
diluted share in the 2000 twelve-month period, as compared to
the corresponding 1999 periods. The earnings comparisons reflect
losses within the Diversified Energy group and varying
contributions from the Gas Distribution segment.

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

|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |      | 
|--------------------------------------- |  | ------- | ---- | -------- |  | --------- | --- | ---- |  | ---- | ---- | ---- |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|                                       
|                                       
|                                        |  |         |      |          |  |          
|                                        |  | Quarter |      | 9 Months |  | 12 Months
|                                        |  |         |      |          |  |          
|                                        |  | 2000    |      | 1999     |  | 2000      |     | 1999 |  | 2000 |      | 1999
|(in Millions, Except Per Share Amounts) |  |         |      |          |  |           |     |      |  |      |      |     
|Net Income                              |  | $       | 26.5 |          |  | $         | 7.9 |      |  | $    | 63.7 |      |  | $ | 18.8 |  |  | $ | 56.8 |  |  | $ | 18.3 | 
|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |      | 
|Diluted Earnings Per Share              |  | $       | .29  |          |  | $         | .10 |      |  | $    | .72  |      |  | $ | .23  |  |  | $ | .64  |  |  | $ | .22  | 
|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |      | 
|                                       

Pending merger  MCN and DTE Energy
Company (DTE) signed a definitive merger agreement dated
October 4, 1999 under which DTE will acquire all
outstanding shares of MCN common stock. The boards of directors
and shareholders of both companies have approved the proposed
merger. The transaction is subject to regulatory approvals and
other customary merger conditions. Both companies continue their
discussions with the Federal Trade Commission (FTC) in
connection with its review of the proposed merger. MCN recorded
legal, accounting, employee benefit and other expenses
associated with the merger which had the effect of reducing
earnings by $1.5 million for the 2000 quarter,
$3.4 million for the 2000 nine-month period and
$26.0 million for the 2000 twelve-month period. MCN will
incur additional merger-related costs during 2000.

Strategic direction  MCNs
objective is to achieve competitive long-term returns for its
shareholders. In 1999, MCN significantly revised its strategic
direction to focus on the Midwest-to-Northeast region and
emphasize operational efficiencies and growth through the
integration of existing businesses.

To achieve the operating efficiencies expected from the new
strategic direction, MCN is reorganizing into the following
business segments: Gas Distribution; Midstream & Supply;
Energy Marketing; Power; and Energy Holdings. Although MCN
intended to begin reporting its operating results based on the
new segments in 2000, the new reporting has been delayed to 2001.

Gas Distributionis responsible for MCNs
regulated operations that serve more than 1.2 million
customers in Michigan.

Midstream & Supplyconsists of MCNs
non-regulated wholesale marketing activities. It also develops
and manages MCNs gas producing, gathering and processing
facilities within the Midwest-to-Northeast target region.
Additionally, it develops and manages storage and transmission
facilities that are marketed to gas brokers, utilities and other
wholesale customers.

Energy Marketingconsists of MCNs
non-regulated retail marketing activities as well as trading
activities. The marketing activities primarily relate to
industrial and commercial customers, both inside and outside the
Gas Distribution segments service areas. The segment also
provides

2



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


full-service energy solutions to business customers. Trading
activities are utilized to optimize the value of storage assets.

Powerdevelops and manages independent electric
power projects.

Energy Holdingsmanages and seeks to maximize the
value of existing ventures outside MCNs target region. It
consists primarily of gas gathering and processing investments
in major U.S. producing basins.

Unusual items As discussed in MCNs
1999 Annual Report on Form 10-K and Note 5 to the
Consolidated Financial Statements included herein, MCN recorded
several unusual items in the 2000 and 1999 periods consisting of
gains and losses on asset sales, property write-downs, and
investment and contract losses. The unusual items impacted
earnings in the 1999 and 2000 periods as follows:

|                                        |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |       |  
|--------------------------------------- | ---------------------------------- | ------- | ---- | -------- |  | --------- | ---- | ---- | - | ---- | ---- | ---- |  | - | ----- | ----- | - | - | ---- | ---- | - | - | ----- | ----- | -
|                                       
|                                       
|                                        |                                    |         |      |          |  |          
|                                        |                                    | Quarter |      | 9 Months |  | 12 Months
|                                        |                                    |         |      |          |  |          
|                                        |                                    | 2000    |      | 1999     |  | 2000      |      | 1999 |   | 2000 |      | 1999
|                                        |                                    |         |      |          |  |           |      |      |   |      |      |     
|(in Millions, Except Per Share Amounts) |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|                                       
|                                       
|                                       
|                                       
|Unusual Items (Net of Taxes)            |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|Diversified Energy                      |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines & Processing (Note 5a)   |         | $    | .4       |  |           | $    |     |   |      | $    | 18.3 |  |   | $     |      |   |   | $    | 18.3 |   |   | $     |      |  
|                                       
|                                       
|                                       
|                                       
|                                        | Electric Power (Note 5b)           |         |      |         |  |           |      |     |   |      |      | 30.3 |  |   |       |      |   |   |      | 27.1 |   |   |       |      |  
|                                       
|                                       
|                                       
|                                       
|                                        | Energy Marketing (Note 5c)         |         |      |         |  |           |      |     |   |      |      |     |  |   |       |      |   |   |      | (1.6 | ) |   |       |      |  
|                                       
|                                       
|                                       
|                                       
|                                        | Exploration & Production (Note 5d) |         |      |         |  |           |      | (3.8 | ) |      |      | 2.5  |  |   |       | (87.2 | ) |   |      | (3.9 | ) |   |       | (87.2 | )
|                                        |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|                                        |                                    |         |      | .4       |  |           |      | (3.8 | ) |      |      | 51.1 |  |   |       | (87.2 | ) |   |      | 39.9 |   |   |       | (87.2 | )
|                                       
|                                       
|                                       
|                                       
|Gas Distribution (Note 5e)              |                                    |         | (6.4 | )        |  |           |     |      |   |      | (6.4 | )    |  |   |      |       |   |   | (6.4 | )    |   |   |      |      
|                                        |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|                                        |                                    | $       | (6.0 | )        |  | $         | (3.8 | )    |   | $    | 44.7 |      |  | $ | (87.2 | )     |   | $ | 33.5 |      |   | $ | (87.2 | )    
|                                        |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|Diluted Earnings (Loss) Per Share       |                                    | $       | (.07 | )        |  | $         | (.05 | )    |   | $    | .51  |      |  | $ | (1.05 | )     |   | $ | .38  |      |   | $ | (1.05 | )    
|                                        |                                    |         |      |          |  |           |      |      |   |      |      |      |  |   |       |       |   |   |      |      |   |   |       |      
|                                       

Diversified Energy

Results reflect Energy Marketing losses and asset sales



3



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |         |  
|------------------------------------ | ------------------------------------------------- | ------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ------- | ------- | - | - | ------- | ----- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                    
|                                    
|                                     |                                                   |         |       |          |   |          
|                                     |                                                   | Quarter |       | 9 Months |   | 12 Months
|                                     |                                                   |         |       |          |   |          
|                                     |                                                   | 2000    |       | 1999     |   | 2000      |       | 1999  |   | 2000 |         | 1999   
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |        
|(in Millions)                        |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|Diversified Energy Operations        |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|Operating Revenues*                  |                                                   | $       | 353.7 |          |   | $         | 347.7 |       |   | $    | 1,129.0 |         |   | $ | 955.9   |       |   | $ | 1,516.1 |         |   | $ | 1,213.9 |        
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Operating Expenses*                  |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items (Note 5)                            |         |       | (.5      | ) |           |       | 5.9   |   |      |         | (78.5   | ) |   |         | 126.7 |   |   |         | (61.5   | ) |   |         | 126.7   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Merger costs (Note 2)                             |         |       | .6       |   |           |       | -     |   |      |         | 2.0     |   |   |         | -     |   |   |         | 11.1    |   |   |         | -       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other operating expenses                          |         |       | 354.7    |   |           |       | 344.9 |   |      |         | 1,144.5 |   |   |         | 921.1 |   |   |         | 1,542.8 |   |   |         | 1,185.4 |  
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                     |                                                   |         | 354.8 |          |   |           | 350.8 |       |   |      | 1,068.0 |         |   |   | 1,047.8 |       |   |   | 1,492.4 |         |   |   | 1,312.1 |        
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Operating Income (Loss)              |                                                   |         | (1.1  | )        |   |           | (3.1  | )     |   |      | 61.0    |         |   |   | (91.9   | )     |   |   | 23.7    |         |   |   | (98.2   | )      
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Equity in Earnings of Joint Ventures |                                                   |         | 6.8   |          |   |           | 15.0  |       |   |      | 22.0    |         |   |   | 38.5    |       |   |   | 33.9    |         |   |   | 53.8    |        
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Other Income & (Deductions)*         |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                   |         |       | 4.0      |   |           |       | 1.1   |   |      |         | 7.2     |   |   |         | 3.1   |   |   |         | 8.3     |   |   |         | 3.0     |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                  |         |       | (15.7    | ) |           |       | (14.4 | ) |      |         | (44.2   | ) |   |         | (46.6 | ) |   |         | (61.0   | ) |   |         | (62.8   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends on preferred securities of subsidiaries |         |       | (6.3     | ) |           |       | (10.3 | ) |      |         | (22.3   | ) |   |         | (31.0 | ) |   |         | (31.4   | ) |   |         | (40.2   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Investment losses (Note 5d)                       |         |       | -        |   |           |       | -     |   |      |         | -       |   |   |         | (7.5  | ) |   |         | -       |   |   |         | (7.5    | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                             |         |       | (1.2     | ) |           |       | .9    |   |      |         | (3.6    | ) |   |         | 5.4   |   |   |         | (1.3    | ) |   |         | 8.3     |  
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                     |                                                   |         | (19.2 | )        |   |           | (22.7 | )     |   |      | (62.9   | )       |   |   | (76.6   | )     |   |   | (85.4   | )       |   |   | (99.2   | )      
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Income (Loss) Before Income Taxes    |                                                   |         | (13.5 | )        |   |           | (10.8 | )     |   |      | 20.1    |         |   |   | (130.0  | )     |   |   | (27.8   | )       |   |   | (143.6  | )      
|                                    
|                                    
|                                    
|                                    
|Income Tax Provision (Benefit)       |                                                   |         | (5.1  | )        |   |           | (2.3  | )     |   |      | 6.3     |         |   |   | (43.9   | )     |   |   | (8.2    | )       |   |   | (50.1   | )      
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|Net Income (Loss)                    |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual items                              |         |       | (8.4     | ) |           |       | (4.7  | ) |      |         | (36.0   | ) |   |         | 1.1   |   |   |         | (52.3   | ) |   |         | (6.3    | )
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items and merger costs (Notes 2 and 5)    |         |       | -        |   |           |       | (3.8  | ) |      |         | 49.8    |   |   |         | (87.2 | ) |   |         | 32.7    |   |   |         | (87.2   | )
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                     |                                                   | $       | (8.4  | )        |   | $         | (8.5  | )     |   | $    | 13.8    |         |   | $ | (86.1   | )     |   | $ | (19.6   | )       |   | $ | (93.5   | )      
|                                     |                                                   |         |       |          |   |           |       |       |   |      |         |         |   |   |         |       |   |   |         |         |   |   |         |        
|                                    



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

Operating and Joint Venture Income



4



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


as losses in the Energy Marketing segment. Additionally, the
2000 periods were affected by increased Pipelines &
Processing earnings.

|                                                |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |      |  
|----------------------------------------------- | ------------------------ | ------- | --- | -------- | - | --------- | ---- | ---- | - | ---- | ---- | ----- | - | - | ------ | ---- |  | - | ---- | ----- | - | - | ------ | ---- | -
|                                               
|                                               
|                                                |                          |         |     |          |   |          
|                                                |                          | Quarter |     | 9 Months |   | 12 Months
|                                                |                          |         |     |          |   |          
|                                                |                          | 2000    |     | 1999     |   | 2000      |      | 1999 |   | 2000 |      | 1999 
|                                                |                          |         |     |          |   |           |      |      |   |      |      |      
|(in Millions)                                   |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                               
|                                               
|                                               
|                                               
|Operating and Joint Venture Income (Loss)       |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                               
|                                               
|                                               
|                                               
|Before Unusual Items:                           |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                               
|                                               
|                                               
|                                               
|                                                | Pipelines & Processing   |         | $   | 4.9      |   |           | $    | 4.1  |   |      | $    | 14.6  |   |   | $      | 13.7 |  |   | $    | 20.1  |   |   | $      | 16.0 |  
|                                               
|                                               
|                                               
|                                               
|                                                | Electric Power           |         |     | .9       |   |           |      | 6.6  |   |      |      | 3.4   |   |   |        | 18.0 |  |   |      | 8.3   |   |   |        | 23.0 |  
|                                               
|                                               
|                                               
|                                               
|                                                | Energy Marketing         |         |     | (3.4     | ) |           |      | 3.4  |   |      |      | (23.4 | ) |   |        | 23.0 |  |   |      | (39.6 | ) |   |        | 17.9 |  
|                                               
|                                               
|                                               
|                                               
|                                                | Exploration & Production |         |     | 4.0      |   |           |      | 4.7  |   |      |      | 13.8  |   |   |        | 18.4 |  |   |      | 21.2  |   |   |        | 28.2 |  
|                                               
|                                               
|                                               
|                                               
|                                                | Corporate & Other        |         |     | (.7      | ) |           |      | (1.0 | ) |      |      | (1.9  | ) |   |        | .2   |  |   |      | (2.8  | ) |   |        | (2.8 | )
|                                                |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                                |                          |         | 5.7 |          |   |           | 17.8 |      |   |      | 6.5  |       |   |   | 73.3   |      |  |   | 7.2  |       |   |   | 82.3   |     
|                                               
|                                               
|                                               
|                                               
|Unusual Items and Merger Costs (Notes 2 and  5) |                          |         | -   |          |   |           | (5.9 | )    |   |      | 76.5 |       |   |   | (126.7 | )    |  |   | 50.4 |       |   |   | (126.7 | )   
|                                                |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                                |                          | $       | 5.7 |          |   | $         | 11.9 |      |   | $    | 83.0 |       |   | $ | (53.4  | )    |  | $ | 57.6 |       |   | $ | (44.4  | )   
|                                                |                          |         |     |          |   |           |      |      |   |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                               

Pipelines & Processingoperating and joint
venture results, excluding unusual items, increased
$.8 million, $.9 million and $4.1 million in the
2000 quarter, nine- and twelve-month periods, respectively.
Results for all three 2000 periods reflect increased
contributions from the methanol production and gas processing
ventures. Improved results from MCNs 25%-owned methanol
production venture are attributable to higher methanol prices,
margins and volumes produced. Pipelines & Processings
average methanol sales prices increased 66% in the 2000 quarter,
43% in the 2000 nine-month period and 37% in the 2000
twelve-month period. Methanol production rose .7 million,
9.6 million and 11.6 million gallons for the 2000 quarter,
nine- and twelve-month periods, respectively, primarily due to
the shutdown of the methanol plant for scheduled maintenance in
March 1999. Gas processed to remove carbon dioxide and
natural gas liquids (NGLs) decreased 6.9 billion cubic feet
(Bcf) and 5.4 Bcf in the 2000 quarter and nine-month period,
respectively, but increased 3.5 Bcf for the 2000 twelve-month
period. Although processing volumes fluctuated, earnings from
processing ventures increased due to improved processing
margins. Additionally, the 2000 periods benefited from an
increase in allowance for funds used during
construction associated with the Vector Pipeline project.
Pipelines & Processing holds a 25% interest in Vector
Pipeline, an interstate pipeline expected to be operational in
December 2000. The Vector Pipeline has capacity to
transport up to 1 Bcf of gas per day.

Results for all three 2000 periods were unfavorably affected by
lost earnings from the sale of interests in pipeline projects
that were located in areas outside MCNs target region. The
2000 periods also include increased losses from Pipelines &
Processings interest in an asphalt manufacturing plant as
well as reduced contributions from certain joint ventures that
had fixed returns. The asphalt facility was designed to produce
annually up to 100,000 tons of high-quality asphalt. The plant
is experiencing technical difficulties in producing economical
quantities of asphalt and, as a result, is encountering
operating losses. MCN is aggressively working to resolve the
technical issues. Pipelines & Processing recorded earnings
in the 1999 periods from certain joint ventures where its
allocated income was based on its share of the ventures
earnings but not less than a predetermined fixed amount. Joint
venture income from these investments in the 1999 periods was
based on the

5



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


fixed amounts. Under the joint venture agreements, the fixed
amounts were lowered or eliminated in 2000.

|                                    |                             |         |      |          |  |           |      |      |  |      |       |      |  |  |       |      |  |  |       |      |  |  |       |      | 
|----------------------------------- | --------------------------- | ------- | ---- | -------- |  | --------- | ---- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- |  |  | ----- | ---- |  |  | ----- | ---- | 
|                                   
|                                   
|                                    |                             |         |      |          |  |          
|                                    |                             | Quarter |      | 9 Months |  | 12 Months
|                                    |                             |         |      |          |  |          
|                                    |                             | 2000    |      | 1999     |  | 2000      |      | 1999 |  | 2000 |       | 1999
|                                    |                             |         |      |          |  |           |      |      |  |      |       |     
|Pipelines & Processing Statistics*  |                             |         |      |          |  |           |      |      |  |      |       |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|Methanol Produced (Million Gallons) |                             |         | 16.4 |          |  |           | 15.7 |      |  |      | 50.2  |      |  |  | 40.6  |      |  |  | 67.0  |      |  |  | 55.4  |     
|                                   
|                                   
|                                   
|                                   
|Gas Transported (Bcf)               |                             |         | 34.8 |          |  |           | 52.4 |      |  |      | 106.8 |      |  |  | 153.5 |      |  |  | 161.9 |      |  |  | 199.5 |     
|                                   
|                                   
|                                   
|                                   
|Gas Processed (Bcf):                |                             |         |      |          |  |           |      |      |  |      |       |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|                                    | Carbon dioxide treatment    |         |      | 13.2     |  |           |      | 12.4 |  |      |       | 39.7 |  |  |       | 38.2 |  |  |       | 53.3 |  |  |       | 50.9 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Natural gas liquids removal |         |      | 14.9     |  |           |      | 22.6 |  |      |       | 47.2 |  |  |       | 54.1 |  |  |       | 66.2 |  |  |       | 65.1 | 
|                                    |                             |         |      |          |  |           |      |      |  |      |       |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                    |                             |         | 28.1 |          |  |           | 35.0 |      |  |      | 86.9  |      |  |  | 92.3  |      |  |  | 119.5 |      |  |  | 116.0 |     
|                                    |                             |         |      |          |  |           |      |      |  |      |       |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   



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

Electric Poweroperating and joint venture
results, excluding unusual items, decreased $5.7 million,
$14.6 million and $14.7 million in the 2000 quarter,
nine- and twelve-month periods, respectively. The declines in
earnings for all three 2000 periods reflect lost earnings from
the sale of interests in a number of power projects as a
condition of MCNs pending merger with DTE (Note 2). MCN
sold its 23% interest in the 1,370 megawatt (MW) Midland
Cogeneration Venture facility and its 33% interest in the 42 MW
Carson Cogeneration facility in the 2000 first quarter. MCN sold
its 50% interest in the 123 MW Michigan Power Project, its 50%
interest in the 30 MW Ada Cogeneration facility and its 95%
interest in the 140 MW Cobisa-Person facility in the 2000 second
quarter. Also contributing to the 2000 twelve-month decrease was
the sale in 1999 of MCNs 40% interest in a joint venture
that held minority interests in electric distribution companies
and power generation facilities in India.

|                                  |  |         |   |          |  |           |       |      |  |      |       |      |  |  |         |  |  |  |       |  |  |  |         | 
|--------------------------------- |  | ------- | - | -------- |  | --------- | ----- | ---- |  | ---- | ----- | ---- |  |  | ------- |  |  |  | ----- |  |  |  | ------- | 
|                                 
|                                 
|                                  |  |         |   |          |  |          
|                                  |  | Quarter |   | 9 Months |  | 12 Months
|                                  |  |         |   |          |  |          
|                                  |  | 2000    |   | 1999     |  | 2000      |       | 1999 |  | 2000 |       | 1999
|                                  |  |         |   |          |  |           |       |      |  |      |       |     
|(Thousands of MW hours)*          |  |         |   |          |  |           |       |      |  |      |       |      |  |  |         |  |  |  |       |  |  |  |         | 
|                                 
|                                 
|                                 
|                                 
|Electric Power                    |  |         |   |          |  |           |       |      |  |      |       |      |  |  |         |  |  |  |       |  |  |  |         | 
|                                 
|                                 
|                                 
|                                 
|Electricity Sales  Domestic      |  |         |  |          |  |           | 692.3 |      |  |      | 185.2 |      |  |  | 2,084.2 |  |  |  | 856.8 |  |  |  | 2,745.4 | 
|                                 
|                                 
|                                 
|                                 
|Electricity Sales  International |  |         |  |          |  |           |      |      |  |      |      |      |  |  |        |  |  |  |      |  |  |  | 414.2   | 
|                                  |  |         |   |          |  |           |       |      |  |      |       |      |  |  |         |  |  |  |       |  |  |  |         | 
|                                  |  |         |  |          |  |           | 692.3 |      |  |      | 185.2 |      |  |  | 2,084.2 |  |  |  | 856.8 |  |  |  | 3,159.6 | 
|                                  |  |         |   |          |  |           |       |      |  |      |       |      |  |  |         |  |  |  |       |  |  |  |         | 
|                                 



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

Energy Marketing operating and joint venture
results, excluding unusual items, decreased $6.8 million,
$46.4 million and $57.5 million in the 2000 quarter,
nine- and twelve-month periods, respectively. The comparisons
were affected by reduced gas sales margins, significantly higher
reserves for potentially uncollectible accounts receivable
balances, higher storage and transportation expenses, and fair
value and mark-to-market accounting adjustments.

Energy Marketings gas sales margins generated from retail
customers have declined in all three 2000 periods as a result of
a decrease in gas sales and exchange gas deliveries primarily
due to warmer weather and the exiting of two marketing joint
ventures during 2000. Additionally, margins generated from
wholesale customers have declined due to the narrowing or
reversal of seasonal and geographical price differentials. As
subsequently discussed, seasonal price differentials allow
Energy Marketing to profit from its ability to purchase and
store gas in the summer months and sell such gas in winter
months. Geographical price differentials allow Energy Marketing
to purchase lower

6



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


priced gas in the Midcontinent/ Gulf Coast region, and transport
and sell such gas at higher prices in the Midwest and Eastern
regions. The lower price differentials have reduced the value of
Energy Marketings storage and transportation assets.

|                        |  |         |      |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|----------------------- |  | ------- | ---- | -------- |  | --------- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                       
|                       
|                        |  |         |      |          |  |          
|                        |  | Quarter |      | 9 Months |  | 12 Months
|                        |  |         |      |          |  |          
|                        |  | 2000    |      | 1999     |  | 2000      |       | 1999 |  | 2000 |       | 1999
|                        |  |         |      |          |  |           |       |      |  |      |       |     
|                       
|                       
|                       
|                       
|Energy Marketing (Bcf)* |  |         |      |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                       
|                       
|                       
|                       
|Gas Sales               |  |         | 76.0 |          |  |           | 140.5 |      |  |      | 338.4 |      |  |  | 423.1 |  |  |  | 501.0 |  |  |  | 544.7 | 
|                       
|                       
|                       
|                       
|Exchange Gas Deliveries |  |         |     |          |  |           |      |      |  |      | 15.0  |      |  |  | 5.6   |  |  |  | 21.3  |  |  |  | 9.9   | 
|                        |  |         |      |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                        |  |         | 76.0 |          |  |           | 140.5 |      |  |      | 353.4 |      |  |  | 428.7 |  |  |  | 522.3 |  |  |  | 554.6 | 
|                        |  |         |      |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                       



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

Current natural gas prices are high when compared to historical
periods. Higher prices, coupled with lower margins, have
resulted in financial pressures for some of Energy
Marketings customers. As a result of these financial
pressures and a customer bankruptcy filing, Energy Marketing
accrued $14.5 million in the 2000 second quarter for potentially
uncollectible accounts receivable balances.

Energy Marketings results for the 2000 periods also
include higher expenses for increased natural gas storage and
transportation capacity. As discussed in MCNs 1999 Annual
Report on Form 10-K, Energy Marketing has marketing rights
for 100% of the storage capacity of the 42 Bcf Washington
10 storage project, which was placed in operation in
July 1999. Additionally, Energy Marketing added new firm
transportation capacity in 1999 with the completion of the
292-mile Portland Natural Gas Transmission System.

As discussed in Notes 3 and 4 to the Consolidated Financial
Statements included herein, Energy Marketing began trading
activities upon changing its operating strategy in the 2000
second quarter to optimize the value of its storage assets. In
connection with this change in strategy, Energy Marketing also
changed to the Fair Value method of accounting for
gas in inventory and implemented mark-to-market accounting for
the related derivative financial and storage capacity contracts.
The fair value accounting change and the mark-to-market
adjustments had the effect of decreasing Energy Marketings
operating and joint venture income by $8.0 million and
$5.5 million for the 2000 quarter and twelve-month period,
respectively, and increasing such income by $4.2 million
for the 2000 nine-month period, compared to the same 1999
periods.

|                                        |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|--------------------------------------- |  | ------- | ----- | -------- |  | --------- | ---- | ---- |  | ---- | ----- | ---- |  | - | ---- |  |  | - | ----- | - |  | - | ---- | 
|                                       
|                                       
|                                        |  |         |       |          |  |          
|                                        |  | Quarter |       | 9 Months |  | 12 Months
|                                        |  |         |       |          |  |          
|                                        |  | 2000    |       | 1999     |  | 2000      |      | 1999 |  | 2000 |       | 1999
|                                        |  |         |       |          |  |           |      |      |  |      |       |     
|(in Millions, Except Per Share Amounts) |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|                                       
|                                       
|                                       
|                                       
|Energy Marketing Adjustments            |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|                                       
|                                       
|                                       
|                                       
|Mark-to-Market Accounting               |  | $       | (36.6 | )        |  | $         |     |      |  | $    | (64.8 | )    |  | $ |     |  |  | $ | (64.8 | ) |  | $ |     | 
|                                       
|                                       
|                                       
|                                       
|Fair Value Accounting                   |  |         | 40.8  |          |  |           | 12.2 |      |  |      | 98.0  |      |  |   | 29.0 |  |  |   | 87.4  |   |  |   | 28.1 | 
|                                        |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|Pre-Tax Income                          |  | $       | 4.2   |          |  | $         | 12.2 |      |  | $    | 33.2  |      |  | $ | 29.0 |  |  | $ | 22.6  |   |  | $ | 28.1 | 
|                                        |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|Net Income                              |  | $       | 2.8   |          |  | $         | 7.9  |      |  | $    | 21.6  |      |  | $ | 18.8 |  |  | $ | 14.7  |   |  | $ | 18.3 | 
|                                        |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|Diluted Earnings Per Share              |  | $       | .03   |          |  | $         | .09  |      |  | $    | .24   |      |  | $ | .23  |  |  | $ | .17   |   |  | $ | .22  | 
|                                        |  |         |       |          |  |           |      |      |  |      |       |      |  |   |      |  |  |   |       |   |  |   |      | 
|                                       

The traditional value of storage assets resulted from the
ability to buy natural gas and inject it into storage fields
during the spring to early fall period when gas demand and
prices are usually their lowest. The gas is withdrawn from
storage and sold in the late fall-to-winter period when demand
and gas prices are traditionally their highest. There has been a
change in the natural gas pricing

7



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


environment, including the narrowing or reversal of these
summer-to-winter price differentials. In the 2000 second
quarter, Energy Marketing implemented a strategy of optimizing
the value of its storage assets through financial instruments,
while continuing to minimize its exposure to commodity price
changes. These financial instruments and the related storage
capacity contracts are considered energy trading activities
under generally accepted accounting principles and are required
to be marked-to-market with unrealized gains and losses recorded
to earnings.

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

Exploration & Productionoperating and joint
venture income, excluding unusual items, decreased
$.7 million, $4.6 million and $7.0 million in the
2000 quarter, nine- and twelve-month periods, respectively.
Results for all three 2000 periods were impacted by a
significant decline in overall gas production due to the sale of
MCNs Western and Midcontinent/ Gulf Coast E&P
properties in early and mid-1999, as well as the sale of its
Appalachian properties in December 1999. Gas and oil
production decreased by 6.9 Bcf equivalent (Bcfe) in the 2000
quarter, 33.6 Bcfe in the 2000 nine-month period and 41.7 Bcfe
in the 2000 twelve-month period.

E&P results were also impacted by an increase in
production-related expenses in the 2000 nine- and twelve-month
periods and an increase in the overall average gas and oil sales
prices for all 2000 periods. The higher average sales prices in
the 2000 periods, coupled with significantly lower
administrative and general expenses, substantially offset the
effects of the drop in gas and oil production. The increased
production expenses reflect higher severance taxes as a result
of the increase in gas and oil sales prices. Additionally, the
production expenses comparison reflects the sale of non-Michigan
E&P properties that generally had lower operating costs. The
increased average sales prices are due to higher industry prices
for both natural gas and oil. The impact of higher natural gas
and oil sales prices on E&P operating and joint venture
income was moderated by

8



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


hedging with swap and futures agreements, as discussed in the
Risk Management Strategy section that follows.

|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |      | 
|------------------------------------------- | ---------------------------------------------- | ------- | ---- | -------- |  | --------- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                                           
|                                           
|                                            |                                                |         |      |          |  |          
|                                            |                                                | Quarter |      | 9 Months |  | 12 Months
|                                            |                                                |         |      |          |  |          
|                                            |                                                | 2000    |      | 1999     |  | 2000      |      | 1999 |  | 2000 |      | 1999
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |     
|Exploration & Production Statistics         |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           
|                                           
|                                           
|                                           
|Gas and Oil Production (Bcf equivalent):    |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           
|                                           
|                                           
|                                           
|                                            | Michigan                                       |         |      | 6.9      |  |           |      | 6.9  |  |      |      | 19.4 |  |   |      | 20.4 |  |   |      | 26.1 |  |   |      | 32.3 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Western, Midcontinent/ Gulf Coast & Appalachia |         |      | .4       |  |           |      | 7.3  |  |      |      | 1.2  |  |   |      | 33.8 |  |   |      | 9.1  |  |   |      | 44.6 | 
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                            |                                                |         | 7.3  |          |  |           | 14.2 |      |  |      | 20.6 |      |  |   | 54.2 |      |  |   | 35.2 |      |  |   | 76.9 |     
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|Production Costs (per Mcf equivalent):      |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           
|                                           
|                                           
|                                           
|                                            | Michigan, excluding severance taxes            |         | $    | .88      |  |           | $    | 1.16 |  |      | $    | .92  |  |   | $    | 1.05 |  |   | $    | .91  |  |   | $    | 1.01 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Non-Michigan, excluding severance taxes        |         | $    | .55      |  |           | $    | .94  |  |      | $    | .60  |  |   | $    | .80  |  |   | $    | .94  |  |   | $    | .72  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Severance taxes                                |         | $    | .16      |  |           | $    | .04  |  |      | $    | .14  |  |   | $    | .04  |  |   | $    | .11  |  |   | $    | .05  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Overall                                        |         | $    | 1.02     |  |           | $    | 1.09 |  |      | $    | 1.04 |  |   | $    | .93  |  |   | $    | 1.02 |  |   | $    | .89  | 
|                                           
|                                           
|                                           
|                                           
|Average Selling Price (per Mcf equivalent)* |                                                | $       | 2.46 |          |  | $         | 2.22 |      |  | $    | 2.55 |      |  | $ | 2.18 |      |  | $ | 2.45 |      |  | $ | 2.13 |     
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           



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

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

Corporate & Other operating and joint venture
results improved $.3 million in the 2000 quarter, and
declined $2.1 million for the 2000 nine-month period. The
2000 nine-month comparison was affected by adjustments recorded
in 1999 that reduced or eliminated accruals for employee
incentive awards that were based on MCNs operating or
stock-price performance.

Other Income and Deductions



Income Taxes



9



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Outlook



Gas Distribution

Results reflect seasonal loss, improved gross margins, and
lower operation and maintenance costs 


10



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


twelve-month period were also impacted by warmer weather, which
was substantially offset by lower operating costs.

|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |       |  
|------------------------------------------------------- | ---------------------------------------------- | ------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                       
|                                                       
|                                                        |                                                |         |       |          |   |          
|                                                        |                                                | Quarter |       | 9 Months |   | 12 Months
|                                                        |                                                |         |       |          |   |          
|                                                        |                                                | 2000    |       | 1999     |   | 2000      |       | 1999  |   | 2000 |       | 1999 
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |      
|(in Millions)                                           |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                       
|                                                       
|                                                       
|                                                       
|Gas Distribution Operations                             |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Revenues*                                     |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Gas sales                                      |         | $     | 87.6     |   |           | $     | 74.9  |   |      | $     | 603.1 |   |   | $     | 653.5 |   |   | $       | 874.2 |   |   | $       | 913.3 |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | End user transportation                        |         |       | 21.0     |   |           |       | 22.4  |   |      |       | 85.6  |   |   |       | 72.6  |   |   |         | 116.9 |   |   |         | 94.9  |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Intermediate transportation                    |         |       | 12.2     |   |           |       | 14.2  |   |      |       | 39.4  |   |   |       | 42.8  |   |   |         | 54.4  |   |   |         | 57.6  |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Other                                          |         |       | 15.3     |   |           |       | 17.9  |   |      |       | 56.1  |   |   |       | 62.7  |   |   |         | 77.7  |   |   |         | 82.9  |  
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                        |                                                |         | 136.1 |          |   |           | 129.4 |       |   |      | 784.2 |       |   |   | 831.6 |       |   |   | 1,123.2 |       |   |   | 1,148.7 |      
|                                                       
|                                                       
|                                                       
|                                                       
|Cost of Sales                                           |                                                |         | 37.0  |          |   |           | 33.2  |       |   |      | 336.2 |       |   |   | 354.6 |       |   |   | 488.9   |       |   |   | 505.1   |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Gross Margin                                            |                                                |         | 99.1  |          |   |           | 96.2  |       |   |      | 448.0 |       |   |   | 477.0 |       |   |   | 634.3   |       |   |   | 643.6   |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Operating Expenses*                               |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Operation and maintenance                      |         |       | 59.5     |   |           |       | 65.3  |   |      |       | 187.0 |   |   |       | 203.5 |   |   |         | 262.0 |   |   |         | 275.9 |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Depreciation, depletion and amortization       |         |       | 26.4     |   |           |       | 24.4  |   |      |       | 79.3  |   |   |       | 74.4  |   |   |         | 105.0 |   |   |         | 98.7  |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Property and other taxes                       |         |       | 13.4     |   |           |       | 12.3  |   |      |       | 46.4  |   |   |       | 43.8  |   |   |         | 48.5  |   |   |         | 56.0  |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unusual item (Note 5e)                         |         |       | 9.7      |   |           |       | -     |   |      |       | 9.7   |   |   |       | -     |   |   |         | 9.7   |   |   |         | -     |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Merger costs (Note 2)                          |         |       | 1.8      |   |           |       | -     |   |      |       | 3.2   |   |   |       | -     |   |   |         | 28.9  |   |   |         | -     |  
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                        |                                                |         | 110.8 |          |   |           | 102.0 |       |   |      | 325.6 |       |   |   | 321.7 |       |   |   | 454.1   |       |   |   | 430.6   |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Income (Loss)                                 |                                                |         | (11.7 | )        |   |           | (5.8  | )     |   |      | 122.4 |       |   |   | 155.3 |       |   |   | 180.2   |       |   |   | 213.0   |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Equity in Earnings of Joint Ventures                    |                                                |         | (.1   | )        |   |           | .4    |       |   |      | .6    |       |   |   | 1.5   |       |   |   | 1.1     |       |   |   | 1.9     |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Income and (Deductions)*                          |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest income                                |         |       | .2       |   |           |       | .9    |   |      |       | 1.4   |   |   |       | 2.7   |   |   |         | 1.1   |   |   |         | 4.8   |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest expense                               |         |       | (14.3    | ) |           |       | (13.8 | ) |      |       | (43.8 | ) |   |       | (40.3 | ) |   |         | (59.9 | ) |   |         | (56.7 | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Minority interest                              |         |       | (.1      | ) |           |       | (.3   | ) |      |       | (.4   | ) |   |       | (.8   | ) |   |         | (.6   | ) |   |         | (1.0  | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Other                                          |         |       | 1.1      |   |           |       | (.8   | ) |      |       | 1.6   |   |   |       | (.7   | ) |   |         | .8    |   |   |         | (2.1  | )
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                        |                                                |         | (13.1 | )        |   |           | (14.0 | )     |   |      | (41.2 | )     |   |   | (39.1 | )     |   |   | (58.6   | )     |   |   | (55.0   | )    
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Income (Loss) Before Income Taxes                       |                                                |         | (24.9 | )        |   |           | (19.4 | )     |   |      | 81.8  |       |   |   | 117.7 |       |   |   | 122.7   |       |   |   | 159.9   |      
|                                                       
|                                                       
|                                                       
|                                                       
|Income Taxes                                            |                                                |         | (8.4  | )        |   |           | (4.7  | )     |   |      | 28.9  |       |   |   | 41.7  |       |   |   | 42.3    |       |   |   | 53.1    |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Net Income (Loss) Before unusual items and merger costs |                                                |         | (9.0  | )        |   |           | (14.7 | )     |   |      | 61.4  |       |   |   | 76.0  |       |   |   | 105.6   |       |   |   | 106.8   |      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unusual item and merger costs (Notes 2 and 5e) |         |       | (7.5     | ) |           |       |      |   |      |       | (8.5  | ) |   |       |      |   |   |         | (25.2 | ) |   |         |      |  
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                        |                                                | $       | (16.5 | )        |   | $         | (14.7 | )     |   | $    | 52.9  |       |   | $ | 76.0  |       |   | $ | 80.4    |       |   | $ | 106.8   |      
|                                                        |                                                |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                                       



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

Gross Margins



Gross margins for the 2000 quarter include higher margins
generated under MichCons three-year gas sales program.
However, such margins for the 2000 nine-and twelve-month periods
declined from the corresponding 1999 periods. Under the gas
sales program which began in January 1999

11



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


(Note 8a), MichCons gas sales rates include a gas
commodity component fixed at $2.95 per Mcf. As part of its gas
acquisition strategy, MichCon has entered into fixed-price
contracts at an average cost below $2.95 per Mcf for
approximately 90% of its gas supply requirements in 2000
assuming normal weather, and approximately 65% of such
requirements in 2001. As discussed in the Cost of
Sales section that follows, gas sales margins in the 2000
quarter were higher than the 1999 quarter as a result of lower
cost of gas. However, margins in the 2000 nine- and twelve-month
periods were lower than the same 1999 periods due to higher
fixed-price supplies. The 2000 twelve-month period includes a
full years contribution from the gas sales program which
began in January 1999, whereas the 1999 twelve-month period
includes only nine months of contributions. The impact of
higher-priced supplies in the 2000 twelve-month period was
mitigated by the effects of such contributions.

Gross margins variations for all three 2000 periods 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. 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 are retained from these customers
as MichCon continues to transport and deliver the gas to the
customers premises.

Additionally, gross margins fluctuations for all three 2000
periods were impacted by varying weather which was slightly
colder in the 2000 quarter, and 3.5% and .5% warmer in the 2000
nine- and twelve-month periods, respectively, compared to the
same 1999 periods. The 2000 nine- and twelve-month periods also
reflect a provision for customer refunds (Note 8b), as well as a
decline in intermediate transportation revenues and revenues
from other gas-related services.

|                                              |                            |         |     |          |  |           |     |      |   |      |       |       |   |  |      |       |   |  |       |       |   |  |       |       |  
|--------------------------------------------- | -------------------------- | ------- | --- | -------- |  | --------- | --- | ---- | - | ---- | ----- | ----- | - |  | ---- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                             
|                                             
|                                              |                            |         |     |          |  |          
|                                              |                            | Quarter |     | 9 Months |  | 12 Months
|                                              |                            |         |     |          |  |          
|                                              |                            | 2000    |     | 1999     |  | 2000      |     | 1999 |   | 2000 |       | 1999 
|                                              |                            |         |     |          |  |           |     |      |   |      |       |      
|Effect of Weather on Gas Markets and Earnings |                            |         |     |          |  |           |     |      |   |      |       |       |   |  |      |       |   |  |       |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|Percent Colder (Warmer) Than Normal           |                            |         | N/M |          |  |           | N/M |      |   |      | (12.0 | )%    |   |  | (8.5 | )%    |   |  | (11.2 | )%    |   |  | (10.7 | )%   
|                                             
|                                             
|                                             
|                                             
|Increase (Decrease) From Normal in:           |                            |         |     |          |  |           |     |      |   |      |       |       |   |  |      |       |   |  |       |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Gas markets (Bcf)          |         |     | .6       |  |           |     | (.7  | ) |      |       | (17.4 | ) |  |      | (11.1 | ) |  |       | (25.0 | ) |  |       | (24.6 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Net income (in Millions)   |         | $   | .6       |  |           | $   | (.7  | ) |      | $     | (16.2 | ) |  | $    | (11.0 | ) |  | $     | (23.8 | ) |  | $     | (23.2 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Diluted earnings per share |         | $   | .01      |  |           | $   | (.01 | ) |      | $     | (.18  | ) |  | $    | (.13  | ) |  | $     | (.27  | ) |  | $     | (.28  | )
|                                             

N/ M  Not meaningful

Gas sales and end user transportation revenuesin
total increased $11.3 million for the 2000 quarter, and
decreased $37.4 million and $17.1 million for the 2000
nine- and twelve-month periods, respectively. Revenues for the
2000 quarter reflect a 2.6 Bcf increase in gas sales
volumes due primarily to colder weather, partially offset by a
1.4 Bcf decrease in end user transportation deliveries. The 2000
nine- and twelve-month periods reflect a decline in gas sales
revenues due to lower sales volumes, partially offset by higher
end user transportation revenues due to increased deliveries.
Gas sales volumes decreased 11.1 Bcf in the 2000 nine-month
period and 11.3 Bcf in the 2000 twelve-month period due
primarily to warmer weather and customers who chose to purchase
their gas from other suppliers under MichCons customer
choice program. End user transportation deliveries increased
13.4 Bcf in the 2000 nine-month period and 20.3 Bcf in
the 2000 twelve-month period. The improvement includes volumes
associated with customers participating in the customer choice
program who are reflected as end user transportation customers
rather than gas sales customers. Accordingly, gas sales revenues
have decreased, partially offset by an increase in end user
transportation revenues, resulting in a net decrease in total
operating revenues due to the gas commodity component included
in gas sales rates. Partially

12



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


offsetting the 2000 nine- and twelve-month periods
increase in end user transportation volumes attributable to the
customer choice program was the impact of warmer weather.

The gas sales revenues comparison for the nine- and twelve-month
periods was impacted by a $2.4 million provision for
customer refunds recorded in the 2000 second quarter, and the
end user transportation comparison for the same periods was
affected by the temporary shutdown of an industrial
customers plant in the 1999 second quarter.

Additionally, the gas sales revenues comparison for the
twelve-month period was impacted by 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. The gas
commodity component of MichCons sales increased $.08 per
Mcf (3%) for the 2000 twelve-month period.

|                             |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|---------------------------- |  | ------- | ----- | -------- |  | --------- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                            
|                            
|                             |  |         |       |          |  |          
|                             |  | Quarter |       | 9 Months |  | 12 Months
|                             |  |         |       |          |  |          
|                             |  | 2000    |       | 1999     |  | 2000      |       | 1999 |  | 2000 |       | 1999
|                             |  |         |       |          |  |           |       |      |  |      |       |     
|(Bcf)                        |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                            
|                            
|                            
|                            
|Gas Distribution             |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                            
|                            
|                            
|                            
|Gas Sales                    |  |         | 13.2  |          |  |           | 10.6  |      |  |      | 116.2 |      |  |  | 127.3 |  |  |  | 170.7 |  |  |  | 182.0 | 
|                            
|                            
|                            
|                            
|End User Transportation      |  |         | 31.3  |          |  |           | 32.7  |      |  |      | 120.4 |      |  |  | 107.0 |  |  |  | 165.4 |  |  |  | 145.1 | 
|                             |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                             |  |         | 44.5  |          |  |           | 43.3  |      |  |      | 236.6 |      |  |  | 234.3 |  |  |  | 336.1 |  |  |  | 327.1 | 
|                            
|                            
|                            
|                            
|Intermediate Transportation* |  |         | 132.1 |          |  |           | 128.3 |      |  |      | 426.7 |      |  |  | 390.8 |  |  |  | 567.8 |  |  |  | 497.5 | 
|                             |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                             |  |         | 176.6 |          |  |           | 171.6 |      |  |      | 663.3 |      |  |  | 625.1 |  |  |  | 903.9 |  |  |  | 824.6 | 
|                             |  |         |       |          |  |           |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 

| |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|



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

Intermediate transportation revenuesdecreased
$2.0 million, $3.4 million and $3.2 million in
the 2000 quarter, nine- and twelve-month periods, respectively.
Although revenues declined, the related deliveries rose
significantly, increasing 3.8 Bcf, 35.9 Bcf and
70.3 Bcf in the 2000 quarter, nine- and twelve-month
periods, respectively. A significant portion of the volume
variations was for customers who pay a fixed fee for
intermediate transportation capacity regardless of actual usage.
Although volumes associated with these fixed-fee customers may
vary, the related revenues are not affected. The decrease in
intermediate transportation revenues is due to non fixed-fee
customers shifting volumes from a higher rate to a lower rate
transportation route.

Other operating revenuesdecreased
$2.6 million, $6.6 million and $5.2 million in
the 2000 quarter, nine-and twelve-month periods, respectively.
Revenues in the 2000 nine- and twelve-month periods reflect a
decline in storage and facility development services, partially
offset by an increase in late payment fees and revenues from
providing appliance maintenance services. Additionally, all
three 2000 periods include lower revenues associated with the
operations of a heating, ventilation and cooling company that is
expected to be sold in late 2000 or early 2001.

Cost of Sales



13



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Cost of sales increased $3.8 million in the 2000 quarter,
and decreased $18.4 million and $16.2 million in the 2000
nine- and twelve-month periods, respectively. The cost of sales
variations primarily reflect weather-driven gas sales volumes as
well as changes in sales volumes associated with customers who
have chosen to purchase gas from other suppliers under
MichCons customer choice program. Also impacting cost of
sales was the price paid for gas sold which decreased $.20 per
Mcf (7%) in the 2000 quarter, and increased $.08 per Mcf (3%)
and $.07 per Mcf (3%) in the 2000 nine- and twelve-month
periods, respectively. Additionally, the comparison was impacted
by lower cost of sales associated with the operations of a
heating, ventilation and cooling company. The cost of sales
increase in the 2000 quarter is also attributable to higher lost
gas expenses.

Other Operating Expenses

Operation and maintenance


Partially offsetting the improvement in the 2000 twelve-month
period were higher injuries and damages costs.

Depreciation and depletionincreased
$2.0 million, $4.9 million and $6.3 million in the
2000 quarter, nine-and twelve-month periods, respectively,
reflecting depreciation on higher plant balances.

Property and other taxesincreased
$1.1 million and $2.6 million in the 2000 quarter and
nine-month period, respectively, and decreased $7.5 million
in the 2000 twelve-month period. All three 2000 periods were
impacted by taxes on higher plant balances. However, the effect
of higher plant balances in the 2000 twelve-month period was
more than offset by a change in the calculation of the value of
personal property subject to taxation by local taxing
jurisdictions. MichCon has pending tax appeals with various
local taxing jurisdictions to recover excess payments made in
prior years based on the revised calculation. This calculation
change, coupled with the favorable impact of new valuation
tables approved by the Michigan State Tax Commission (STC)
in November 1999, is expected to lower Gas
Distributions personal property taxes by approximately
$8 million annually beginning in July 2000. Several
local taxing jurisdictions have taken legal action against the
State of Michigan to prevent the STC from implementing the new
valuation tables (Note 11a).

Unusual itemof $9.7 million for all three
2000 periods reflects the write-down of an investment in a
heating, ventilation and cooling company that is expected to be
sold in late 2000 or early 2001 (Note 5e).

Merger costsof $1.8 million,
$3.2 million and $28.9 million in the 2000 quarter,
nine- and twelve-month periods, respectively, include legal,
consulting, accounting, employee benefit and other expenses
associated with the pending merger between MCN and DTE
(Note 2).

Other Income and Deductions



14



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


twelve-month periods were also impacted by higher interest costs
primarily due to an increase in the average balance of long-term
debt outstanding, interest on customer refunds as well as a
decline in construction related capitalized interest.
Additionally, the other income and deductions increase in the
2000 twelve-month period is attributable to lower interest
income resulting from the repayment of funds loaned to MCN.

Income Taxes



Outlook



MichCon has begun, and plans to continue, capitalizing 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. Year two of the customer
choice program began April 1, 2000, and approximately
55,000 customers have chosen to purchase natural gas from
suppliers other than MichCon. There are approximately 15,000
fewer customers participating in year two of the plan than in
year one as a result of fewer natural gas marketers
participating due to higher gas prices. Current gas prices 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.

As discussed in MCNs 1999 Annual Report on Form 10-K,
the Regulatory Reform Plan also suspended the GCR mechanism for
customers who continue to purchase gas from MichCon, and fixed
the gas commodity component of MichCons sales rates at
$2.95 per Mcf. The suspension of the GCR mechanism allows
MichCon to profit from its ability to purchase gas at less than
$2.95 per Mcf. The plan also increases MichCons risk
associated with generating margins that cover its gas costs. As
part of its gas acquisition strategy, MichCon entered into
fixed-price contracts at an average cost below $2.95 per Mcf for
approximately 90% of its supply requirements in 2000 assuming
normal weather, and approximately 65% of such requirements in
2001. However, margins are expected to be lower in future
periods as MichCons fixed-price supplies in 2000 and 2001
are at prices higher than those paid in 1999. MichCon expects to
meet its remaining gas supply requirements for 2000 and 2001 by
withdrawing gas from storage, supplemented with purchases at
market prices. Margins in future periods could decline further
if gas prices remain at their current levels, which are high
compared to historical periods. 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 State of Michigan 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 Michigan Public
Service Commission (MPSC) issued an order

15



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


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 with all of MichCons customers eligible to
participate in the program by the end of a three-year phase-in
period; 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, which fixed the gas commodity component of
its sales rates at $2.95 per Mcf. Therefore, MichCon is
evaluating the option of seeking MPSC approval to terminate year
three of the existing customer choice program and implement the
new permanent program in April 2001. This would include
eliminating the fixed $2.95 per Mcf rate and lifting the
suspension of MichCons GCR. Absent a modification to
its choice program, MichCon plans to supplement existing fixed
price supply with withdrawals from storage to mitigate the
effect of current high market prices.

Change in Accounting for Start-up Costs

Reporting on the Costs of Start-up
Activities,


CAPITAL RESOURCES AND LIQUIDITY

|                                                     |                      |          |       |        |   |   |      |        |  
|---------------------------------------------------- | -------------------- | -------- | ----- | ------ | - | - | ---- | ------ | -
|                                                    
|                                                    
|                                                     |                      |         
|                                                     |                      | 9 Months
|                                                     |                      |         
|                                                     |                      | 2000     |       | 1999  
|                                                     |                      |          |       |       
|(in Millions)                                        |                      |          |       |        |   |   |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents                            |                      |          |       |        |   |   |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flow Provided From (Used For):                  |                      |          |       |        |   |   |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating activities |          | $     | 174.8  |   |   | $    | 211.5  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Financing activities |          |       | (437.8 | ) |   |      | (270.4 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investing activities |          |       | 226.0  |   |   |      | 72.2   |  
|                                                     |                      |          |       |        |   |   |      |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                      | $        | (37.0 | )      |   | $ | 13.3 |       
|                                                     |                      |          |       |        |   |   |      |       
|                                                    

Operating Activities



Financing Activities



16



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


with proceeds from the sale of assets. A summary of MCNs
significant financing activities and financing plans follows.

MCNs FELINE PRIDES securities matured on May 16,
2000. Each security initially represented a stock purchase
contract and a preferred security. Under each stock purchase
contract, MCN was obligated to sell, and the FELINE PRIDES
holder was obligated to purchase between 1.4132 and 1.7241
shares of MCN common stock for $50. The number of MCN common
shares purchased totaled approximately 4.6 million. Each
FELINE PRIDES holder had the option to use the preferred
securities, treasury securities or cash to satisfy the $50
purchase commitment. Holders of approximately 99% of the FELINE
PRIDES used their preferred securities to purchase MCN common
shares. The remaining holders purchased their MCN shares with
cash totaling $1.5 million.

MCN had a $290 million revolving credit agreement that
expired in July 2000 and was not renewed.

Diversified Energy



MCN received approximately $451.2 million during the 2000
nine-month period from the sale of assets and joint venture
interests which was used to repay outstanding debt. Proceeds
from additional sales are expected in 2000 and will be used to
repay outstanding borrowings and for general corporate purposes.

Gas Distribution



In March 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 that matured in May 2000.

17



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Investing Activities



Capital investments equaled $234.0 million in the 2000
nine-month period compared to $391.6 million for the same
period in 1999. The 2000 investments include significantly lower
levels of investments within the Diversified Energy Group.

|                                                    |                          |          |       |       |  |   |       |      | 
|--------------------------------------------------- | ------------------------ | -------- | ----- | ----- |  | - | ----- | ---- | 
|                                                   
|                                                   
|                                                    |                          |         
|                                                    |                          | 9 Months
|                                                    |                          |         
|                                                    |                          | 2000     |       | 1999 
|                                                    |                          |          |       |      
|(in Millions)                                       |                          |          |       |       |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|Capital Investments                                 |                          |          |       |       |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|Consolidated Capital Expenditures:                  |                          |          |       |       |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Electric Power           |          | $     | .9    |  |   | $     | 46.8 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Exploration & Production |          |       | 12.1  |  |   |       | 88.6 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas Distribution         |          |       | 86.8  |  |   |       | 94.9 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                    |          |       | 3.0   |  |   |       | 3.1  | 
|                                                    |                          |          |       |       |  |   |       |     
|                                                    |                          |          | 102.8 |       |  |   | 233.4 |     
|                                                    |                          |          |       |       |  |   |       |     
|MCNs Share of Joint Venture Capital Expenditures:* |                          |          |       |       |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Pipelines & Processing   |          |       | 105.0 |  |   |       | 76.6 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Electric Power           |          |       | 26.1  |  |   |       | 52.0 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                    |          |       | .1    |  |   |       | .1   | 
|                                                    |                          |          |       |       |  |   |       |     
|                                                    |                          |          | 131.2 |       |  |   | 128.7 |     
|                                                    |                          |          |       |       |  |   |       |     
|Acquisitions                                        |                          |          |      |       |  |   | 29.5  |     
|                                                    |                          |          |       |       |  |   |       |     
|Total Capital Investments                           |                          | $        | 234.0 |       |  | $ | 391.6 |     
|                                                    |                          |          |       |       |  |   |       |     
|                                                   

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

Outlook

2000 capital investments to approximate
$340 million 


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






MARKET RISK INFORMATION




18



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Commodity Price Risk

Hedging Activities



As discussed in MCNs 1999 Annual Report on Form 10-K,
a sensitivity analysis calculates the change in fair values of
MCNs natural gas and oil futures and swap agreements given
a hypothetical 10% increase or decrease in commodity prices
utilizing applicable forward commodity rates in effect at the
end of the reporting period.

The results of the sensitivity analysis calculations follow:

|                                   |  |                    |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|---------------------------------- |  | ------------------ | ----- | ----------------- |  | ----------- | ------ | ----------- |  | - | ----- | - |  | - | ----- | -
|                                  
|                                  
|                                   |  |                    |       |                  
|                                   |  | September 30, 2000 |       | December 31, 1999
|                                   |  |                    |       |                  
|                                   |  | Assuming           |       | Assuming          |  | Assuming    |        | Assuming   
|                                   |  | a 10%              |       | a 10%             |  | a 10%       |        | a 10%      
|                                   |  | Increase in        |       | Decrease in       |  | Increase in |        | Decrease in
|                                   |  | Commodity          |       | Commodity         |  | Commodity   |        | Commodity  
|                                   |  | Prices             |       | Prices            |  | Prices      |        | Prices     
|                                   |  |                    |       |                   |  |             |        |            
|(in Millions)                      |  |                    |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|Commodity Price Sensitive:*        |  |                    |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|                                  
|                                  
|                                  
|                                  
|Swaps:  Pay fixed/receive variable |  | $                  | 118.9 |                   |  | $           | (118.9 | )           |  | $ | 89.8  |   |  | $ | (89.8 | )
|                                  
|                                  
|                                  
|                                  
|Pay
	 variable/receive fixed       |  | $                  | (92.0 | )                 |  | $           | 92.0   |             |  | $ | (81.1 | ) |  | $ | 81.1  |  
|                                  
|                                  
|                                  
|                                  
|Futures: Longs                     |  | $                  | 4.1   |                   |  | $           | (4.1   | )           |  | $ | 5.0   |   |  | $ | (5.0  | )
|                                  
|                                  
|                                  
|                                  
|Shorts                             |  | $                  |      |                   |  | $           |       |             |  | $ | (2.1  | ) |  | $ | 2.1   |  
|                                  



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

Trading Activities



19



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


The results of the sensitivity analysis calculations previously
discussed follow:

|                                   |  |                    |       |                   |  |             |      |             |  |  |     |  |  |  |     | 
|---------------------------------- |  | ------------------ | ----- | ----------------- |  | ----------- | ---- | ----------- |  |  | --- |  |  |  | --- | 
|                                  
|                                  
|                                   |  |                    |       |                  
|                                   |  | September 30, 2000 |       | December 31, 1999
|                                   |  |                    |       |                  
|                                   |  | Assuming           |       | Assuming          |  | Assuming    |      | Assuming   
|                                   |  | a 10%              |       | a 10%             |  | a 10%       |      | a 10%      
|                                   |  | Increase in        |       | Decrease in       |  | Increase in |      | Decrease in
|                                   |  | Commodity          |       | Commodity         |  | Commodity   |      | Commodity  
|                                   |  | Prices             |       | Prices            |  | Prices      |      | Prices     
|                                   |  |                    |       |                   |  |             |      |            
|(in Millions)                      |  |                    |       |                   |  |             |      |             |  |  |     |  |  |  |     | 
|Commodity Price Sensitive:**       |  |                    |       |                   |  |             |      |             |  |  |     |  |  |  |     | 
|                                  
|                                  
|                                  
|                                  
|Swaps:  Pay fixed/receive variable |  | $                  | 8.4   |                   |  | $           | (8.4 | )           |  |  | N/A |  |  |  | N/A | 
|                                  
|                                  
|                                  
|                                  
|Pay
	 variable/receive fixed       |  | $                  | (26.8 | )                 |  | $           | 26.8 |             |  |  | N/A |  |  |  | N/A | 
|                                  
|                                  
|                                  
|                                  
|Futures: Longs                     |  | $                  | .8    |                   |  | $           | (.8  | )           |  |  | N/A |  |  |  | N/A | 
|                                  
|                                  
|                                  
|                                  
|Shorts                             |  | $                  | (2.9  | )                 |  | $           | 2.9  |             |  |  | N/A |  |  |  | N/A | 
|                                  



|   |                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------
|** | Includes only the risk related to the derivative
	instruments and does not include the related gas in inventory
	and storage capacity contracts

Interest Rate Risk








NEW ACCOUNTING PRONOUNCEMENTS


Derivative and Hedging Activities  Accounting for Derivative
Instruments and Hedging Activities, Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133


SFAS No. 133 requires all derivatives to be recognized in
the balance sheet as either assets or liabilities measured at
their fair value, and sets forth conditions in which a
derivative instrument may be designated as a hedge. The
Statement requires that changes in the fair value of derivatives
be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying
hedges allows a derivatives gains and losses to be
recorded to other comprehensive income or to offset related
results on the hedged item in earnings.

MCN manages commodity price risk and interest rate risk through
the use of various derivative instruments. MCN also uses
derivative instruments to optimize the value of its storage
assets. The effects of SFAS No. 133 on MCNs financial
statements are subject to fluctuations in the market value of
derivative instruments which are, in turn, affected by
variations in gas and oil prices and in interest rates.
Accordingly, management cannot quantify the effects of adopting
SFAS No. 133 at this time.

MCN initiated a corporate-wide plan in 1998 to address the
issues associated with adopting SFAS No. 133. The plan
consists of: i) inventorying and categorizing derivatives;
ii) assessing risk management policies and determining the
effectiveness of hedging methodologies; iii) modeling the
impact of hedging strategies; and iv) assessing processes
and technology requirements. MCN does

20



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


not expect any complications in completing the plan or having
the related computer systems operational by the end of 2000.

Revenue Recognition  In
December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarized
certain of the SECs views in applying generally accepted
accounting principles to recognizing revenues. SAB No. 101
will be effective for MCN in the fourth quarter of 2000.
Management does not expect SAB No. 101 to have a material
effect on MCNs financial statements.






FORWARD-LOOKING STATEMENTS









AVAILABLE INFORMATION




21



---



##### Table of Contents








CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)


|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |           | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------ | --------- | ----------- |  | ---------- | --------- | --------- |  | - | --------- | --------- | 
|                                             
|                                             
|                                              |                                                                                                          |              |           |            
|                                              |                                                                                                          | September 30 |           | December 31
|                                              |                                                                                                          |              |           |            
|                                              |                                                                                                          |              |           | 1999        |  | 1999      
|                                              |                                                                                                          |              |           | (Restated)  |  | (Restated)
|                                              |                                                                                                          | 2000         |           | Note 3      |  | Note 3    
|                                              |                                                                                                          |              |           |             |  |           
|(in Thousands)                                |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|ASSETS                                        |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Current Assets                                |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents, at cost (which approximates market
	value)                                    |              | $         | 22,384      |  |            | $         | 30,353    |  |   | $         | 59,366    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, less allowance for doubtful accounts of
	$29,222, $16,216 and $20,720, respectively |              |           | 496,391     |  |            |           | 301,243   |  |   |           | 546,689   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accrued unbilled revenues                                                                                |              |           | 25,367      |  |            |           | 21,499    |  |   |           | 100,439   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas in inventory                                                                                         |              |           | 362,235     |  |            |           | 250,717   |  |   |           | 179,826   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Property taxes assessed applicable to future periods                                                     |              |           | 29,436      |  |            |           | 39,505    |  |   |           | 62,651    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |              |           | 45,749      |  |            |           |          |  |   |           | 32,508    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Assets from trading activities (Note 4)                                                                  |              |           | 4,852       |  |            |           |          |  |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |              |           | 47,915      |  |            |           | 56,897    |  |   |           | 51,043    | 
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |              | 1,034,329 |             |  |            | 700,214   |           |  |   | 1,032,522 |          
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|Deferred Charges and Other Assets             |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |              |           |            |  |            |           | 7,207     |  |   |           | 14,549    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in debt and equity securities                                                                |              |           | 154,207     |  |            |           | 72,494    |  |   |           | 72,077    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred swap losses and receivables (Note 13)                                                           |              |           | 149,092     |  |            |           | 96,539    |  |   |           | 43,907    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred environmental costs                                                                             |              |           | 28,573      |  |            |           | 31,291    |  |   |           | 31,173    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Prepaid benefit costs                                                                                    |              |           | 199,062     |  |            |           | 140,295   |  |   |           | 156,276   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |              |           | 86,490      |  |            |           | 125,569   |  |   |           | 108,288   | 
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |              | 617,424   |             |  |            | 473,395   |           |  |   | 426,270   |          
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|Investments in and Advances to Joint Ventures |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |              |           | 528,224     |  |            |           | 581,515   |  |   |           | 575,684   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power                                                                                           |              |           | 38,164      |  |            |           | 134,298   |  |   |           | 145,684   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing                                                                                         |              |           | 23,224      |  |            |           | 25,496    |  |   |           | 21,512    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |              |           | 2,781       |  |            |           | 2,478     |  |   |           | 2,898     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |              |           | 17,951      |  |            |           | 18,695    |  |   |           | 18,194    | 
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |              | 610,344   |             |  |            | 762,482   |           |  |   | 763,972   |          
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|Property, Plant and Equipment                 |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |              |           | 46,475      |  |            |           | 46,094    |  |   |           | 46,480    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production (Note 5d)                                                                       |              |           | 574,384     |  |            |           | 690,760   |  |   |           | 573,514   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |              |           | 3,084,362   |  |            |           | 3,001,638 |  |   |           | 3,016,231 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |              |           | 26,126      |  |            |           | 77,937    |  |   |           | 76,245    | 
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |              | 3,731,347 |             |  |            | 3,816,429 |           |  |   | 3,712,470 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Less  Accumulated depreciation and depletion                                                            |              |           | 1,789,998   |  |            |           | 1,688,186 |  |   |           | 1,697,212 | 
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |              | 1,941,349 |             |  |            | 2,128,243 |           |  |   | 2,015,258 |          
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          | $            | 4,203,446 |             |  | $          | 4,064,334 |           |  | $ | 4,238,022 |          
|                                              |                                                                                                          |              |           |             |  |            |           |           |  |   |           |          
|                                             

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

22



---



##### Table of Contents








CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)


|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |          |  
|---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------ | --------- | ----------- | - | ---------- | --------- | ------- | - | - | --------- | -------- | -
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       |                                                                 |              |           |            
|                                                                                                                       |                                                                 | September 30 |           | December 31
|                                                                                                                       |                                                                 |              |           |            
|                                                                                                                       |                                                                 |              |           | 1999        |   | 1999      
|                                                                                                                       |                                                                 |              |           | (Restated)  |   | (Restated)
|                                                                                                                       |                                                                 | 2000         |           | Note 3      |   | Note 3    
|                                                                                                                       |                                                                 |              |           |             |   |           
|(in Thousands)                                                                                                         |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                   |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Current Liabilities                                                                                                    |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accounts payable                                                |              | $         | 504,717     |   |            | $         | 291,176 |   |   | $         | 296,139  |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Notes payable                                                   |              |           | 305,764     |   |            |           | 370,995 |   |   |           | 617,755  |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Current portion of long-term debt and capital lease obligations |              |           | 184,908     |   |            |           | 131,302 |   |   |           | 28,102   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Federal income, property and other taxes payable                |              |           | 22,653      |   |            |           | 5,249   |   |   |           | 68,500   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Gas payable                                                     |              |           | 71,225      |   |            |           | 37,272  |   |   |           | 23,422   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Liabilities from trading activities (Note 4)                    |              |           | 39,467      |   |            |           |        |   |   |           |         |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Customer deposits                                               |              |           | 15,727      |   |            |           | 15,766  |   |   |           | 17,707   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Other                                                           |              |           | 124,854     |   |            |           | 106,814 |   |   |           | 146,949  |  
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                       |                                                                 |              | 1,269,315 |             |   |            | 958,574   |         |   |   | 1,198,574 |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Deferred Credits and Other Liabilities                                                                                 |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Deferred income taxes                                           |              |           | 24,114      |   |            |           |        |   |   |           |         |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Unamortized investment tax credit                               |              |           | 26,568      |   |            |           | 28,510  |   |   |           | 28,022   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Tax benefits amortizable to customers                           |              |           | 138,357     |   |            |           | 136,906 |   |   |           | 136,236  |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Deferred swap gains and payables (Note 13)                      |              |           | 152,052     |   |            |           | 76,810  |   |   |           | 64,962   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accrued environmental costs                                     |              |           | 26,827      |   |            |           | 30,373  |   |   |           | 28,068   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Minority interest                                               |              |           | 1,178       |   |            |           | 10,928  |   |   |           | 11,096   |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Other                                                           |              |           | 101,528     |   |            |           | 104,076 |   |   |           | 91,613   |  
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                       |                                                                 |              | 470,624   |             |   |            | 387,603   |         |   |   | 359,997   |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Long-Term Debt, including capital lease obligations                                                                    |                                                                 |              | 1,239,230 |             |   |            | 1,460,941 |         |   |   | 1,457,617 |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|MCN-Obligated Mandatorily Redeemable Preferred Securities of
	Subsidiaries Holding Solely Debentures of MCN (Note  16) |                                                                 |              | 272,412   |             |   |            | 402,900   |         |   |   | 402,922   |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Contingencies (Note 11)                                                                                                |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Common Shareholders Equity                                                                                            |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Common stock                                                    |              |           | 902         |   |            |           | 855     |   |   |           | 857      |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Additional paid-in capital                                      |              |           | 1,093,555   |   |            |           | 967,356 |   |   |           | 960,176  |  
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Retained earnings (deficit)                                     |              |           | (119,964    | ) |            |           | (91,250 | ) |   |           | (119,677 | )
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accumulated other comprehensive loss (Note 10)                  |              |           | (216        | ) |            |           | (357    | ) |   |           | (156     | )
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Yield enhancement, contract and issuance costs                  |              |           | (22,412     | ) |            |           | (22,288 | ) |   |           | (22,288  | )
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                       |                                                                 |              | 951,865   |             |   |            | 854,316   |         |   |   | 818,912   |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                       |                                                                 | $            | 4,203,446 |             |   | $          | 4,064,334 |         |   | $ | 4,238,022 |         
|                                                                                                                       |                                                                 |              |           |             |   |            |           |         |   |   |           |         
|                                                                                                                      

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

23



---



##### Table of Contents








CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)


|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |           |  
|------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------ | ------- | ----------------- | - | ------------------- | ------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                                                   
|                                                                   
|                                                                    |                                                                     |                    |         |                   |   |                    
|                                                                    |                                                                     | Three Months Ended |         | Nine Months Ended |   | Twelve Months Ended
|                                                                    |                                                                     | September 30       |         | September 30      |   | September 30       
|                                                                    |                                                                     |                    |         |                   |   |                    
|                                                                    |                                                                     |                    |         | 1999              |   |                     |         | 1999       |   |      |           | 1999      
|                                                                    |                                                                     |                    |         | (Restated)        |   |                     |         | (Restated) |   |      |           | (Restated)
|                                                                    |                                                                     | 2000               |         | Note 3            |   | 2000                |         | Note 3     |   | 2000 |           | Note 3    
|(in Thousands, Except Per Share Amounts)                            |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |           
|Operating Revenues                                                  |                                                                     | $                  | 465,419 |                   |   | $                   | 454,650 |            |   | $    | 1,841,579 |            |   | $ | 1,715,650 |           |   | $ | 2,550,182 |           |   | $ | 2,286,304 |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Operating Expenses                                                  |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cost of sales                                                       |                    |         | 337,261           |   |                     |         | 308,964    |   |      |           | 1,304,775  |   |   |           | 1,056,627 |   |   |           | 1,787,989 |   |   |           | 1,408,455 |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Operation and maintenance                                           |                    |         | 81,587            |   |                     |         | 98,159     |   |      |           | 268,009    |   |   |           | 298,586   |   |   |           | 380,646   |   |   |           | 410,786   |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Depreciation, depletion and amortization                            |                    |         | 34,950            |   |                     |         | 38,611     |   |      |           | 103,916    |   |   |           | 125,948   |   |   |           | 142,606   |   |   |           | 169,960   |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Property and other taxes                                            |                    |         | 15,871            |   |                     |         | 14,921     |   |      |           | 53,404     |   |   |           | 52,849    |   |   |           | 57,752    |   |   |           | 68,147    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Property write-downs and contract losses (Note 5)                   |                    |         | 9,765             |   |                     |         |           |   |      |           | 9,765      |   |   |           | 52,000    |   |   |           | 19,547    |   |   |           | 52,000    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Gains and losses on sale of assets, net (Note 5)                    |                    |         | (1,344            | ) |                     |         | 5,877      |   |      |           | (79,329    | ) |   |           | 74,675    |   |   |           | (72,015   | ) |   |           | 74,675    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Gains from sale of tax credits                                      |                    |         | (2,202            | ) |                     |         | (2,961     | ) |      |           | (7,480     | ) |   |           | (8,431    | ) |   |           | (10,213   | ) |   |           | (12,578   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Merger costs (Note 2)                                               |                    |         | 2,369             |   |                     |         |           |   |      |           | 5,190      |   |   |           |          |   |   |           | 40,046    |   |   |           |          |  
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                    |                                                                     |                    | 478,257 |                   |   |                     | 463,571 |            |   |      | 1,658,250 |            |   |   | 1,652,254 |           |   |   | 2,346,358 |           |   |   | 2,171,445 |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Operating Income (Loss)                                             |                                                                     |                    | (12,838 | )                 |   |                     | (8,921  | )          |   |      | 183,329   |            |   |   | 63,396    |           |   |   | 203,824   |           |   |   | 114,859   |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Equity in Earnings of Joint Ventures                                |                                                                     |                    | 6,702   |                   |   |                     | 15,396  |            |   |      | 22,639    |            |   |   | 40,020    |           |   |   | 35,005    |           |   |   | 55,684    |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Other Income and (Deductions)                                       |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest income                                                     |                    |         | 4,173             |   |                     |         | 1,909      |   |      |           | 8,627      |   |   |           | 5,774     |   |   |           | 9,428     |   |   |           | 8,008     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest on long-term debt                                          |                    |         | (23,533           | ) |                     |         | (22,540    | ) |      |           | (70,165    | ) |   |           | (66,046   | ) |   |           | (93,550   | ) |   |           | (91,047   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other interest expense                                              |                    |         | (6,484            | ) |                     |         | (5,541     | ) |      |           | (17,860    | ) |   |           | (20,858   | ) |   |           | (27,344   | ) |   |           | (28,608   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Dividends on preferred securities of subsidiaries                   |                    |         | (6,253            | ) |                     |         | (10,335    | ) |      |           | (22,312    | ) |   |           | (31,004   | ) |   |           | (31,447   | ) |   |           | (40,212   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Investment losses (Note 5d)                                         |                    |         |                  |   |                     |         |           |   |      |           |           |   |   |           | (7,456    | ) |   |           |          |   |   |           | (7,456    | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Minority interest                                                   |                    |         | (367              | ) |                     |         | (632       | ) |      |           | (1,161     | ) |   |           | (1,371    | ) |   |           | (1,402    | ) |   |           | (1,409    | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other                                                               |                    |         | 198               |   |                     |         | 320        |   |      |           | (1,185     | ) |   |           | 5,224     |   |   |           | 375       |   |   |           | 6,543     |  
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                    |                                                                     |                    | (32,266 | )                 |   |                     | (36,819 | )          |   |      | (104,056  | )          |   |   | (115,737  | )         |   |   | (143,940  | )         |   |   | (154,181  | )        
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Income (Loss) Before Income Taxes                                   |                                                                     |                    | (38,402 | )                 |   |                     | (30,344 | )          |   |      | 101,912   |            |   |   | (12,321   | )         |   |   | 94,889    |           |   |   | 16,362    |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Income Tax Provision (Benefit)                                      |                                                                     |                    | (13,463 | )                 |   |                     | (7,098  | )          |   |      | 35,161    |            |   |   | (2,170    | )         |   |   | 34,045    |           |   |   | 3,056     |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change        |                                                                     |                    | (24,939 | )                 |   |                     | (23,246 | )          |   |      | 66,751    |            |   |   | (10,151   | )         |   |   | 60,844    |           |   |   | 13,306    |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Cumulative Effect of Accounting Change for Start-up Costs
	(Note 7) |                                                                     |                    |        |                   |   |                     |        |            |   |      |          |            |   |   | (2,872    | )         |   |   |          |           |   |   | (2,872    | )        
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Net Income (Loss)                                                   |                                                                     | $                  | (24,939 | )                 |   | $                   | (23,246 | )          |   | $    | 66,751    |            |   | $ | (13,023   | )         |   | $ | 60,844    |           |   | $ | 10,434    |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Basic Earnings (Loss) Per Share (Note 9)                            |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Before cumulative effect of accounting change                       |                    | $       | (.28              | ) |                     | $       | (.27       | ) |      | $         | .76        |   |   | $         | (.12      | ) |   | $         | .70       |   |   | $         | .16       |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cumulative effect of accounting change for start-up costs
	(Note 7) |                    |         |                  |   |                     |         |           |   |      |           |           |   |   |           | (.04      | ) |   |           |          |   |   |           | (.03      | )
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                    |                                                                     | $                  | (.28    | )                 |   | $                   | (.27    | )          |   | $    | .76       |            |   | $ | (.16      | )         |   | $ | .70       |           |   | $ | .13       |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Diluted Earnings (Loss) Per Share (Note 9)                          |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Before cumulative effect of accounting change                       |                    | $       | (.28              | ) |                     | $       | (.27       | ) |      | $         | .75        |   |   | $         | (.12      | ) |   | $         | .69       |   |   | $         | .16       |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cumulative effect of accounting change for start-up costs
	(Note 7) |                    |         |                  |   |                     |         |           |   |      |           |           |   |   |           | (.04      | ) |   |           |          |   |   |           | (.03      | )
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                    |                                                                     | $                  | (.28    | )                 |   | $                   | (.27    | )          |   | $    | .75       |            |   | $ | (.16      | )         |   | $ | .69       |           |   | $ | .13       |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Average Common Shares Outstanding                                   |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Basic                                                               |                    |         | 90,095            |   |                     |         | 85,282     |   |      |           | 87,822     |   |   |           | 82,724    |   |   |           | 87,222    |   |   |           | 81,840    |  
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                    | Diluted                                                             |                    |         | 90,095            |   |                     |         | 85,282     |   |      |           | 88,560     |   |   |           | 82,724    |   |   |           | 88,017    |   |   |           | 82,927    |  
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|Dividends Declared Per Share                                        |                                                                     | $                  | .2550   |                   |   | $                   | .2550   |            |   | $    | .7650     |            |   | $ | .7650     |           |   | $ | 1.0200    |           |   | $ | 1.0200    |          
|                                                                    |                                                                     |                    |         |                   |   |                     |         |            |   |      |           |            |   |   |           |           |   |   |           |           |   |   |           |          
|                                                                   






CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Unaudited)


|                                                                                       |  |                    |          |                   |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |          |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------------- |  | ------------------- | ------- | ---------- |  | ---- | -------- | ---------- |  | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                                      
|                                                                                      
|                                                                                       |  |                    |          |                   |  |                    
|                                                                                       |  | Three Months Ended |          | Nine Months Ended |  | Twelve Months Ended
|                                                                                       |  | September 30       |          | September 30      |  | September 30       
|                                                                                       |  |                    |          |                   |  |                    
|                                                                                       |  |                    |          | 1999              |  |                     |         | 1999       |  |      |          | 1999      
|                                                                                       |  |                    |          | (Restated)        |  |                     |         | (Restated) |  |      |          | (Restated)
|                                                                                       |  | 2000               |          | Note 3            |  | 2000                |         | Note 3     |  | 2000 |          | Note 3    
|(in Thousands)                                                                         |  |                    |          |                   |  |                     |         |            |  |      |          |           
|Balance  Beginning of Period                                                          |  | $                  | (71,664  | )                 |  | $                   | (45,400 | )          |  | $    | (120,081 | )          |  | $ | (2,977  | ) |  | $ | (98,563  | ) |  | $ | (6,622  | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Add  Cumulative effect on prior years of change in
	accounting for inventory (Note 3) |  |                    |         |                   |  |                     | (595    | )          |  |      | 404      |            |  |   | (11,515 | ) |  |   | 7,313    |   |  |   | (10,975 | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Add  Net Income (Loss)                                                                |  |                    | (24,939  | )                 |  |                     | (23,246 | )          |  |      | 66,751   |            |  |   | (13,023 | ) |  |   | 60,844   |   |  |   | 10,434  |  
|                                                                                       |  |                    |          |                   |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |          |   |  |   |         |  
|                                                                                       |  |                    | (96,603  | )                 |  |                     | (69,241 | )          |  |      | (52,926  | )          |  |   | (27,515 | ) |  |   | (30,406  | ) |  |   | (7,163  | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Deduct  Cash Dividends Declared                                                       |  |                    | 23,361   |                   |  |                     | 22,009  |            |  |      | 67,038   |            |  |   | 63,735  |   |  |   | 89,558   |   |  |   | 84,087  |  
|                                                                                       |  |                    |          |                   |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |          |   |  |   |         |  
|Balance  End of Period                                                                |  | $                  | (119,964 | )                 |  | $                   | (91,250 | )          |  | $    | (119,964 | )          |  | $ | (91,250 | ) |  | $ | (119,964 | ) |  | $ | (91,250 | )
|                                                                                       |  |                    |          |                   |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |          |   |  |   |         |  
|                                                                                      

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


24



---



##### Table of Contents








CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |          |        |         |          |  
|------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------- | ------------------------------------------- | ------- | ------- | -------- | -------- | ------ | ------- | -------- | -
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                     
|                                                                          |                                                                                                                               | Nine Months Ended                   
|                                                                          |                                                                                                                               | September 30                        
|                                                                          |                                                                                                                               |                                     
|                                                                          |                                                                                                                               |                                      |                             | 1999                                       
|                                                                          |                                                                                                                               |                                      |                             | (Restated)                                 
|                                                                          |                                                                                                                               | 2000                                 |                             | Note 3                                     
|                                                                          |                                                                                                                               |                                      |                             |                                            
|(in Thousands)                                                            |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash Flow From Operating Activities                                       |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Net income (loss)                                                                                                             |                                      | $                           | 66,751                                      |         |         | $        | (13,023  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Adjustments to reconcile net income to net cash provided from
	operating activities Depreciation, depletion and amortization: |                                      |                             |                                             |         |         |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                      | Per statement of operations |                                             |         | 103,916 |          |          |        | 125,948 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                      | Charged to other accounts   |                                             |         | 7,082   |          |          |        | 6,676   |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Unusual items, net of taxes (Note 5)                                                                                          |                                      |                             | (45,217                                     | )       |         |          | 87,185   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cumulative effect of accounting change, net of taxes (Note 7)                                                                 |                                      |                             |                                            |         |         |          | 2,872    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Deferred income taxes  current                                                                                               |                                      |                             | (13,241                                     | )       |         |          | 347      |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Deferred income taxes and investment tax credit, net                                                                          |                                      |                             | 15,952                                      |         |         |          | 82,738   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Equity in earnings of joint ventures, net of distributions                                                                    |                                      |                             | (1,929                                      | )       |         |          | (15,176  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                      |                             | (3,826                                      | )       |         |          | (790     | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Changes in assets and liabilities, exclusive of changes shown
	separately                                                     |                                      |                             | 45,380                                      |         |         |          | (65,278  | )     
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          |                                                                                                                               |                                      |                             | Net cash provided from operating activities |         |         | 174,868  |          |        |         | 211,499  |  
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Cash Flow From Financing Activities                                       |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Notes payable, net                                                                                                            |                                      |                             | (311,991                                    | )       |         |          | (247,856 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Dividends paid                                                                                                                |                                      |                             | (67,038                                     | )       |         |          | (63,735  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of common stock                                                                                                      |                                      |                             | 4,789                                       |         |         |          | 132,544  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Reacquisition of common stock                                                                                                 |                                      |                             | (2,406                                      | )       |         |          | (780     | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of long-term debt                                                                                                    |                                      |                             |                                            |         |         |          | 106,535  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Long-term commercial paper and bank borrowings, net                                                                           |                                      |                             | (19,854                                     | )       |         |          | 92,344   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Retirement of long-term debt and preferred securities (Note 15)                                                               |                                      |                             | (41,207                                     | )       |         |          | (289,439 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                      |                             | (124                                        | )       |         |          |         |       
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          |                                                                                                                               |                                      |                             | Net cash used for financing activities      |         |         | (437,831 | )        |        |         | (270,387 | )
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Cash Flow From Investing Activities                                       |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Capital expenditures                                                                                                          |                                      |                             | (102,876                                    | )       |         |          | (233,410 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Acquisitions                                                                                                                  |                                      |                             |                                            |         |         |          | (33,071  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in debt and equity securities, net                                                                                 |                                      |                             | (60,346                                     | )       |         |          | (4,572   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in joint ventures                                                                                                  |                                      |                             | (63,357                                     | )       |         |          | (62,572  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Sale of property and joint venture interests (Note 6)                                                                         |                                      |                             | 451,168                                     |         |         |          | 409,616  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                      |                             | 1,392                                       |         |         |          | (3,789   | )     
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          |                                                                                                                               |                                      |                             | Net cash provided from investing activities |         |         | 225,981  |          |        |         | 72,202   |  
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Net Increase (Decrease) in Cash and Cash Equivalents                      |                                                                                                                               |                                      | (36,982                     | )                                           |         |         | 13,314   |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash and Cash Equivalents, January 1                                      |                                                                                                                               |                                      | 59,366                      |                                             |         |         | 17,039   |         
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Cash and Cash Equivalents, September 30                                   |                                                                                                                               | $                                    | 22,384                      |                                             |         | $       | 30,353   |         
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                                                                                      |                                      | $                           | (69,538                                     | )       |         | $        | 98,192   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                                                                                     |                                      |                             | 75,072                                      |         |         |          | 66,389   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                                                                                              |                                      |                             | (182,409                                    | )       |         |          | (119,945 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net                                                                              |                                      |                             |                                            |         |         |          | (15,153  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid/accrued benefit costs, net                                                                                            |                                      |                             | (42,222                                     | )       |         |          | (28,487  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Property taxes assessed applicable to future periods                                                                          |                                      |                             | 33,215                                      |         |         |          | 33,046   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                                                                              |                                      |                             | 208,578                                     |         |         |          | (8,373   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                                                                              |                                      |                             | (45,847                                     | )       |         |          | (64,216  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                                                                                                   |                                      |                             | 47,803                                      |         |         |          | (6,596   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Asset/liability from trading activity                                                                                         |                                      |                             | 34,615                                      |         |         |          |         |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                                                                                     |                                      |                             | (22,923                                     | )       |         |          | (6,048   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                                                                                    |                                      |                             | 9,036                                       |         |         |          | (14,087  | )     
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          |                                                                                                                               | $                                    | 45,380                      |                                             |         | $       | (65,278  | )       
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|Supplemental Disclosures                                                  |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid during the year for:                                                                                                |                                      |                             |                                             |         |         |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               | Interest, net of amounts capitalized |                             | $                                           | 79,956  |         |          | $        | 97,395 |        
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          |                                                                                                                               | Federal income taxes                 |                             | $                                           | 4,000   |         |          | $        | 3,550  |        
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                          | Noncash investing and financing activities:                                                                                   |                                      |                             |                                             |         |         |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               | FELINE PRIDES settlement (Note 16)   |                             | $                                           | 130,721 |         |          | $        |       |        
|                                                                          |                                                                                                                               |                                      |                             |                                             |         |         |          |         
|                                                                         

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


25



---



##### Table of Contents








NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.  GENERAL

The accompanying consolidated financial statements should be
read in conjunction with the MCN Energy Group Inc.
(MCN) 1999 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior years
financial statements to conform to the 2000 presentation. In the
opinion of management, the unaudited information furnished
herein reflects all adjustments necessary for a fair
presentation of the financial statements for the periods
presented.

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

2.  MERGER AGREEMENT WITH DTE ENERGY COMPANY

As discussed in MCNs 1999 Annual Report on Form 10-K,
MCN and DTE Energy Company (DTE) signed a definitive merger
agreement, dated October 4, 1999, under which DTE will
acquire all outstanding shares of MCN common stock. The boards
of directors and the shareholders of both companies have
approved the proposed merger. The transaction is subject to
regulatory approvals and other customary merger conditions. Both
companies continue their discussions with the Federal Trade
Commission (FTC) in connection with its review of the
proposed merger.

The FTC staff raised concerns regarding the loss of possible
competition between DTE and MCN in their coincident retail
distribution areas. To address these concerns, MCN agreed to
transfer a property interest to a unit of Exelon, previously
Unicom Corp., allowing for the utilization of up to
20 billion cubic feet (Bcf) of natural gas transportation
capacity annually on MichCons system in the applicable
distribution area. The agreement is subject to regulatory
approvals and consummation of the merger. Specific terms
regarding the ultimate utilization of capacity under the
agreement are still being discussed with the FTC. Management
believes that the proposal will be the basis for addressing the
FTCs concerns. While management cannot predict the timing
or outcome of the FTCs review, the companies are targeting
a first quarter 2001 closing date for the merger.

As a result of the pending merger, MCN has incurred
merger-related costs which include legal, accounting,
consulting, employee benefit and other expenses. These costs had
the effect of decreasing earnings by $2,369,000 pre-tax
($1,539,000 net of taxes), $5,190,000 pre-tax ($3,373,000 net of
taxes) and $40,046,000 pre-tax ($26,029,000 net of taxes) for
the three-, nine- and twelve-month periods ended
September 30, 2000, respectively.

Furthermore, pursuant to the merger agreement, MCN sold its
interest in five power projects, four of which are defined as
Qualifying Facilities (QFs) under the Public Utility
Regulatory Policies Act of 1978, as amended (Note 6b). This
act limits the interest in a project that can be owned by
electric utilities while maintaining the projects status
as a QF.

3.  CHANGE IN ACCOUNTING FOR INVENTORY

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

26



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Fair Value accounting for energy trading inventories is
preferable because: (1) it better informs users of the
financial statements of the companys net commodity price
risk with respect to its energy trading activities; (2) it
better aligns financial reporting for energy trading inventory
with the way in which price risk is measured and managed as part
of trading activities; and (3) the company expects to
continue its involvement with trading activities in the future.

In accordance with Accounting Principles Board Opinion
No. 20, Accounting Changes,the
financial statements of prior periods have been restated to
apply the new inventory accounting method retroactively. The
effect of the accounting change on net income for the periods
ended September 30 follows:

|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |        | 
|--------------------------------- | --------------------------- | ------------ | ------- | ------------ |  | ------------- | ------- | ----- |  | ---- | ------ | ------ |  | - | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                 
|                                 
|                                  |                             |              |         |              |  |              
|                                  |                             | Three Months |         | Nine Months  |  | Twelve Months
|                                  |                             | Ended        |         | Ended        |  | Ended        
|                                  |                             | September 30 |         | September 30 |  | September 30 
|                                  |                             |              |         |              |  |              
|(in Thousands, Except Per         |                             | 2000         |         | 1999         |  | 2000          |         | 1999  |  | 2000 |        | 1999  
|Share Amounts)                    |                             |              |         |              |  |               |         |       |  |      |        |       
|Net Income (Loss)                 |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|                                 
|                                 
|                                 
|                                 
|LIFO method                       |                             | $            | (51,483 | )            |  | $             | (31,154 | )     |  | $    | 3,014  |        |  | $ | (31,851 | )      |  | $ | 4,017  |        |  | $ | (7,854 | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Effect of accounting change |              |         | 26,544       |  |               |         | 7,908 |  |      |        | 63,737 |  |   |         | 18,828 |  |   |        | 56,827 |  |   |        | 18,288 | 
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|Fair Value method                 |                             | $            | (24,939 | )            |  | $             | (23,246 | )     |  | $    | 66,751 |        |  | $ | (13,023 | )      |  | $ | 60,844 |        |  | $ | 10,434 |       
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|Basic Earnings (Loss) Per Share   |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|                                 
|                                 
|                                 
|                                 
|LIFO method                       |                             | $            | (.57    | )            |  | $             | (.37    | )     |  | $    | .03    |        |  | $ | (.39    | )      |  | $ | .05    |        |  | $ | (.10   | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Effect of accounting change |              |         | .29          |  |               |         | .10   |  |      |        | .73    |  |   |         | .23    |  |   |        | .65    |  |   |        | .23    | 
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|Fair Value method                 |                             | $            | (.28    | )            |  | $             | (.27    | )     |  | $    | .76    |        |  | $ | (.16    | )      |  | $ | .70    |        |  | $ | .13    |       
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|Diluted Earnings (Loss) Per Share |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|                                 
|                                 
|                                 
|                                 
|LIFO method                       |                             | $            | (.57    | )            |  | $             | (.37    | )     |  | $    | .03    |        |  | $ | (.39    | )      |  | $ | .05    |        |  | $ | (.10   | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Effect of accounting change |              |         | .29          |  |               |         | .10   |  |      |        | .72    |  |   |         | .23    |  |   |        | .64    |  |   |        | .23    | 
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|Fair Value method                 |                             | $            | (.28    | )            |  | $             | (.27    | )     |  | $    | .75    |        |  | $ | (.16    | )      |  | $ | .69    |        |  | $ | .13    |       
|                                  |                             |              |         |              |  |               |         |       |  |      |        |        |  |   |         |        |  |   |        |        |  |   |        |       
|                                 

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

4. TRADING ACTIVITIES

During the second quarter of 2000, MCNs Energy Marketing
segment began trading activities by entering into financial
transactions that better utilize its gas storage capacity and
assets. Energy Marketing utilizes forward contracts, futures
contracts, swap agreements, and natural gas inventories as part
of its trading strategy. Financial instruments and storage
capacity contracts used in connection with trading activities
are marked-to-market and recorded at their fair value in the
Consolidated Statement of Financial Position and are shown as
Assets and Liabilities from Trading Activities.
Energy Marketings gas inventory is also recorded at its
fair value (Note 3). Unrealized gains and losses from newly
originated contracts, financial instruments, storage contracts
and inventories are recognized in revenues in the Consolidated
Statement of Operations. The net realized and unrealized loss
included in revenues from marking-to-market MCNs financial
instruments and storage contracts utilized in trading activities
was $36,566,000 pre-tax ($23,768,000 net of taxes) for the
three-months ended September 30, 2000 and was $64,781,000
pre-tax ($42,108,000 net of taxes) for the nine- and
twelve-month periods ended September 30, 2000. The

27



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


net unrealized gain included in revenues from marking-to-market
MCNs gas inventory for the three-, nine- and twelve-month
periods ended September 30, 2000 was $40,836,000 pre-tax
($26,544,000 net of taxes), $98,057,000 pre-tax ($63,737,000 net
of taxes) and $87,427,000 pre-tax ($56,827,000 net of taxes),
respectively.

5.  UNUSUAL ITEMS

a.  Pipelines &
Processing

| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gain on Sale of Joint Ventures:In May 2000,
	MCN recognized a $24,138,000 pre-tax ($15,689,000 net of taxes)
	gain from the sale of its interest in the Jonah Gas Gathering
	Company.
|
| | In March 2000, MCN recognized a $3,419,000 pre-tax
	($2,222,000 net of taxes) gain from the sale of its interest in
	the Cardinal States Gathering Company.                          

b.  Electric Power

| |                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gain on Sale of Joint Ventures:In June 2000,
	MCN sold its interest in the Cobisa-Person facility resulting in
	a pre-tax gain of $1,298,000 ($844,000 net of taxes).                                                                                                                                     
|
| | In April 2000, MCN recognized a $41,723,000 pre-tax
	($27,120,000 net of taxes) gain from the sale of its interest in
	the Michigan Power Project and its interest in the Ada
	Cogeneration facility.                                                                                                     
|
| | In March 2000, MCN recognized a $3,672,000 pre-tax
	($2,387,000 net of taxes) gain from the sale of its interest in
	the Carson Cogeneration facility.                                                                                                                                                    
|
| | Property Write-Downs:In the fourth quarter of
	1999, MCN exited two power projects under development that were
	not consistent with its new strategic direction. As a result,
	MCN recorded a $4,995,000 pre-tax ($3,247,000 net of taxes)
	write-off of capitalized costs associated with these projects.

c.  Energy Marketing

| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loss on Contracts:In the fourth quarter of 1999,
	MCN recognized a $2,447,000 pre-tax ($1,591,000 net of taxes)
	loss resulting from the termination of gas sales contracts with
	a joint venture. These contracts were terminated in conjunction
	with MCNs sale of its 49% interest in the joint venture.

d.  Exploration &
Production

| |                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the second quarter of
	1999, MCN recognized a $52,000,000 pre-tax ($33,800,000 net of
	taxes) write-down of its gas and oil properties under the full
	cost method of accounting, due primarily to an unfavorable
	revision in the timing of the production of proved gas and oil
	reserves as well as reduced expectations of sales proceeds on
	unproved acreage.
|
| | In the fourth quarter of 1999, MCN recorded a $2,340,000 pre-tax
	($1,521,000 net of taxes) write-down relating to unproved
	property which is not included in the full cost pool. An
	impairment loss was recorded representing the amount by which
	the carrying value exceeded the appraised value of the property.                                                                     
|
| | Losses on Sale of Properties:In the second and
	third quarters of 1999, MCN recognized losses from the sale of
	its Western and Midcontinent/ Gulf Coast E&P properties
	totaling $68,798,000                                                                                                                                                                                              

28



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | pre-tax ($44,719,000 net of taxes) and $5,877,000 pre-tax
	($3,820,000 net of taxes), respectively. In the fourth quarter
	of 1999, MCN recognized losses from the sale of its Appalachian
	E&P properties totaling $7,314,000 pre-tax ($4,754,000 net
	of taxes). In the first quarter of 2000, subsequent adjustments
	related to these prior period losses reduced the losses by
	$3,735,000 pre-tax ($2,428,000 net of taxes).
|
| | Loss on Investment:In the second quarter of 1999,
	MCN recognized a $7,456,000 pre-tax ($4,846,000 net of taxes)
	loss from the write-down of an investment in the common stock of
	an E&P company. The loss was due to a decline in the fair
	value of the securities that are not considered temporary. MCN
	has no carrying value in this investment after the write-down.                                                     

e.  Gas Distribution

| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In September 2000, MCN
	recognized a $9,765,000 pre-tax ($6,347,000 net of taxes)
	write-down of its heating, ventilation and cooling company. MCN
	expects to sell this company, and the resulting write-down
	represents the amount by which the carrying value exceeded the
	estimated fair value of the company.

6.  DISPOSITIONS

a.  Pipelines &
Processing

| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | In May 2000, MCN sold its 35% interest in the Jonah Gas
	Gathering Company for approximately $45,000,000.        
|
| | In March 2000, MCN sold its 50% interest in the Cardinal
	States Gathering Company for approximately $60,000,000.

b.  Electric Power

| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Qualifying and Other Facilities:As discussed in
	MCNs 1999 Annual Report on Form 10-K, MCN agreed to
	sell its interest in five power projects, four of which are
	Qualifying Facilities as defined by the Public
	Utility Regulatory Policies Act of 1978, as amended (Note 2).            
|
| | In June 2000, MCN sold its 95% interest in the
	Cobisa-Person facility, a 140 megawatt (MW) power plant that was
	under construction in New Mexico, for approximately $1,700,000.                                                                                                              
|
| | In April 2000, MCN sold its 50% interest in the Michigan
	Power Project, a 123 MW cogeneration plant located in Ludington,
	Michigan, and its 50% interest in the Ada Cogeneration facility,
	a 30 MW cogeneration plant located in Ada, Michigan, for
	$57,500,000.                           
|
| | In March 2000, MCN sold its 33 1/3% interest in the
	Carson Cogeneration facility, a 42 MW cogeneration plant located
	in California, for $3,000,000.                                                                                                                                          
|
| | In January 2000, MCN sold its 23% ownership in Midland
	Cogeneration Venture (MCV), a 1,370 MW cogeneration facility
	located in Michigan, for approximately $105,000,000. Under the
	terms of the sales agreement, if MCN does not merge with DTE,
	MCN may reacquire its 23% interest in MCV.

7.  ACCOUNTING FOR START-UP ACTIVITIES



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	in January 1999 MCN adopted Statement of Position
	(SOP) 98-5, Reporting on the Costs of Start-up
	Activities, issued by the Accounting Standards
	Executive Committee of the American Institute of Certified Public

29



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Accountants. SOP 98-5 requires start-up and organizational costs
	to be expensed as incurred. This change in accounting principle
	resulted in the write-off of start-up and organization costs
	capitalized as of December 31, 1998. The cumulative effect
	of the change was to decrease earnings by $4,418,000 pre-tax
	($2,872,000 net of taxes) for the nine- and twelve-month periods
	ended September 30, 1999.

8.  REGULATORY MATTERS

a.  Regulatory Reform
Plan

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	MichCon implemented its Regulatory Reform Plan in
	January 1999. The plan includes a three-year gas sales
	program under which MichCons gas sales rates include a gas
	commodity component that is fixed at $2.95 per thousand cubic
	feet (Mcf). As part of its gas acquisition strategy,
	MichCon has entered into fixed-price contracts at an average
	cost below $2.95 per Mcf for approximately 90% of its expected
	supply requirements in 2000 assuming normal weather, and
	approximately 65% of such requirements in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | The plan also includes a comprehensive experimental three-year
	customer choice program, which is subject to annual caps on the
	level of participation. The customer choice program began in
	April 1999, with approximately 70,000 customers choosing to
	purchase natural gas from suppliers other than MichCon. Year two
	of the plan began in April 2000, and the number of
	customers participating decreased to approximately 55,000.
	MichCon continues to transport and deliver gas to these
	customers premises at prices that generate favorable
	margins.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | In addition, the plan encompasses an income sharing mechanism
	that allows customers to share profits when actual returns on
	equity exceed predetermined thresholds. MichCon filed its income
	sharing report with the Michigan Public Service
	Commission (MPSC) on March 31, 2000, using the MPSC
	approved formula, indicating that no income sharing was required
	for 1999. The MPSC staff has requested a hearing on this matter.
	Management believes that no income sharing is required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | In August 2000, the MPSC issued an order establishing a
	proceeding to obtain information regarding the experience gained
	from the customer choice programs of MichCon and other
	participating Michigan utilities. The information was used by
	the MPSC to determine the future regulatory environment
	following the conclusion of the current regulatory reform
	programs. In October 2000, the MPSC issued an order that
	provides uniform terms and conditions for a new voluntary gas
	customer choice program in Michigan. Key aspects of the order
	include: i) continuing customer choice on a permanent and
	expanding basis with all of MichCons customers eligible to
	participate in the program by the end of a three-year phase-in
	period; ii) eliminating fixed commodity rates in favor of
	Gas Cost Recovery (GCR) rates that reflect market prices;
	and iii) investigating the potential unbundling of
	additional services offered by Michigan gas utilities.
	Management is currently evaluating the order and may seek MPSC
	approval to terminate year three of the existing customer choice
	program and implement the permanent program in April 2001.
	This would include eliminating the fixed $2.95 per Mcf rate and
	lifting the suspension of MichCons GCR.

b.  Gas Cost Recovery
Proceedings

| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The GCR process was suspended with the implementation of
	MichCons Regulatory Reform Plan in January 1999. In
	February 1999, MichCon filed its GCR reconciliation case
	covering

30



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | gas costs incurred during 1998 indicating an overrecovery of
	$18,000,000, 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 $3,200,000, including $740,000 of interest,
	had been overrecovered. In the third quarter of 2000, MichCon
	refunded the additional overrecovery to customers as a reduction
	in gas sales rates.

c.  Other Rate Matters

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	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
	$21,000,000 for periods during which the rate was in effect. The
	presiding MPSC administrative law judge found that no refunds
	are required. The MPSC staff has proposed a rate of $.049 per
	Mcf which would result in an annual revenue reduction of
	approximately $4,500,000. Management will vigorously defend its
	proposed rate of $.088 per Mcf, however, it is unable to predict
	the outcome of this complaint.

9.  EARNINGS PER SHARE COMPUTATION

MCN reports basic and diluted earnings per share (EPS). Basic
EPS is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS assumes the issuance
of potential dilutive common shares outstanding during the
period and adjusts for changes in income and the repurchase of
common shares that would have occurred with proceeds from the
assumed issuance. For the three-month period ended
September 30, 2000 and for the three- and nine-month
periods ended September 30, 1999, potentially dilutive
securities have been excluded from the diluted EPS calculation
since their inclusion would have been antidilutive. A
reconciliation of both calculations follows:

|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|---------------------------------------- |  | -------------------- | ------- | ------- |  | --------- | ------- | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  | - | ---- | - |  | - | ---- | -
|                                        
|                                        
|                                         |  |                      |         |        
|                                         |  | Net Income           |         |         |  |          
|                                         |  | (Loss) Before        |         | Average |  | Earnings 
|                                         |  | Cumulative Effect of |         | Common  |  | (Loss)   
|                                         |  | Accounting Change    |         | Shares  |  | Per Share
|                                         |  |                      |         |         |  |          
|                                         |  | 2000                 |         | 1999    |  | 2000      |         | 1999 |  | 2000 |        | 1999
|                                         |  |                      |         |         |  |           |         |      |  |      |        |     
|(in Thousands, Except Per Share Amounts) |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|                                        
|                                        
|                                        
|                                        
|Three Months Ended September 30          |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|                                        
|                                        
|                                        
|                                        
|Basic EPS                                |  | $                    | (24,939 | )       |  | $         | (23,246 | )    |  |      | 90,095 |      |  |  | 85,282 |  |  | $ | (.28 | ) |  | $ | (.27 | )
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Diluted EPS                              |  | $                    | (24,939 | )       |  | $         | (23,246 | )    |  |      | 90,095 |      |  |  | 85,282 |  |  | $ | (.28 | ) |  | $ | (.27 | )
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Nine Months Ended September 30           |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|                                        
|                                        
|                                        
|                                        
|Basic EPS                                |  | $                    | 66,751  |         |  | $         | (10,151 | )    |  |      | 87,822 |      |  |  | 82,724 |  |  | $ | .76  |   |  | $ | (.12 | )
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Effect of Stock-based compensation plans |  |                      |        |         |  |           |        |      |  |      | 738    |      |  |  |       |  |  |   |      |   |  |   |      |  
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Diluted EPS                              |  | $                    | 66,751  |         |  | $         | (10,151 | )    |  |      | 88,560 |      |  |  | 82,724 |  |  | $ | .75  |   |  | $ | (.12 | )
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Twelve Months Ended September 30         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|                                        
|                                        
|                                        
|                                        
|Basic EPS                                |  | $                    | 60,844  |         |  | $         | 13,306  |      |  |      | 87,222 |      |  |  | 81,840 |  |  | $ | .70  |   |  | $ | .16  |  
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Effect of Stock-based compensation plans |  |                      |        |         |  |           |        |      |  |      | 795    |      |  |  | 1,087  |  |  |   |      |   |  |   |      |  
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|Diluted EPS                              |  | $                    | 60,844  |         |  | $         | 13,306  |      |  |      | 88,017 |      |  |  | 82,927 |  |  | $ | .69  |   |  | $ | .16  |  
|                                         |  |                      |         |         |  |           |         |      |  |      |        |      |  |  |        |  |  |   |      |   |  |   |      |  
|                                        

31



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


10.  COMPREHENSIVE INCOME

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

|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |        |        |  
|----------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------------- | ------- | ------------ | --- | ------------- | ------- | ---- | ------ | ---- | ------ | ---- | --- | - | ------- | ------ | ------ | - | ------ | - | --- | - | ------ | ------ | ------ | -
|                                                     
|                                                     
|                                                      |                                                               |                                                            |         |              |     |              
|                                                      |                                                               | Three Months                                               |         | Nine Months  |     | Twelve Months
|                                                      |                                                               | Ended                                                      |         | Ended        |     | Ended        
|                                                      |                                                               | September 30                                               |         | September 30 |     | September 30 
|                                                      |                                                               |                                                            |         |              |     |              
|                                                      |                                                               | 2000                                                       |         | 1999         |     | 2000          |         | 1999 |        | 2000 |        | 1999
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |     
|(in Thousands)                                        |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|Comprehensive Income (Loss)                           |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|Net Income (Loss)                                     |                                                               | $                                                          | (24,939 | )            |     | $             | (23,246 | )    |        | $    | 66,751 |      |     | $ | (13,023 | )      |        | $ | 60,844 |   |     | $ | 10,434 |       
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|Other Comprehensive Income (Loss),                    |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                      | Net of Taxes                                                  |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Foreign currency translation adjustment:                      |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Foreign currency translation adjustment                    |         |              | (28 | )             |         |      | 16     |      |        |      | (60 | ) |         |        | (600   | ) |        |   | 141 |   |        |        | (1,256 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Less: Reclassification for losses recognized in net income |         |              |    |               |         |      | 13,132 |      |        |      |    |   |         |        | 13,132 |   |        |   |    |   |        |        | 13,132 |  
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                      |                                                               |                                                            |         |              | (28 | )             |         |      | 13,148 |      |        |      | (60 | ) |         |        | 12,532 |   |        |   | 141 |   |        |        | 11,876 |  
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                      | Unrealized loss on securities:Unrealized losses during period |                                                            |         |             |     |               |         |     |        |      |        |     |     |   |         | (1,159 | )      |   |        |  |     |   |        | (2,287 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Less: Reclassification for losses recognized in net income |         |              |    |               |         |      |       |      |        |      |    |   |         |        | 4,846  |   |        |   |    |   |        |        | 4,846  |  
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                      |                                                               |                                                            |        |              |     |               |        |      |        |      |       |      |     |   | 3,687   |        |        |   |       |   |     |   | 2,559  |       
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|Total Other Comprehensive Income (Loss), Net of Taxes |                                                               |                                                            | (28     | )            |     |               | 13,148  |      |        |      | (60    | )    |     |   | 16,219  |        |        |   | 141    |   |     |   | 14,435 |       
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|Total Comprehensive Income (Loss)                     |                                                               | $                                                          | (24,967 | )            |     | $             | (10,098 | )    |        | $    | 66,691 |      |     | $ | 3,196   |        |        | $ | 60,985 |   |     | $ | 24,869 |       
|                                                      |                                                               |                                                            |         |              |     |               |         |      |        |      |        |      |     |   |         |        |        |   |        |   |     |   |        |       
|                                                     

11.  CONTINGENCIES

a.  Personal Property
Taxes

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	in 1998, MichCon began filing its personal property tax
	information with local taxing jurisdictions which reflected a
	change in the calculation of the value of personal property
	subject to taxation. The revised calculation excludes intangible
	costs from the value of personal property. A number of local
	taxing jurisdictions have accepted the revised calculation, and
	MichCon recorded lower property tax expense in 1999 and 1998
	associated with the accepting taxing jurisdictions. MichCon has
	also filed appeals to recover excess payments made in 1996 and
	1997 based on the revised calculation. MichCon has pending tax
	appeals with local taxing jurisdictions that have not accepted
	the revised calculation.
|
| | 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                                                                                                                                                                                                                                 

32



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. A trial is scheduled for
	December 2000. The legal action, along with possible additional
	appeals by local taxing jurisdictions, could delay expected
	recoveries related to the new valuation tables until 2001.
|
| | 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.
	MCNs future results of operations could be significantly
	affected if the valuation tables are not upheld in court or
	MichCon is unsuccessful in its appeals.                                                                                                                                                                                                                                                                                                                                                                                                                    

b.  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
	launched a proactive and voluntary 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. MichCon employees are trained in the safe removal of
	these regulators, which are disposed of through an environmental
	recycling and waste disposal company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | The new mercury detection equipment made available by the
	Environmental Protection Agency will enable MichCon to re-test
	35 homes where an accidental release of mercury occurred in the
	1990s. Even though MichCon immediately cleaned these
	homes, this new equipment enables MichCon to confirm the
	effectiveness of the procedures. MichCon intends to implement a
	testing program to conduct statistical sampling of homes in
	which mercury-containing regulators may once have existed, and
	is currently working on details for this program in conjunction
	with appropriate state and federal agencies. Management believes
	the possibility is remote that customers have been exposed to
	unsafe levels of mercury from MichCons equipment.
	Management cannot predict the final disposition of this matter,
	but does not believe it will have a significant effect on
	MCNs financial statements.

c.  Legal and
Administrative Proceedings

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

33



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


12.  COAL FINES PLANTS

As discussed in MCNs 1999 Annual Report on Form 10-K,
in 1998 MCN recorded an impairment loss which equaled the
carrying value of its coal fines plants and reflected the likely
inability to recover such costs. In September 1999, MCN received
in-service determination letters from the Internal
Revenue Service (IRS) with respect to its six coal fines plants,
which were built to produce briquettes that qualify for
synthetic-fuel tax credits. In the determination letters, the
IRS ruled that four of the plants were in service by the
June 30, 1998 deadline in order to qualify for synthetic
fuel tax credits. The IRS ruled that two other plants did not
meet the in-service requirements. In December 1999, MCN sold its
four coal fines plants that received in-service
determination letters to DTE.

The company continued to believe the two remaining plants also
met the requirements and appealed the unfavorable rulings. In
October 2000, the IRS concluded on appeal that these two coal
fines plants met the in-service deadline for purposes of
claiming synthetic-fuel tax credits. In light of MCNs
inability to utilize the tax credits, MCN is seeking to maximize
the value of its investment in the two plants through sales or
participation agreements.

13.  COMMODITY SWAP AGREEMENTS

MCNs Diversified Energy group manages commodity price risk
through the use of various derivative instruments. The following
assets and liabilities related to the use of gas and oil swap
agreements are reflected in the Consolidated Statement of
Financial Position:

|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|------------------------------------ |  | ------------ | ------- | ----------- |  | ---- | ------- |  |  | - | ------ | 
|                                    
|                                    
|                                     |  |              |         |            
|                                     |  | September 30 |         | December 31
|                                     |  |              |         |            
|                                     |  | 2000         |         | 1999        |  | 1999
|(in Thousands)                       |  |              |         |             |  |     
|Deferred Swap Losses and Receivables |  |              |         |             |  |      |         |  |  |   |        | 
|                                    
|                                    
|                                    
|                                    
|Unrealized losses                    |  | $            | 28,450  |             |  | $    | 64,940  |  |  | $ | 13,884 | 
|                                    
|                                    
|                                    
|                                    
|Receivables                          |  |              | 228,382 |             |  |      | 43,989  |  |  |   | 40,089 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|                                     |  |              | 256,832 |             |  |      | 108,929 |  |  |   | 53,973 | 
|                                    
|                                    
|                                    
|                                    
|Less  current portion               |  |              | 107,740 |             |  |      | 12,390  |  |  |   | 10,066 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|                                     |  | $            | 149,092 |             |  | $    | 96,539  |  |  | $ | 43,907 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|Deferred Swap Gains and Payables     |  |              |         |             |  |      |         |  |  |   |        | 
|                                    
|                                    
|                                    
|                                    
|Unrealized gains                     |  | $            | 51,577  |             |  | $    | 34,884  |  |  | $ | 29,596 | 
|                                    
|                                    
|                                    
|                                    
|Payables                             |  |              | 218,533 |             |  |      | 72,707  |  |  |   | 48,066 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|                                     |  |              | 270,110 |             |  |      | 107,591 |  |  |   | 77,662 | 
|                                    
|                                    
|                                    
|                                    
|Less  current portion               |  |              | 118,058 |             |  |      | 30,781  |  |  |   | 12,700 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|                                     |  | $            | 152,052 |             |  | $    | 76,810  |  |  | $ | 64,962 | 
|                                     |  |              |         |             |  |      |         |  |  |   |        | 
|                                    

34



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


14.  SEGMENT INFORMATION

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

|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |           |  
|------------------------------------- | -------------------------------------- | ------------------ | ------- | ----------------- | - | ------------------- | ------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                     
|                                     
|                                      |                                        |                    |         |                   |   |                    
|                                      |                                        | Three Months Ended |         | Nine Months Ended |   | Twelve Months Ended
|                                      |                                        | September 30       |         | September 30      |   | September 30       
|                                      |                                        |                    |         |                   |   |                    
|                                      |                                        | 2000               |         | 1999              |   | 2000                |         | 1999    |   | 2000 |           | 1999   
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |        
|(in Thousands)                        |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|Revenues From Unaffiliated Customers: |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 7,351             |   |                     | $       | 6,416   |   |      | $         | 22,365  |   |   | $         | 17,747  |   |   | $         | 29,409    |   |   | $         | 23,927    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 15,292            |   |                     |         | 14,624  |   |      |           | 45,649  |   |   |           | 39,747  |   |   |           | 58,109    |   |   |           | 51,905    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 305,374           |   |                     |         | 297,196 |   |      |           | 986,757 |   |   |           | 781,015 |   |   |           | 1,347,636 |   |   |           | 954,366   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 2,962             |   |                     |         | 9,292   |   |      |           | 10,702  |   |   |           | 51,167  |   |   |           | 2,906     |   |   |           | 114,410   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 134,440           |   |                     |         | 127,122 |   |      |           | 776,106 |   |   |           | 825,974 |   |   |           | 1,112,122 |   |   |           | 1,141,696 |  
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 465,419 |                   |   |                     | 454,650 |         |   |      | 1,841,579 |         |   |   | 1,715,650 |         |   |   | 2,550,182 |           |   |   | 2,286,304 |          
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Revenues From Affiliated Customers:   |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    |         | 63                |   |                     |         | 507     |   |      |           | 301     |   |   |           | 1,609   |   |   |           | 941       |   |   |           | 1,656     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 44,779            |   |                     |         | 38,315  |   |      |           | 129,652 |   |   |           | 111,011 |   |   |           | 162,585   |   |   |           | 169,517   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 15,042            |   |                     |         | 22,538  |   |      |           | 42,152  |   |   |           | 68,081  |   |   |           | 83,790    |   |   |           | 52,212    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 1,654             |   |                     |         | 2,318   |   |      |           | 8,137   |   |   |           | 5,652   |   |   |           | 11,095    |   |   |           | 6,959     |  
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 61,538  |                   |   |                     | 63,678  |         |   |      | 180,242   |         |   |   | 186,353   |         |   |   | 258,411   |           |   |   | 230,344   |          
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Eliminations                          |                                        |                    | (61,538 | )                 |   |                     | (63,678 | )       |   |      | (180,242  | )       |   |   | (186,353  | )       |   |   | (258,411  | )         |   |   | (230,344  | )        
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Consolidated Operating Revenues       |                                        | $                  | 465,419 |                   |   | $                   | 454,650 |         |   | $    | 1,841,579 |         |   | $ | 1,715,650 |         |   | $ | 2,550,182 |           |   | $ | 2,286,304 |          
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Net Income (Loss)                     |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 915               |   |                     | $       | (99     | ) |      | $         | 19,715  |   |   | $         | 3,358   |   |   | $         | 20,880    |   |   | $         | 3,207     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 628               |   |                     |         | 4,311   |   |      |           | 33,134  |   |   |           | 11,682  |   |   |           | 32,910    |   |   |           | 15,663    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | (3,187            | ) |                     |         | 750     |   |      |           | (18,329 | ) |   |           | 11,283  |   |   |           | (32,324   | ) |   |           | 7,060     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 144               |   |                     |         | (4,034  | ) |      |           | 4,373   |   |   |           | (83,742 | ) |   |           | 952       |   |   |           | (78,687   | )
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | (16,532           | ) |                     |         | (14,671 | ) |      |           | 52,957  |   |   |           | 75,962  |   |   |           | 80,437    |   |   |           | 106,842   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate & Other                      |                    |         | (6,907            | ) |                     |         | (9,503  | ) |      |           | (25,099 | ) |   |           | (28,694 | ) |   |           | (42,011   | ) |   |           | (40,779   | )
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | (24,939 | )                 |   |                     | (23,246 | )       |   |      | 66,751    |         |   |   | (10,151   | )       |   |   | 60,844    |           |   |   | 13,306    |          
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of Accounting change |                    |         |                  |   |                     |         |        |   |      |           |        |   |   |           | (2,872  | ) |   |           |          |   |   |           | (2,872    | )
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Consolidated Net Income (Loss)        |                                        | $                  | (24,939 | )                 |   | $                   | (23,246 | )       |   | $    | 66,751    |         |   | $ | (13,023   | )       |   | $ | 60,844    |           |   | $ | 10,434    |          
|                                      |                                        |                    |         |                   |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     

15.  CREDIT FACILITIES AND LONG-TERM BORROWINGS

MCN Energy Enterprises Inc. (MCNEE) and MichCon maintain credit
lines that allow for borrowings under 364-day revolving credit
facilities and three-year facilities. The 364-day revolving
credit facilities were renewed in July 2000 and were increased
from $350,000,000 up to $500,000,000. The three-year facilities
total $350,000,000 and expire in July 2001. These credit lines
support commercial paper programs.

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

35



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


16.  FELINE PRIDES

The FELINE PRIDES securities matured on May 16, 2000. Each
security initially represented a stock purchase contract and a
preferred security. Under each stock purchase contract, MCN was
obligated to sell, and the FELINE PRIDES holder was obligated to
purchase between 1.4132 and 1.7241 shares of MCN common
stock for $50. The FELINE PRIDES holders put $130,721,000 of
preferred securities to satisfy the stock purchase commitment.
MCN also received $1,529,000 of cash from FELINE PRIDES holders
who chose to retain the 7.25% preferred securities that mature
on May 16, 2002. MCN issued 4,557,000 shares of common
stock in connection with the maturity of the FELINE PRIDES.

17.  CONSOLIDATING FINANCIAL STATEMENTS

Debt securities issued by MCNEE are subject to a support
agreement between MCN and MCNEE, under which MCN has committed
to make payments of interest and principal on MCNEEs
securities in the event of failure to pay by MCNEE. Under the
terms of the support agreement, the assets of MCN, other than
MichCon, and any cash dividends paid to MCN by any of its
subsidiaries are available as recourse to holders of
MCNEEs securities. The carrying value of MCNs assets
on an unconsolidated basis, which primarily consists of
investments in subsidiaries other than MichCon, is $528,359,000
at September 30, 2000.

The following MCN consolidating financial statements are
presented and include separately MCNEE, MichCon and MCN and
other subsidiaries. MCN has determined that separate financial
statements and other disclosures concerning MCNEE are not
material to investors. The other MCN subsidiaries represent
Citizens Gas Fuel Company, MCN Michigan Limited Partnership, MCN
Financing I, MCN Financing II, MCN Financing III,
MCN Financing VI and MichCon Enterprises, Inc.

36



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |           |        | 
|--------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | --------- | --- | ------- | --------- | ------------ | ------ | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                                 | MCN                                    |           |           |     |         |           | Eliminations |        |             
|                                                                |                                                                 | and Other                              |           |           |     |         |           | and          |        | Consolidated
|                                                                |                                                                 | Subsidiaries                           |           | MCNEE     |     | MichCon |           | Reclasses    |        | Total       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |             
|                                                                |                                                                 |                                       
|                                                                |                                                                 | September 30, 2000                    
|                                                                |                                                                 |                                       
|(in Thousands)                                                  |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|ASSETS                                                          |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Current Assets                                                  |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                              |                                        | $         | 34        |     |         | $         | 11,125       |        |              | $         | 11,225    |        |   | $          |         |   |   | $         | 22,384    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                             |                                        |           | 14,811    |     |         |           | 416,424      |        |              |           | 113,906   |        |   |            | (19,528  | ) |   |           | 525,613   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                 | Less  Allowance for doubtful accounts |           |           | 221 |         |           |              | 13,887 |              |           |           | 15,114 |   |            |          |  |   |           |           | 29,222 | 
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                | Accounts receivable, net                                        |                                        |           | 14,590    |     |         |           | 402,537      |        |              |           | 98,792    |        |   |            | (19,528  | ) |   |           | 496,391   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                                       |                                        |           | 308       |     |         |           |             |        |              |           | 25,059    |        |   |            |         |   |   |           | 25,367    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                                |                                        |           |          |     |         |           | 281,682      |        |              |           | 80,553    |        |   |            |         |   |   |           | 362,235   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods            |                                        |           | 134       |     |         |           | 1,674        |        |              |           | 27,628    |        |   |            |         |   |   |           | 29,436    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | (1,201    | )   |         |           | 44,531       |        |              |           |          |        |   |            | 2,419    |   |   |           | 45,749    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from trading activities                                  |                                        |           |          |     |         |           | 4,852        |        |              |           |          |        |   |            |         |   |   |           | 4,852     |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 12,962    |     |         |           | 24,241       |        |              |           | 27,456    |        |   |            | (16,744  | ) |   |           | 47,915    |       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 26,827    |           |     |         | 770,642   |              |        |              | 270,713   |           |        |   | (33,853    | )        |   |   | 1,034,329 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           |          |     |         |           | 107,753      |        |              |           |          |        |   |            | (107,753 | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities                       |                                        |           |          |     |         |           | 80,696       |        |              |           | 69,089    |        |   |            | 4,422    |   |   |           | 154,207   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap losses and receivables                            |                                        |           |          |     |         |           | 149,092      |        |              |           |          |        |   |            |         |   |   |           | 149,092   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                                    |                                        |           | 2,302     |     |         |           |             |        |              |           | 26,271    |        |   |            |         |   |   |           | 28,573    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                           |                                        |           | 4,723     |     |         |           |             |        |              |           | 199,186   |        |   |            | (4,847   | ) |   |           | 199,062   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 1,947     |     |         |           | 28,851       |        |              |           | 58,125    |        |   |            | (2,433   | ) |   |           | 86,490    |       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 8,972     |           |     |         | 366,392   |              |        |              | 352,671   |           |        |   | (110,611   | )        |   |   | 617,424   |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                                 |                                        | 1,180,550 |           |     |         | 587,861   |              |        |              | 19,702    |           |        |   | (1,177,769 | )        |   |   | 610,344   |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment, at cost                          |                                                                 |                                        | 44,015    |           |     |         | 630,762   |              |        |              | 3,056,570 |           |        |   |           |          |   |   | 3,731,347 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion                   |                                        |           | 20,462    |     |         |           | 236,379      |        |              |           | 1,533,157 |        |   |            |         |   |   |           | 1,789,998 |       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 23,553    |           |     |         | 394,383   |              |        |              | 1,523,413 |           |        |   |           |          |   |   | 1,941,349 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 | $                                      | 1,239,902 |           |     | $       | 2,119,278 |              |        | $            | 2,166,499 |           |        | $ | (1,322,233 | )        |   | $ | 4,203,446 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                            |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Current Liabilities                                             |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts payable                                                |                                        | $         | 4,480     |     |         | $         | 448,866      |        |              | $         | 72,473    |        |   | $          | (21,102  | ) |   | $         | 504,717   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Notes payable                                                   |                                        |           | 30        |     |         |           | 115,152      |        |              |           | 190,582   |        |   |            |         |   |   |           | 305,764   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Current portion of long-term debt and capital lease obligations |                                        |           |          |     |         |           | 160,099      |        |              |           | 24,809    |        |   |            |         |   |   |           | 184,908   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Federal income, property and other taxes payable                |                                        |           | (14,281   | )   |         |           | 7,792        |        |              |           | 39,776    |        |   |            | (10,634  | ) |   |           | 22,653    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas payable                                                     |                                        |           |          |     |         |           | 67,894       |        |              |           |          |        |   |            | 3,331    |   |   |           | 71,225    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Liabilities from trading activities                             |                                        |           |          |     |         |           | 39,467       |        |              |           |          |        |   |            |         |   |   |           | 39,467    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Customer deposits                                               |                                        |           | 14        |     |         |           |             |        |              |           | 15,713    |        |   |            |         |   |   |           | 15,727    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 11,800    |     |         |           | 66,534       |        |              |           | 49,815    |        |   |            | (3,295   | ) |   |           | 124,854   |       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 2,043     |           |     |         | 905,804   |              |        |              | 393,168   |           |        |   | (31,700    | )        |   |   | 1,269,315 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Credits and Other Liabilities                          |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | (4,107    | )   |         |           |             |        |              |           | 135,974   |        |   |            | (107,753 | ) |   |           | 24,114    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Unamortized investment tax credit                               |                                        |           | 223       |     |         |           |             |        |              |           | 26,345    |        |   |            |         |   |   |           | 26,568    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Tax benefits amortizable to customers                           |                                        |           |          |     |         |           |             |        |              |           | 138,357   |        |   |            |         |   |   |           | 138,357   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap gains and payables                                |                                        |           |          |     |         |           | 152,052      |        |              |           |          |        |   |            |         |   |   |           | 152,052   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued environmental costs                                     |                                        |           | 2,654     |     |         |           |             |        |              |           | 24,173    |        |   |            |         |   |   |           | 26,827    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Minority interest                                               |                                        |           |          |     |         |           | 529          |        |              |           | 649       |        |   |            |         |   |   |           | 1,178     |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 14,596    |     |         |           | 24,719       |        |              |           | 67,061    |        |   |            | (4,848   | ) |   |           | 101,528   |       
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 13,366    |           |     |         | 177,300   |              |        |              | 392,559   |           |        |   | (112,601   | )        |   |   | 470,624   |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Long-Term Debt, including capital lease obligations             |                                                                 |                                        |          |           |     |         | 596,387   |              |        |              | 642,843   |           |        |   |           |          |   |   | 1,239,230 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                 |                                                                 |                                        | 272,412   |           |     |         |          |              |        |              |          |           |        |   |           |          |   |   | 272,412   |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Common Shareholders Equity                                     |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Common stock                                                    |                                        |           | 902       |     |         |           | 5            |        |              |           | 10,300    |        |   |            | (10,305  | ) |   |           | 902       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Additional paid-in capital                                      |                                        |           | 1,093,555 |     |         |           | 744,391      |        |              |           | 230,399   |        |   |            | (974,790 | ) |   |           | 1,093,555 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Retained earnings (deficit)                                     |                                        |           | (119,964  | )   |         |           | (304,393     | )      |              |           | 497,230   |        |   |            | (192,837 | ) |   |           | (119,964  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accumulated other comprehensive loss                            |                                        |           |          |     |         |           | (216         | )      |              |           |          |        |   |            |         |   |   |           | (216      | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Yield enhancement, contract and issuance costs                  |                                        |           | (22,412   | )   |         |           |             |        |              |           |          |        |   |            |         |   |   |           | (22,412   | )     
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 |                                        | 952,081   |           |     |         | 439,787   |              |        |              | 737,929   |           |        |   | (1,177,932 | )        |   |   | 951,865   |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                                |                                                                 | $                                      | 1,239,902 |           |     | $       | 2,119,278 |              |        | $            | 2,166,499 |           |        | $ | (1,322,233 | )        |   | $ | 4,203,446 |          
|                                                                |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          

37



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |           |        | 
|--------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | --- | ------- | --------- | ------------ | ----- | ------------ | --------- | --------- | ------ | - | ---------- | ---------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                                 | MCN                                    |           |         |     |         |           | Eliminations |       |             
|                                                                |                                                                 | and Other                              |           |         |     |         |           | and          |       | Consolidated
|                                                                |                                                                 | Subsidiaries                           |           | MCNEE   |     | MichCon |           | Reclasses    |       | Total       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |             
|                                                                |                                                                 |                                       
|                                                                |                                                                 | September 30, 1999                    
|                                                                |                                                                 |                                       
|(in Thousands)                                                  |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|ASSETS                                                          |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Assets                                                  |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                              |                                        | $         | 80      |     |         | $         | 18,393       |       |              | $         | 11,880    |        |   | $          |           |   |   | $         | 30,353    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                             |                                        |           | 5,450   |     |         |           | 239,004      |       |              |           | 111,434   |        |   |            | (38,429    | ) |   |           | 317,459   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                 | Less  Allowance for doubtful accounts |           |         | 168 |         |           |              | 1,652 |              |           |           | 14,396 |   |            |            |  |   |           |           | 16,216 | 
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                | Accounts receivable, net                                        |                                        |           | 5,282   |     |         |           | 237,352      |       |              |           | 97,038    |        |   |            | (38,429    | ) |   |           | 301,243   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                                       |                                        |           | 321     |     |         |           |             |       |              |           | 21,178    |        |   |            |           |   |   |           | 21,499    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                                |                                        |           |        |     |         |           | 140,547      |       |              |           | 110,170   |        |   |            |           |   |   |           | 250,717   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods            |                                        |           | 284     |     |         |           | 1,529        |       |              |           | 37,692    |        |   |            |           |   |   |           | 39,505    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           |        |     |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from trading activities                                  |                                        |           |        |     |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 6,171   |     |         |           | 59,687       |       |              |           | 38,609    |        |   |            | (47,570    | ) |   |           | 56,897    |       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 12,138    |         |     |         | 457,508   |              |       |              | 316,567   |           |        |   | (85,999    | )          |   |   | 700,214   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                               |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | 9,248   |     |         |           | 102,997      |       |              |           |          |        |   |            | (105,038   | ) |   |           | 7,207     |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities                       |                                        |           |        |     |         |           | 5,217        |       |              |           | 66,653    |        |   |            | 624        |   |   |           | 72,494    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap losses and receivables                            |                                        |           |        |     |         |           | 96,539       |       |              |           |          |        |   |            |           |   |   |           | 96,539    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                                    |                                        |           | 2,769   |     |         |           |             |       |              |           | 28,522    |        |   |            |           |   |   |           | 31,291    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                           |                                        |           | 783     |     |         |           |             |       |              |           | 146,534   |        |   |            | (7,022     | ) |   |           | 140,295   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 16,273  |     |         |           | 41,802       |       |              |           | 64,528    |        |   |            | 2,966      |   |   |           | 125,569   |       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 29,073    |         |     |         | 246,555   |              |       |              | 306,237   |           |        |   | (108,470   | )          |   |   | 473,395   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                                 |                                        | 1,380,145 |         |     |         | 740,237   |              |       |              | 19,766    |           |        |   | (1,377,666 | )          |   |   | 762,482   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                          |                                                                 |                                        | 48,697    |         |     |         | 793,985   |              |       |              | 2,973,747 |           |        |   |           |            |   |   | 3,816,429 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion                   |                                        |           | 19,537  |     |         |           | 203,718      |       |              |           | 1,464,931 |        |   |            |           |   |   |           | 1,688,186 |       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 29,160    |         |     |         | 590,267   |              |       |              | 1,508,816 |           |        |   |           |            |   |   | 2,128,243 |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 | $                                      | 1,450,516 |         |     | $       | 2,034,567 |              |       | $            | 2,151,386 |           |        | $ | (1,572,135 | )          |   | $ | 4,064,334 |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                            |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Liabilities                                             |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts payable                                                |                                        | $         | 5,845   |     |         | $         | 213,448      |       |              | $         | 112,090   |        |   | $          | (40,207    | ) |   | $         | 291,176   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Notes payable                                                   |                                        |           | 57,751  |     |         |           | 181,748      |       |              |           | 132,465   |        |   |            | (969       | ) |   |           | 370,995   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Current portion of long-term debt and capital lease obligations |                                        |           | 103,094 |     |         |           | 149          |       |              |           | 28,059    |        |   |            |           |   |   |           | 131,302   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Federal income, property and other taxes payable                |                                        |           | (4,359  | )   |         |           | 2,016        |       |              |           | 51,591    |        |   |            | (43,999    | ) |   |           | 5,249     |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas payable                                                     |                                        |           |        |     |         |           | 31,509       |       |              |           | 5,763     |        |   |            |           |   |   |           | 37,272    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Liabilities from trading activities                             |                                        |           |        |     |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Customer deposits                                               |                                        |           | 4       |     |         |           |             |       |              |           | 15,762    |        |   |            |           |   |   |           | 15,766    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 14,818  |     |         |           | 33,337       |       |              |           | 59,764    |        |   |            | (1,105     | ) |   |           | 106,814   |       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 177,153   |         |     |         | 462,207   |              |       |              | 405,494   |           |        |   | (86,280    | )          |   |   | 958,574   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                          |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           |        |     |         |           |             |       |              |           | 104,778   |        |   |            | (104,778   | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Unamortized investment tax credit                               |                                        |           | 252     |     |         |           |             |       |              |           | 28,258    |        |   |            |           |   |   |           | 28,510    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Tax benefits amortizable to customers                           |                                        |           |        |     |         |           |             |       |              |           | 136,906   |        |   |            |           |   |   |           | 136,906   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap gains and payables                                |                                        |           |        |     |         |           | 76,810       |       |              |           |          |        |   |            |           |   |   |           | 76,810    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued environmental costs                                     |                                        |           | 3,000   |     |         |           |             |       |              |           | 27,373    |        |   |            |           |   |   |           | 30,373    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Minority interest                                               |                                        |           |        |     |         |           | 2,358        |       |              |           | 8,570     |        |   |            |           |   |   |           | 10,928    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 12,538  |     |         |           | 45,894       |       |              |           | 48,757    |        |   |            | (3,113     | ) |   |           | 104,076   |       
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 15,790    |         |     |         | 125,062   |              |       |              | 354,642   |           |        |   | (107,891   | )          |   |   | 387,603   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations             |                                                                 |                                        |          |         |     |         | 777,455   |              |       |              | 683,486   |           |        |   |           |            |   |   | 1,460,941 |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                 |                                                                 |                                        | 402,900   |         |     |         |          |              |       |              |          |           |        |   |           |            |   |   | 402,900   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Common Shareholders Equity                                     |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Common stock                                                    |                                        |           | 855     |     |         |           | 5            |       |              |           | 10,300    |        |   |            | (10,305    | ) |   |           | 855       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Additional paid-in capital                                      |                                        |           | 967,356 |     |         |           | 956,767      |       |              |           | 230,399   |        |   |            | (1,187,166 | ) |   |           | 967,356   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Retained earnings (deficit)                                     |                                        |           | (91,250 | )   |         |           | (286,572     | )     |              |           | 467,065   |        |   |            | (180,493   | ) |   |           | (91,250   | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accumulated other comprehensive loss                            |                                        |           |        |     |         |           | (357         | )     |              |           |          |        |   |            |           |   |   |           | (357      | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )   |         |           |             |       |              |           |          |        |   |            |           |   |   |           | (22,288   | )     
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 854,673   |         |     |         | 669,843   |              |       |              | 707,764   |           |        |   | (1,377,964 | )          |   |   | 854,316   |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 | $                                      | 1,450,516 |         |     | $       | 2,034,567 |              |       | $            | 2,151,386 |           |        | $ | (1,572,135 | )          |   | $ | 4,064,334 |          
|                                                                |                                                                 |                                        |           |         |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          

38



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATING STATEMENT OF FINANCIAL POSITION


|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |           |        | 
|--------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | -------- | --- | ------- | --------- | ------------ | ----- | ------------ | --------- | --------- | ------ | - | ---------- | ---------- | - | - | --------- | --------- | ------ | 
|                                                                |                                                                 | MCN                                    |           |          |     |         |           | Eliminations |       |             
|                                                                |                                                                 | and Other                              |           |          |     |         |           | and          |       | Consolidated
|                                                                |                                                                 | Subsidiaries                           |           | MCNEE    |     | MichCon |           | Reclasses    |       | Total       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |             
|                                                                |                                                                 |                                       
|                                                                |                                                                 | December 31, 1999                     
|                                                                |                                                                 |                                       
|(in Thousands)                                                  |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|ASSETS                                                          |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Current Assets                                                  |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and cash equivalents, at cost                              |                                        | $         | 470      |     |         | $         | 49,191       |       |              | $         | 9,705     |        |   | $          |           |   |   | $         | 59,366    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts receivable                                             |                                        |           | 23,989   |     |         |           | 404,299      |       |              |           | 165,189   |        |   |            | (26,068    | ) |   |           | 567,409   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                 | Less  Allowance for doubtful accounts |           |          | 176 |         |           |              | 2,767 |              |           |           | 17,777 |   |            |            |  |   |           |           | 20,720 | 
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                | Accounts receivable, net                                        |                                        |           | 23,813   |     |         |           | 401,532      |       |              |           | 147,412   |        |   |            | (26,068    | ) |   |           | 546,689   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued unbilled revenues                                       |                                        |           | 1,573    |     |         |           |             |       |              |           | 98,866    |        |   |            |           |   |   |           | 100,439   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas in inventory                                                |                                        |           |         |     |         |           | 105,676      |       |              |           | 74,150    |        |   |            |           |   |   |           | 179,826   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property taxes assessed applicable to future periods            |                                        |           | 277      |     |         |           | 1,785        |       |              |           | 60,589    |        |   |            |           |   |   |           | 62,651    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | (878     | )   |         |           | 44,024       |       |              |           |          |        |   |            | (10,638    | ) |   |           | 32,508    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Assets from trading activities                                  |                                        |           |         |     |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 9,938    |     |         |           | 17,458       |       |              |           | 31,594    |        |   |            | (7,947     | ) |   |           | 51,043    |       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 35,193    |          |     |         | 619,666   |              |       |              | 422,316   |           |        |   | (44,653    | )          |   |   | 1,032,522 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                               |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | (254     | )   |         |           | 114,754      |       |              |           |          |        |   |            | (99,951    | ) |   |           | 14,549    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investments in debt and equity securities                       |                                        |           |         |     |         |           | 4,242        |       |              |           | 67,210    |        |   |            | 625        |   |   |           | 72,077    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap losses and receivables                            |                                        |           |         |     |         |           | 43,907       |       |              |           |          |        |   |            |           |   |   |           | 43,907    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred environmental costs                                    |                                        |           | 2,534    |     |         |           |             |       |              |           | 28,639    |        |   |            |           |   |   |           | 31,173    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Prepaid benefit costs                                           |                                        |           |         |     |         |           |             |       |              |           | 156,290   |        |   |            | (14        | ) |   |           | 156,276   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 3,638    |     |         |           | 30,647       |       |              |           | 64,546    |        |   |            | 9,457      |   |   |           | 108,288   |       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 5,918     |          |     |         | 193,550   |              |       |              | 316,685   |           |        |   | (89,883    | )          |   |   | 426,270   |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and
	Subsidiaries |                                                                 |                                        | 1,388,790 |          |     |         | 741,960   |              |       |              | 19,115    |           |        |   | (1,385,893 | )          |   |   | 763,972   |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                          |                                                                 |                                        | 44,141    |          |     |         | 680,011   |              |       |              | 2,988,318 |           |        |   |           |            |   |   | 3,712,470 |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less  Accumulated depreciation and depletion                   |                                        |           | 18,147   |     |         |           | 215,359      |       |              |           | 1,463,706 |        |   |            |           |   |   |           | 1,697,212 |       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 25,994    |          |     |         | 464,652   |              |       |              | 1,524,612 |           |        |   |           |            |   |   | 2,015,258 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 | $                                      | 1,455,895 |          |     | $       | 2,019,828 |              |       | $            | 2,282,728 |           |        | $ | (1,520,429 | )          |   | $ | 4,238,022 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                            |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Liabilities                                             |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accounts payable                                                |                                        | $         | 11,426   |     |         | $         | 215,228      |       |              | $         | 93,549    |        |   | $          | (24,064    | ) |   | $         | 296,139   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Notes payable                                                   |                                        |           | 200,721  |     |         |           | 179,249      |       |              |           | 237,785   |        |   |            |           |   |   |           | 617,755   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Current portion of long-term debt and capital lease obligations |                                        |           |         |     |         |           | 118          |       |              |           | 27,984    |        |   |            |           |   |   |           | 28,102    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Federal income, property and other taxes payable                |                                        |           | (6,343   | )   |         |           | 3,428        |       |              |           | 71,415    |        |   |            |           |   |   |           | 68,500    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Gas payable                                                     |                                        |           |         |     |         |           | 19,824       |       |              |           | 3,598     |        |   |            |           |   |   |           | 23,422    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Liabilities from trading activities                             |                                        |           |         |     |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Customer deposits                                               |                                        |           | 9        |     |         |           |             |       |              |           | 17,698    |        |   |            |           |   |   |           | 17,707    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 18,935   |     |         |           | 73,910       |       |              |           | 64,741    |        |   |            | (10,637    | ) |   |           | 146,949   |       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 224,748   |          |     |         | 491,757   |              |       |              | 516,770   |           |        |   | (34,701    | )          |   |   | 1,198,574 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                          |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                           |                                        |           | (5,678   | )   |         |           |             |       |              |           | 105,351   |        |   |            | (99,673    | ) |   |           |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Unamortized investment tax credit                               |                                        |           | 244      |     |         |           |             |       |              |           | 27,778    |        |   |            |           |   |   |           | 28,022    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Tax benefits amortizable to customers                           |                                        |           |         |     |         |           |             |       |              |           | 136,236   |        |   |            |           |   |   |           | 136,236   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred swap gains and payables                                |                                        |           |         |     |         |           | 64,962       |       |              |           |          |        |   |            |           |   |   |           | 64,962    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accrued environmental costs                                     |                                        |           | 3,000    |     |         |           |             |       |              |           | 25,068    |        |   |            |           |   |   |           | 28,068    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Minority interest                                               |                                        |           |         |     |         |           | 2,380        |       |              |           | 8,716     |        |   |            |           |   |   |           | 11,096    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                                           |                                        |           | 11,591   |     |         |           | 33,639       |       |              |           | 46,398    |        |   |            | (15        | ) |   |           | 91,613    |       
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 9,157     |          |     |         | 100,981   |              |       |              | 349,547   |           |        |   | (99,688    | )          |   |   | 359,997   |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations             |                                                                 |                                        |          |          |     |         | 776,708   |              |       |              | 680,909   |           |        |   |           |            |   |   | 1,457,617 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                 |                                                                 |                                        | 402,922   |          |     |         |          |              |       |              |          |           |        |   |           |            |   |   | 402,922   |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Common Shareholders Equity                                     |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Common stock                                                    |                                        |           | 857      |     |         |           | 5            |       |              |           | 10,300    |        |   |            | (10,305    | ) |   |           | 857       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Additional paid-in capital                                      |                                        |           | 960,176  |     |         |           | 969,733      |       |              |           | 230,399   |        |   |            | (1,200,132 | ) |   |           | 960,176   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Retained earnings (deficit)                                     |                                        |           | (119,677 | )   |         |           | (319,200     | )     |              |           | 494,803   |        |   |            | (175,603   | ) |   |           | (119,677  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accumulated other comprehensive loss                            |                                        |           |         |     |         |           | (156         | )     |              |           |          |        |   |            |           |   |   |           | (156      | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288  | )   |         |           |             |       |              |           |          |        |   |            |           |   |   |           | (22,288   | )     
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 |                                        | 819,068   |          |     |         | 650,382   |              |       |              | 735,502   |           |        |   | (1,386,040 | )          |   |   | 818,912   |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                                |                                                                 | $                                      | 1,455,895 |          |     | $       | 2,019,828 |              |       | $            | 2,282,728 |           |        | $ | (1,520,429 | )          |   | $ | 4,238,022 |          
|                                                                |                                                                 |                                        |           |          |     |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          

39



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |         |  
|------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------- | ------- | ------ | - | ------- | ------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                             |                                                   | MCN                                   |         |        |   |         |         | Eliminations |   |             
|                                                             |                                                   | and Other                             |         |        |   |         |         | and          |   | Consolidated
|                                                             |                                                   | Subsidiaries                          |         | MCNEE  |   | MichCon |         | Reclasses    |   | Total       
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |             
|                                                             |                                                   |                                      
|                                                             |                                                   | Three Months Ended September 30, 2000
|                                                             |                                                   |                                      
|(in Thousands)                                               |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|Operating Revenues                                           |                                                   | $                                     | 3,825   |        |   | $       | 353,770 |              |   | $            | 132,269 |         |   | $ | (24,445 | )       |   | $ | 465,419 |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Expenses                                           |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                       |         | 2,677  |   |         |         | 324,481      |   |              |         | 34,332  |   |   |         | (24,229 | ) |   |         | 337,261 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                       |         | 1,115  |   |         |         | 22,910       |   |              |         | 57,778  |   |   |         | (216    | ) |   |         | 81,587  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                       |         | 984    |   |         |         | 7,971        |   |              |         | 25,995  |   |   |         |        |   |   |         | 34,950  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                       |         | 418    |   |         |         | 2,172        |   |              |         | 13,281  |   |   |         |        |   |   |         | 15,871  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                       |         | 9,765  |   |         |         |             |   |              |         |        |   |   |         |        |   |   |         | 9,765   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                       |         |       |   |         |         | (1,344       | ) |              |         |        |   |   |         |        |   |   |         | (1,344  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                       |         |       |   |         |         | (2,202       | ) |              |         |        |   |   |         |        |   |   |         | (2,202  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                       |         | (434   | ) |         |         | 1,078        |   |              |         | 1,725   |   |   |         |        |   |   |         | 2,369   |  
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                             |                                                   |                                       | 14,525  |        |   |         | 355,066 |              |   |              | 133,111 |         |   |   | (24,445 | )       |   |   | 478,257 |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Income (Loss)                                      |                                                   |                                       | (10,700 | )      |   |         | (1,296  | )            |   |              | (842    | )       |   |   |        |         |   |   | (12,838 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Equity in Earnings of Joint Ventures                         |                                                   |                                       | (18,082 | )      |   |         | 6,745   |              |   |              | 503     |         |   |   | 17,536  |         |   |   | 6,702   |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Other Income and (Deductions)                                |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                       |         | 6,272  |   |         |         | 4,003        |   |              |         | 371     |   |   |         | (6,473  | ) |   |         | 4,173   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                       |         | (122   | ) |         |         | (11,515      | ) |              |         | (11,896 | ) |   |         |        |   |   |         | (23,533 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                       |         | 133    |   |         |         | (10,896      | ) |              |         | (2,194  | ) |   |         | 6,473   |   |   |         | (6,484  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         | (6,253  | ) |   |         | (6,253  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         |        |   |   |         |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                       |         | (1     | ) |         |         | (220         | ) |              |         | (146    | ) |   |         |        |   |   |         | (367    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                       |         | (83    | ) |         |         | (825         | ) |              |         | 1,107   |   |   |         | (1      | ) |   |         | 198     |  
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                             |                                                   |                                       | 6,199   |        |   |         | (19,453 | )            |   |              | (12,758 | )       |   |   | (6,254  | )       |   |   | (32,266 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Income (Loss) Before Income Taxes                            |                                                   |                                       | (22,583 | )      |   |         | (14,004 | )            |   |              | (13,097 | )       |   |   | 11,282  |         |   |   | (38,402 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                       | (3,897  | )      |   |         | (5,280  | )            |   |              | (4,286  | )       |   |   |        |         |   |   | (13,463 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                       | (18,686 | )      |   |         | (8,724  | )            |   |              | (8,811  | )       |   |   | 11,282  |         |   |   | (24,939 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                       |        |        |   |         |        |              |   |              |        |         |   |   |        |         |   |   |        |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income (Loss)                                            |                                                   |                                       | (18,686 | )      |   |         | (8,724  | )            |   |              | (8,811  | )       |   |   | 11,282  |         |   |   | (24,939 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                       | 6,253   |        |   |         |        |              |   |              |        |         |   |   | (6,253  | )       |   |   |        |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                     | (24,939 | )      |   | $       | (8,724  | )            |   | $            | (8,811  | )       |   | $ | 17,535  |         |   | $ | (24,939 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                             |                                                   | Three Months Ended September 30, 1999
|                                                             |                                                   |                                      
|                                                            
|                                                            
|                                                            
|                                                            
|Operating Revenues                                           |                                                   | $                                     | 6,847   |        |   | $       | 347,705 |              |   | $            | 122,635 |         |   | $ | (22,537 | )       |   | $ | 454,650 |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Expenses                                           |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                       |         | 5,047  |   |         |         | 298,054      |   |              |         | 28,187  |   |   |         | (22,324 | ) |   |         | 308,964 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                       |         | (752   | ) |         |         | 36,612       |   |              |         | 62,486  |   |   |         | (187    | ) |   |         | 98,159  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                       |         | 1,044  |   |         |         | 13,375       |   |              |         | 24,192  |   |   |         |        |   |   |         | 38,611  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                       |         | 349    |   |         |         | 2,397        |   |              |         | 12,175  |   |   |         |        |   |   |         | 14,921  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         |        |   |   |         |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                       |         |       |   |         |         | 5,877        |   |              |         |        |   |   |         |        |   |   |         | 5,877   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                       |         |       |   |         |         | (2,961       | ) |              |         |        |   |   |         |        |   |   |         | (2,961  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         |        |   |   |         |        |  
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                             |                                                   |                                       | 5,688   |        |   |         | 353,354 |              |   |              | 127,040 |         |   |   | (22,511 | )       |   |   | 463,571 |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Operating Income (Loss)                                      |                                                   |                                       | 1,159   |        |   |         | (5,649  | )            |   |              | (4,405  | )       |   |   | (26     | )       |   |   | (8,921  | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Equity in Earnings of Joint Ventures                         |                                                   |                                       | (22,546 | )      |   |         | 14,952  |              |   |              | 444     |         |   |   | 22,546  |         |   |   | 15,396  |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Other Income and (Deductions)                                |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                       |         | 10,841 |   |         |         | 1,100        |   |              |         | 916     |   |   |         | (10,948 | ) |   |         | 1,909   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                       |         | 245    |   |         |         | (10,248      | ) |              |         | (12,537 | ) |   |         |        |   |   |         | (22,540 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                       |         | (2,304 | ) |         |         | (13,000      | ) |              |         | (1,184  | ) |   |         | 10,947  |   |   |         | (5,541  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         | (10,335 | ) |   |         | (10,335 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                       |         |       |   |         |         |             |   |              |         |        |   |   |         |        |   |   |         |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                       |         |       |   |         |         | (350         | ) |              |         | (282    | ) |   |         |        |   |   |         | (632    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                       |         | (813   | ) |         |         | 1,696        |   |              |         | (590    | ) |   |         | 27      |   |   |         | 320     |  
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|                                                             |                                                   |                                       | 7,969   |        |   |         | (20,802 | )            |   |              | (13,677 | )       |   |   | (10,309 | )       |   |   | (36,819 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Income (Loss) Before Income Taxes                            |                                                   |                                       | (13,418 | )      |   |         | (11,499 | )            |   |              | (17,638 | )       |   |   | 12,211  |         |   |   | (30,344 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                       | (507    | )      |   |         | (2,493  | )            |   |              | (4,098  | )       |   |   |        |         |   |   | (7,098  | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                       | (12,911 | )      |   |         | (9,006  | )            |   |              | (13,540 | )       |   |   | 12,211  |         |   |   | (23,246 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                       |        |        |   |         |        |              |   |              |        |         |   |   |        |         |   |   |        |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income (Loss)                                            |                                                   |                                       | (12,911 | )      |   |         | (9,006  | )            |   |              | (13,540 | )       |   |   | 12,211  |         |   |   | (23,246 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                       | 10,335  |        |   |         |        |              |   |              |        |         |   |   | (10,335 | )       |   |   |        |        
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                     | (23,246 | )      |   | $       | (9,006  | )            |   | $            | (13,540 | )       |   | $ | 22,546  |         |   | $ | (23,246 | )      
|                                                             |                                                   |                                       |         |        |   |         |         |              |   |              |         |         |   |   |         |         |   |   |         |        

40



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------ | ------- | ------ | - | ------- | --------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   | MCN                                  |         |        |   |         |           | Eliminations |   |             
|                                                             |                                                   | and Other                            |         |        |   |         |           | and          |   | Consolidated
|                                                             |                                                   | Subsidiaries                         |         | MCNEE  |   | MichCon |           | Reclasses    |   | Total       
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |             
|                                                             |                                                   |                                     
|                                                             |                                                   | Nine Months Ended September 30, 2000
|                                                             |                                                   |                                     
|(in Thousands)                                               |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|Operating Revenues                                           |                                                   | $                                    | 21,739  |        |   | $       | 1,129,011 |              |   | $            | 762,504 |         |   | $ | (71,675 | )       |   | $ | 1,841,579 |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                      |         | 15,260 |   |         |           | 1,039,070    |   |              |         | 320,960 |   |   |         | (70,515 | ) |   |           | 1,304,775 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                      |         | 3,999  |   |         |           | 84,917       |   |              |         | 180,253 |   |   |         | (1,160  | ) |   |           | 268,009   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                      |         | 2,868  |   |         |           | 23,046       |   |              |         | 78,002  |   |   |         |        |   |   |           | 103,916   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                      |         | 1,054  |   |         |           | 6,488        |   |              |         | 45,862  |   |   |         |        |   |   |           | 53,404    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                      |         | 9,765  |   |         |           |             |   |              |         |        |   |   |         |        |   |   |           | 9,765     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                      |         |       |   |         |           | (79,329      | ) |              |         |        |   |   |         |        |   |   |           | (79,329   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                      |         |       |   |         |           | (7,480       | ) |              |         |        |   |   |         |        |   |   |           | (7,480    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                      |         | 30     |   |         |           | 2,009        |   |              |         | 3,151   |   |   |         |        |   |   |           | 5,190     |  
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                      | 32,976  |        |   |         | 1,068,721 |              |   |              | 628,228 |         |   |   | (71,675 | )       |   |   | 1,658,250 |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                      | (11,237 | )      |   |         | 60,290    |              |   |              | 134,276 |         |   |   |        |         |   |   | 183,329   |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                      | 75,856  |        |   |         | 22,016    |              |   |              | 1,689   |         |   |   | (76,922 | )       |   |   | 22,639    |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                      |         | 22,446 |   |         |           | 7,210        |   |              |         | 1,943   |   |   |         | (22,972 | ) |   |           | 8,627     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                      |         | (125   | ) |         |           | (33,760      | ) |              |         | (36,280 | ) |   |         |        |   |   |           | (70,165   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                      |         | (1,563 | ) |         |           | (32,206      | ) |              |         | (7,063  | ) |   |         | 22,972  |   |   |           | (17,860   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                      |         |       |   |         |           |             |   |              |         |        |   |   |         | (22,312 | ) |   |           | (22,312   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                      |         |       |   |         |           |             |   |              |         |        |   |   |         |        |   |   |           |          |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                      |         | (1     | ) |         |           | (748         | ) |              |         | (412    | ) |   |         |        |   |   |           | (1,161    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                      |         | (1,640 | ) |         |           | (1,111       | ) |              |         | 1,567   |   |   |         | (1      | ) |   |           | (1,185    | )
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                      | 19,117  |        |   |         | (60,615   | )            |   |              | (40,245 | )       |   |   | (22,313 | )       |   |   | (104,056  | )        
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                      | 83,736  |        |   |         | 21,691    |              |   |              | 95,720  |         |   |   | (99,235 | )       |   |   | 101,912   |          
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                      | (5,327  | )      |   |         | 6,884     |              |   |              | 33,604  |         |   |   |        |         |   |   | 35,161    |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                      | 89,063  |        |   |         | 14,807    |              |   |              | 62,116  |         |   |   | (99,235 | )       |   |   | 66,751    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                      |        |        |   |         |          |              |   |              |        |         |   |   |        |         |   |   |          |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                      | 89,063  |        |   |         | 14,807    |              |   |              | 62,116  |         |   |   | (99,235 | )       |   |   | 66,751    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                      | 22,312  |        |   |         |          |              |   |              |        |         |   |   | (22,312 | )       |   |   |          |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                    | 66,751  |        |   | $       | 14,807    |              |   | $            | 62,116  |         |   | $ | (76,923 | )       |   | $ | 66,751    |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                             |                                                   | Nine Months Ended September 30, 1999
|                                                             |                                                   |                                     
|Operating Revenues                                           |                                                   | $                                    | 25,419  |        |   | $       | 955,984   |              |   | $            | 806,280 |         |   | $ | (72,033 | )       |   | $ | 1,715,650 |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                      |         | 17,685 |   |         |           | 771,091      |   |              |         | 336,948 |   |   |         | (69,097 | ) |   |           | 1,056,627 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                      |         | (1,586 | ) |         |           | 109,108      |   |              |         | 193,974 |   |   |         | (2,910  | ) |   |           | 298,586   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                      |         | 2,851  |   |         |           | 49,539       |   |              |         | 73,558  |   |   |         |        |   |   |           | 125,948   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                      |         | 1,126  |   |         |           | 8,386        |   |              |         | 43,337  |   |   |         |        |   |   |           | 52,849    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                      |         |       |   |         |           | 52,000       |   |              |         |        |   |   |         |        |   |   |           | 52,000    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                      |         |       |   |         |           | 74,675       |   |              |         |        |   |   |         |        |   |   |           | 74,675    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                      |         |       |   |         |           | (8,431       | ) |              |         |        |   |   |         |        |   |   |           | (8,431    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                      |         |       |   |         |           |             |   |              |         |        |   |   |         |        |   |   |           |          |  
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                      | 20,076  |        |   |         | 1,056,368 |              |   |              | 647,817 |         |   |   | (72,007 | )       |   |   | 1,652,254 |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                      | 5,343   |        |   |         | (100,384  | )            |   |              | 158,463 |         |   |   | (26     | )       |   |   | 63,396    |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                      | (11,066 | )      |   |         | 38,563    |              |   |              | 1,457   |         |   |   | 11,066  |         |   |   | 40,020    |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                      |         | 32,470 |   |         |           | 3,088        |   |              |         | 2,861   |   |   |         | (32,645 | ) |   |           | 5,774     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                      |         | 706    |   |         |           | (31,724      | ) |              |         | (35,028 | ) |   |         |        |   |   |           | (66,046   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                      |         | (9,616 | ) |         |           | (38,867      | ) |              |         | (5,020  | ) |   |         | 32,645  |   |   |           | (20,858   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                      |         |       |   |         |           |             |   |              |         |        |   |   |         | (31,004 | ) |   |           | (31,004   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                      |         |       |   |         |           | (7,456       | ) |              |         |        |   |   |         |        |   |   |           | (7,456    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                      |         |       |   |         |           | (566         | ) |              |         | (805    | ) |   |         |        |   |   |           | (1,371    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                      |         | (1,071 | ) |         |           | 6,572        |   |              |         | (303    | ) |   |         | 26      |   |   |           | 5,224     |  
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                      | 22,489  |        |   |         | (68,953   | )            |   |              | (38,295 | )       |   |   | (30,978 | )       |   |   | (115,737  | )        
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                      | 16,766  |        |   |         | (130,774  | )            |   |              | 121,625 |         |   |   | (19,938 | )       |   |   | (12,321   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                      | (1,215  | )      |   |         | (43,982   | )            |   |              | 43,027  |         |   |   |        |         |   |   | (2,170    | )        
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                      | 17,981  |        |   |         | (86,792   | )            |   |              | 78,598  |         |   |   | (19,938 | )       |   |   | (10,151   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                      |        |        |   |         | (2,872    | )            |   |              |        |         |   |   |        |         |   |   | (2,872    | )        
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                      | 17,981  |        |   |         | (89,664   | )            |   |              | 78,598  |         |   |   | (19,938 | )       |   |   | (13,023   | )        
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                      | 31,004  |        |   |         |          |              |   |              |        |         |   |   | (31,004 | )       |   |   |          |          
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                    | (13,023 | )      |   | $       | (89,664   | )            |   | $            | 78,598  |         |   | $ | 11,066  |         |   | $ | (13,023   | )        
|                                                             |                                                   |                                      |         |        |   |         |           |              |   |              |         |         |   |   |         |         |   |   |           |          

41



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATING STATEMENTS OF OPERATIONS


|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | -------------------------------------- | ------ | ------ | - | ------- | --------- | ------------ | - | ------------ | --------- | ------- | - | - | -------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   | MCN                                    |        |        |   |         |           | Eliminations |   |             
|                                                             |                                                   | and Other                              |        |        |   |         |           | and          |   | Consolidated
|                                                             |                                                   | Subsidiaries                           |        | MCNEE  |   | MichCon |           | Reclasses    |   | Total       
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |             
|                                                             |                                                   |                                       
|                                                             |                                                   | Twelve Months Ended September 30, 2000
|                                                             |                                                   |                                       
|(in Thousands)                                               |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|Operating Revenues                                           |                                                   | $                                      | 31,254 |        |   | $       | 1,516,052 |              |   | $            | 1,091,963 |         |   | $ | (89,087  | )       |   | $ | 2,550,182 |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                        |        | 21,031 |   |         |           | 1,386,572    |   |              |           | 467,937 |   |   |          | (87,551 | ) |   |           | 1,787,989 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                        |        | 3,858  |   |         |           | 125,967      |   |              |           | 252,383 |   |   |          | (1,562  | ) |   |           | 380,646   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                        |        | 3,150  |   |         |           | 36,133       |   |              |           | 103,323 |   |   |          |        |   |   |           | 142,606   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                        |        | 1,549  |   |         |           | 8,448        |   |              |           | 47,755  |   |   |          |        |   |   |           | 57,752    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                        |        | 9,765  |   |         |           | 9,782        |   |              |           |        |   |   |          |        |   |   |           | 19,547    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                        |        |       |   |         |           | (72,015      | ) |              |           |        |   |   |          |        |   |   |           | (72,015   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                        |        |       |   |         |           | (10,213      | ) |              |           |        |   |   |          |        |   |   |           | (10,213   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                        |        | 402    |   |         |           | 11,064       |   |              |           | 28,580  |   |   |          |        |   |   |           | 40,046    |  
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                             |                                                   |                                        | 39,755 |        |   |         | 1,495,738 |              |   |              | 899,978   |         |   |   | (89,113  | )       |   |   | 2,346,358 |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                        | (8,501 | )      |   |         | 20,314    |              |   |              | 191,985   |         |   |   | 26       |         |   |   | 203,824   |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                        | 70,946 |        |   |         | 33,881    |              |   |              | 2,208     |         |   |   | (72,030  | )       |   |   | 35,005    |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                        |        | 31,359 |   |         |           | 8,360        |   |              |           | 1,686   |   |   |          | (31,977 | ) |   |           | 9,428     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                        |        | (23    | ) |         |           | (45,010      | ) |              |           | (48,517 | ) |   |          |        |   |   |           | (93,550   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                        |        | (4,049 | ) |         |           | (44,601      | ) |              |           | (10,669 | ) |   |          | 31,975  |   |   |           | (27,344   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                        |        |       |   |         |           |             |   |              |           |        |   |   |          | (31,447 | ) |   |           | (31,447   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                        |        |       |   |         |           |             |   |              |           |        |   |   |          |        |   |   |           |          |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                        |        | (1     | ) |         |           | (774         | ) |              |           | (627    | ) |   |          |        |   |   |           | (1,402    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                        |        | 271    |   |         |           | (723         | ) |              |           | 854     |   |   |          | (27     | ) |   |           | 375       |  
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                             |                                                   |                                        | 27,557 |        |   |         | (82,748   | )            |   |              | (57,273   | )       |   |   | (31,476  | )       |   |   | (143,940  | )        
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                        | 90,002 |        |   |         | (28,553   | )            |   |              | 136,920   |         |   |   | (103,480 | )       |   |   | 94,889    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                        | (2,289 | )      |   |         | (10,732   | )            |   |              | 47,066    |         |   |   |         |         |   |   | 34,045    |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                        | 92,291 |        |   |         | (17,821   | )            |   |              | 89,854    |         |   |   | (103,480 | )       |   |   | 60,844    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                        |       |        |   |         |          |              |   |              |          |         |   |   |         |         |   |   |          |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                        | 92,291 |        |   |         | (17,821   | )            |   |              | 89,854    |         |   |   | (103,480 | )       |   |   | 60,844    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                        | 31,447 |        |   |         |          |              |   |              |          |         |   |   | (31,447  | )       |   |   |          |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                      | 60,844 |        |   | $       | (17,821   | )            |   | $            | 89,854    |         |   | $ | (72,033  | )       |   | $ | 60,844    |          
|                                                             |                                                   |                                        |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          

|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |           |  
|------------------------------------------------------------ | ------------------------------------------------- | -------------------------------------- | ------ | ------- | - | - | --------- | ------- | - | - | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                             |                                                   |                                       
|                                                             |                                                   | Twelve Months Ended September 30, 1999
|                                                             |                                                   |                                       
|                                                            
|                                                            
|                                                            
|                                                            
|Operating Revenues                                           |                                                   | $                                      | 33,378 |         |   | $ | 1,213,951 |         |   | $ | 1,115,496 |         |   | $ | (76,521 | )       |   | $ | 2,286,304 |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                           |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cost of sales                                     |                                        |        | 23,017  |   |   |           | 975,523 |   |   |           | 482,233 |   |   |         | (72,318 | ) |   |           | 1,408,455 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operation and maintenance                         |                                        |        | (3,291  | ) |   |           | 153,395 |   |   |           | 264,859 |   |   |         | (4,177  | ) |   |           | 410,786   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation, depletion and amortization          |                                        |        | 4,022   |   |   |           | 68,407  |   |   |           | 97,531  |   |   |         |        |   |   |           | 169,960   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and other taxes                          |                                        |        | 1,314   |   |   |           | 11,400  |   |   |           | 55,433  |   |   |         |        |   |   |           | 68,147    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property write-downs and contract losses          |                                        |        |        |   |   |           | 52,000  |   |   |           |        |   |   |         |        |   |   |           | 52,000    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains and losses on sale of assets, net           |                                        |        |        |   |   |           | 74,675  |   |   |           |        |   |   |         |        |   |   |           | 74,675    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gains from sale of tax credits                    |                                        |        |        |   |   |           | (12,578 | ) |   |           |        |   |   |         |        |   |   |           | (12,578   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                                      |                                        |        |        |   |   |           |        |   |   |           |        |   |   |         |        |   |   |           |          |  
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                        | 25,062 |         |   |   | 1,322,822 |         |   |   | 900,056   |         |   |   | (76,495 | )       |   |   | 2,171,445 |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                      |                                                   |                                        | 8,316  |         |   |   | (108,871  | )       |   |   | 215,440   |         |   |   | (26     | )       |   |   | 114,859   |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                         |                                                   |                                        | 12,038 |         |   |   | 53,743    |         |   |   | 1,942     |         |   |   | (12,039 | )       |   |   | 55,684    |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                                   |                                        |        | 41,859  |   |   |           | 4,383   |   |   |           | 4,976   |   |   |         | (43,210 | ) |   |           | 8,008     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest on long-term debt                        |                                        |        | (429    | ) |   |           | (44,400 | ) |   |           | (46,218 | ) |   |         |        |   |   |           | (91,047   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other interest expense                            |                                        |        | (10,986 | ) |   |           | (50,850 | ) |   |           | (9,984  | ) |   |         | 43,212  |   |   |           | (28,608   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends on preferred securities of subsidiaries |                                        |        |        |   |   |           |        |   |   |           |        |   |   |         | (40,212 | ) |   |           | (40,212   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investment losses                                 |                                        |        |        |   |   |           | (7,456  | ) |   |           |        |   |   |         |        |   |   |           | (7,456    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Minority interest                                 |                                        |        |        |   |   |           | (424    | ) |   |           | (985    | ) |   |         |        |   |   |           | (1,409    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                             |                                        |        | (1,186  | ) |   |           | 9,423   |   |   |           | (1,720  | ) |   |         | 26      |   |   |           | 6,543     |  
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                             |                                                   |                                        | 29,258 |         |   |   | (89,324   | )       |   |   | (53,931   | )       |   |   | (40,184 | )       |   |   | (154,181  | )        
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                            |                                                   |                                        | 49,612 |         |   |   | (144,452  | )       |   |   | 163,451   |         |   |   | (52,249 | )       |   |   | 16,362    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Income Tax Provision (Benefit)                               |                                                   |                                        | (1,034 | )       |   |   | (50,127   | )       |   |   | 54,217    |         |   |   |        |         |   |   | 3,056     |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting
	Change |                                                   |                                        | 50,646 |         |   |   | (94,325   | )       |   |   | 109,234   |         |   |   | (52,249 | )       |   |   | 13,306    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative Effect of Accounting Change for Start-up Costs    |                                                   |                                        |       |         |   |   | (2,872    | )       |   |   |          |         |   |   |        |         |   |   | (2,872    | )        
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                            |                                                   |                                        | 50,646 |         |   |   | (97,197   | )       |   |   | 109,234   |         |   |   | (52,249 | )       |   |   | 10,434    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on Preferred Securities                            |                                                   |                                        | 40,212 |         |   |   |          |         |   |   |          |         |   |   | (40,212 | )       |   |   |          |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                 |                                                   | $                                      | 10,434 |         |   | $ | (97,197   | )       |   | $ | 109,234   |         |   | $ | (12,037 | )       |   | $ | 10,434    |          
|                                                             |                                                   |                                        |        |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          

42



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | -------- | ------- | ------- | ------------ | -------- | ------------ | ------- | ------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              | MCN                                                    |        |          |          |         |         | Eliminations |          |             
|                                                     |                                                                              | and Other                                              |        |          |          |         |         | and          |          | Consolidated
|                                                     |                                                                              | Subsidiaries                                           |        | MCNEE    |          | MichCon |         | Reclasses    |          | Total       
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |             
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |             
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Nine Months Ended September 30, 2000                  
|                                                     |                                                                              |                                                       
|(in Thousands)                                       |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 62,872 |          |          | $       | (45,229 | )            |          | $            | 231,279 |         |          | $ | (74,054 | )        |          | $ | 174,868 |         
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        | (200,721 | )        |         |         | (64,097      | )        |              |         | (47,203 | )        |   |         | 30       |          |   |         | (311,991 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from
	(distributions paid to) affiliates, net |                                                        |        |         |          |         |         | (225,342     | )        |              |         |        |          |   |         | 225,342  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (67,038  | )        |         |         |             |          |              |         | (50,000 | )        |   |         | 50,000   |          |   |         | (67,038  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        | (22,312  | )        |         |         |             |          |              |         |        |          |   |         | 22,312   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        | 4,789    |          |         |         |             |          |              |         |        |          |   |         |         |          |   |         | 4,789    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        | (2,406   | )        |         |         |             |          |              |         |        |          |   |         |         |          |   |         | (2,406   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                                                   |                                                        |        |         |          |         |         |             |          |              |         |        |          |   |         |         |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |         |          |         |         | (19,854      | )        |              |         |        |          |   |         |         |          |   |         | (19,854  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        |         |          |         |         | (65          | )        |              |         | (41,142 | )        |   |         |         |          |   |         | (41,207  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | (124     | )        |         |         |             |          |              |         |        |          |   |         |         |          |   |         | (124     | )       
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |          | (287,812 | )       |         |              | (309,358 | )            |         |         | (138,345 | ) |         |          | 297,684  |   |         |          | (437,831 | )
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        | (758     | )        |         |         | (16,023      | )        |              |         | (86,095 | )        |   |         |         |          |   |         | (102,876 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                 |                                                        |        |         |          |         |         |             |          |              |         |        |          |   |         |         |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |         |          |         |         | (54,670      | )        |              |         | (5,676  | )        |   |         |         |          |   |         | (60,346  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures                                                 |                                                        |        | 224,392  |          |         |         | (62,407      | )        |              |         |        |          |   |         | (225,342 | )        |   |         | (63,357  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |         |          |         |         | 448,534      |          |              |         |        |          |   |         | 2,634    |          |   |         | 451,168  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | 870      |          |         |         | 1,087        |          |              |         | 357     |          |   |         | (922     | )        |   |         | 1,392    |         
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |          | 224,504  |         |         |              | 316,521  |              |         |         | (91,414  | ) |         |          | (223,630 | ) |         |          | 225,981  |  
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (436   | )        |          |         | (38,066 | )            |          |              | 1,520   |         |          |   |        |          |          |   | (36,982 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 470    |          |          |         | 49,191  |              |          |              | 9,705   |         |          |   |        |          |          |   | 59,366  |         
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         
|Cash and Cash Equivalents, September 30              |                                                                              | $                                                      | 34     |          |          | $       | 11,125  |              |          | $            | 11,225  |         |          | $ |        |          |          | $ | 22,384  |         
|                                                     |                                                                              |                                                        |        |          |          |         |         |              |          |              |         |         |          |   |         |          |          |   |         |         

|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | -------- | - | ------ | -------- | -------- | - | ------- | ------- | ------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                               |                                                       
|                                                     |                                                                               | Nine Months Ended September 30, 1999                  
|                                                     |                                                                               |                                                       
|Net Cash Flow From Operating Activities              |                                                                               | $                                                      | 51,563 |          |          | $ | 30,059 |          |          | $ | 177,343 |         |         | $ | (47,466 | )        |          | $ | 211,499 |         
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                            |                                                        |        | (203,020 | )        |   |        | 43,986   |          |   |         | (88,704 | )       |   |         | (118     | )        |   |         | (247,856 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions 
	paid to) affiliates, net |                                                        |        |         |          |   |        | (114,623 | )        |   |         |        |         |   |         | 114,623  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                                |                                                        |        | (63,735  | )        |   |        |         |          |   |         | (17,500 | )       |   |         | 17,500   |          |   |         | (63,735  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                           |                                                        |        | (31,004  | )        |   |        |         |          |   |         |        |         |   |         | 31,004   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                      |                                                        |        | 132,544  |          |   |        |         |          |   |         |        |         |   |         |         |          |   |         | 132,544  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                 |                                                        |        | (780     | )        |   |        |         |          |   |         |        |         |   |         |         |          |   |         | (780     | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                                                    |                                                        |        |         |          |   |        |         |          |   |         | 106,535 |         |   |         |         |          |   |         | 106,535  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                           |                                                        |        |         |          |   |        | 92,344   |          |   |         |        |         |   |         |         |          |   |         | 92,344   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                         |                                                        |        |         |          |   |        | (212,960 | )        |   |         | (76,479 | )       |   |         |         |          |   |         | (289,439 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                         |                                                        |        |         |          |   |        |         |          |   |         |        |         |   |         |         |          |   |         |         |         
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|                                                     |                                                                               | Net cash provided from (used for) financing activities |        |          | (165,995 | ) |        |          | (191,253 | ) |         |         | (76,148 | ) |         |          | 163,009  |   |         |          | (270,387 | )
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                          |                                                        |        | (882     | )        |   |        | (138,232 | )        |   |         | (94,296 | )       |   |         |         |          |   |         | (233,410 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                  |                                                        |        |         |          |   |        | (33,071  | )        |   |         |        |         |   |         |         |          |   |         | (33,071  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                 |                                                        |        |         |          |   |        | (3,452   | )        |   |         | (1,097  | )       |   |         | (23      | )        |   |         | (4,572   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures                                                  |                                                        |        | 113,623  |          |   |        | (61,558  | )        |   |         | (14     | )       |   |         | (114,623 | )        |   |         | (62,572  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                  |                                                        |        |         |          |   |        | 411,867  |          |   |         |        |         |   |         | (2,251   | )        |   |         | 409,616  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Return of investment in joint ventures                                        |                                                        |        |         |          |   |        |         |          |   |         |        |         |   |         |         |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                         |                                                        |        | 371      |          |   |        | (5,003   | )        |   |         | (511    | )       |   |         | 1,354    |          |   |         | (3,789   | )       
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|                                                     |                                                                               | Net cash provided from (used for) investing activities |        |          | 113,112  |   |        |          | 170,551  |   |         |         | (95,918 | ) |         |          | (115,543 | ) |         |          | 72,202   |  
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                               |                                                        | (1,320 | )        |          |   | 9,357  |          |          |   | 5,277   |         |         |   |        |          |          |   | 13,314  |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                               |                                                        | 1,400  |          |          |   | 9,036  |          |          |   | 6,603   |         |         |   |        |          |          |   | 17,039  |         
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         
|Cash and Cash Equivalents, September 30              |                                                                               | $                                                      | 80     |          |          | $ | 18,393 |          |          | $ | 11,880  |         |         | $ |        |          |          | $ | 30,353  |         
|                                                     |                                                                               |                                                        |        |          |          |   |        |          |          |   |         |         |         |   |         |          |          |   |         |         

43



---



##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors of



We have reviewed the accompanying condensed consolidated
statements of financial position of MCN Energy Group Inc. and
subsidiaries (the Company) as of September 30,
2000 and 1999, the related condensed consolidated statements of
operations and retained earnings (deficit) for the three,
nine and twelve-month periods ended September 30, 2000 and
1999, and the condensed consolidated statements of cash flows
for the nine-month periods ended September 30, 2000 and
1999. These financial statements are the responsibility of the
Companys management.

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

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

We have previously audited, in accordance with auditing
standards generally accepted in the United States of America,
the consolidated statement of financial position of the Company
as of December 31, 1999, and the related consolidated
statements of operations, financial position, and cash flows for
the year then ended prior to restatement for the change in
method of accounting for gas in inventory held by the
Companys Energy Marketing segment (not presented herein);
and in our report dated March 21, 2000, we expressed an
unqualified opinion on those consolidated financial statements
and included an explanatory paragraph relating to a change in
accounting method as described in Note 5 to those consolidated
financial statements. We also audited the adjustments described
in Note 3 (presented herein) that were applied to restate the
December 31, 1999 consolidated statement of financial
position of the Company. In our opinion, such adjustments are
appropriate and have been properly applied and the information
set forth in the accompanying condensed consolidated statement
of financial position as of December 31, 1999 is fairly
stated, in all material respects, in relation to the restated
consolidated statement of financial position from which it has
been derived.

DELOITTE & TOUCHE LLP

Detroit, Michigan



44



---



##### Table of Contents








OTHER INFORMATION


SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

MCN held its Annual Meeting of Shareholders on
September 27, 2000. As of August 1, 2000, the record
date for determination of shareholders entitled to vote at the
Annual Meeting, there were 90,212,588 shares outstanding and
entitled to vote. Of these shares, 78,962,943 or 87.5%, were
present in person or by proxy, and 11,249,645 shares were not
voted.

At the Annual Meeting, shareholders voted:

(1)  To elect the following Directors to serve for
three-year terms:

|                     |  |                |            |             |  |  |           | 
|-------------------- |  | -------------- | ---------- | ----------- |  |  | --------- | 
|                     |  |                |            | Number of  
|                     |  | Number of      |            | Shares     
|Director             |  | Shares         |            | Withholding
|(Three-year Terms)   |  | Consenting For |            | Consent    
|                     |  |                |            |            
|Alfred R. Glancy III |  |                | 77,376,002 |             |  |  | 1,586,941 | 
|Frank M. Hennessey   |  |                | 77,654,408 |             |  |  | 1,308,535 | 
|Howard F. Sims       |  |                | 77,612,854 |             |  |  | 1,350,089 | 

James G. Berges, Stephen E. Ewing, Roger Fridholm,
Thomas H. Jeffs II, Helen O. Petrauskas and
Bill M. Thompson did not have terms of office expiring in
2000 and continue to serve as directors of the corporation.

(2)  To ratify the appointment of Deloitte &
Touche LLP as independent auditors for the year ending
December 31, 2000, with 78,022,082 shares voted for the
ratification, 659,628 shares voted against, and abstentions of
281,233 shares.

EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|        |      |             |  |                                                  
|------- | ---- | ----------- |  | -------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 15-1 |             |  | Letter re Unaudited Interim Financial Information
|        | 27-1 |             |  | Financial Data Schedule                          

(b)  Reports on Form 8-K

None.

45



---



##### Table of Contents








SIGNATURE


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



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

Date: November 13, 2000

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

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

46



---



##### Table of Contents








EXHIBIT INDEX


|        |      |             |  |                                                  
|------- | ---- | ----------- |  | -------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 15-1 |             |  | Letter re Unaudited Interim Financial Information
|        | 27-1 |             |  | Financial Data Schedule