##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K FOR ANNUAL REPORT & TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934 þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934 o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 Commission file number 1-7310 Michigan Consolidated Gas Company, a Michigan corporation, meets the conditions set forth in
General Instruction I (1) (a) and (b) of Form 10-K and is, therefore, filing this form with the
reduced disclosure format. MICHIGAN CONSOLIDATED GAS COMPANY  Michigan
(State or other jurisdiction of
incorporation or organization)
    
    38-0478040
(I.R.S. Employer
Identification No .)2000 2ndAvenue, Detroit, Michigan
(Address of principal executive offices)
    
    48226-1279
(Zip Code)
 313-235-4000
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yesþ Noo Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yeso Noþ All of the registrants 10,300,000 outstanding shares of common stock, par value $1 per share, are
indirectly owned by DTE Energy Company. DOCUMENTS INCORPORATED BY REFERENCE None




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Michigan Consolidated Gas Company Annual Report on Form 10-KYear Ended December 31, 2004 Table of Contents PageDefinitions
    
    
    1Forward-Looking Statements
    
    
    3Part IItems 1. & 2. Business & Properties
    
    
    4Item 3. Legal Proceedings
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    11PartIIItem 5. Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    11Item 6. Selected Financial Data
    
    
    11Item 7. Managements Narrative Analysis of Results of Operations
    
    
    12Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 8. Financial Statements and Supplementary Data
    
    
    16Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    47Item 9A. Controls and Procedures
    
    
    47Item 9B. Other Information
    
    
    47PartIIIItem 10. Directors and Executive Officers of the Registrant
    
    
    48Item 11. Executive Compensation
    
    
    48Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    48Item 13. Certain Relationships and Related Transactions
    
    
    48Item 14. Principal Accountant Fees and Services
    
    
    48Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    48Signatures
    
    
    53Computation of Ratio of Earnings to Fixed ChargesLetter Regarding Change in Accounting PrincipleSection 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer




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Definitions Customer Choice
    
    The choice program is a statewide initiative
giving customers in Michigan the option to
choose alternative suppliers for gas.DTE Energy
    
    DTE Energy Company, directly or indirectly,
the parent of The Detroit Edison Company,
MichCon and numerous non-utility subsidiaries.End User Transportation
    
    A gas delivery service historically provided
to large-volume commercial and industrial
customers who purchase natural gas directly
from producers or brokerage companies. Under
MichCons Customer Choice Program that began
in 1999, this service is also provided to
residential customers and small-volume
commercial and industrial customers.Enterprises
    
    DTE Enterprises Inc., indirectly the parent of
MichCon.Gas Storage
    
    For MichCon, the process of injecting, storing
and withdrawing natural gas from a depleted
underground natural gas field.GCR
    
    A gas cost recovery mechanism authorized by
the MPSC, permitting MichCon to pass the cost
of natural gas to its customers.Intermediate transportation
    
    A gas delivery service provided to producers,
brokers and other gas companies that own the
natural gas, but are not the ultimate
consumers.MichCon
    
    Michigan Consolidated Gas Company, an
indirect, wholly-owned natural gas
distribution and intrastate transmission
subsidiary of Enterprises.MDEQ
    
    Michigan Department of
Environmental Quality.MPSC
    
    Michigan Public Service Commission.Normal weather
    
    The average daily temperature within MichCons
service area during a recent 30-year period.SFAS
    
    Statement of Financial Accounting Standards.Spot market
    
    The buying and selling of natural gas on a
short-term basis, typically month-to-month.
 1




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Units of MeasurementBcf
    
    Billion cubic feet of gas.Mcf
    
    Thousand cubic feet of gas.MMcf
    
    Million cubic feet of gas./d
    
    Added to various units of measure to denote
units per day.
 2




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Forward-Looking Statements Certain information presented herein includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain
risks and uncertainties that may cause actual future results to differ materially from those
contemplated, projected, estimated or budgeted in such forward-looking statements. There are many
factors that may impact forward-looking statements including, but not limited to, the following:  
    the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;  
    economic climate and growth or decline in the geographic areas where we do business;  
    environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith;  
    implementation of the gas Customer Choice program;  
    impact of gas utility restructuring in Michigan, including legislative amendments;  
    employee relations and the impact of collective bargaining agreements;  
    access to capital markets and capital market conditions and the results of other financing efforts which can be
affected by credit agency ratings;  
    the timing and extent of changes in interest rates;  
    the level of borrowings;  
    changes in the cost and availability of natural gas;  
    effects of competition;  
    impacts of regulations by the MPSC and other applicable governmental proceedings and regulations;  
    changes in federal, state and local tax laws and their interpretations, including the Internal Revenue Code,
regulations, rulings, court proceedings and audits;  
    the ability to recover costs through rate increases;  
    the availability, cost, coverage and terms of insurance;  
    the cost of protecting assets against or damage due to terrorism;  
    changes in accounting standards and financial reporting regulations;  
    changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business
issues;  
    uncollectible accounts receivable; and  
    changes in the economic and financial viability of our suppliers and customers, and the continued ability of such
parties to perform their obligations to the Company. New factors emerge from time to time. We cannot predict what factors may arise or how such factors
may cause our results to differ materially from those contained in any forward-looking statement.
Any forward-looking statements speak only as of the date on which such statements are made. We
undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of unanticipated
events. 3




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Part I 
 Items 1. & 2. Business & Properties DESCRIPTION Michigan Consolidated Gas Company (MichCon or the Company) is a Michigan corporation organized in
1898. MichCon is an indirect, wholly-owned subsidiary of Enterprises, an exempt holding company
under the Public Utility Holding Company Act of 1935. MichCon is a natural gas utility subject to
regulation by the MPSC. MichCon is engaged in the purchase, storage, transmission, distribution
and sale of natural gas in the State of Michigan. MichCon also has subsidiaries involved in the
gathering and transmission of natural gas in northern Michigan. MichCon operates one of the
largest natural gas distribution and transmission systems in the United States and the largest in
Michigan. MichCon serves approximately 1.2 million residential, commercial and industrial customers located
in a 14,700 square mile area throughout Michigan. MichCon had approximately $3.1 billion in assets
at December 31, 2004 and revenues of approximately $1.6 billion in 2004. References in this report to we, us, and our are to MichCon. A discussion of the services we provide, and the amount and percentage of revenue contributed from
such services follows: Revenue by Service(Dollars in Millions)
    
    2004
    
    
    2003
    
    
    2002Gas Sales
    
    $
    1,401
    
    
    
    85
    %
    
    $
    1,237
    
    
    
    83
    %
    
    $
    1,078
    
    
    
    82
    %End User Transportation
    
    
    119
    
    
    
    7
    
    
    
    135
    
    
    
    9
    
    
    
    122
    
    
    
    9Intermediate Transportation
    
    
    55
    
    
    
    3
    
    
    
    51
    
    
    
    3
    
    
    
    48
    
    
    
    4Other
    
    
    70
    
    
    
    5
    
    
    
    69
    
    
    
    5
    
    
    
    64
    
    
    
    5$
    1,645
    
    
    
    100
    %
    
    $
    1,492
    
    
    
    100
    %
    
    $
    1,312
    
    
    
    100
    %
  
    Gas SalesIncludes the sale and delivery of natural gas
primarily to residential and small-volume commercial and
industrial customers.  
    End User TransportationA gas delivery service provided
primarily to large-volume commercial and industrial
customers. Additionally, the service is provided to
residential customers, and small-volume commercial and
industrial customers who have elected to participate in our
Customer Choice program. End user transportation customers
purchase natural gas directly from producers or brokerage
companies and utilize our pipeline network to transport the
gas to their facilities or homes.  
    Intermediate TransportationA gas delivery service provided
to producers, brokers and other gas companies that own the
natural gas, but are not the ultimate consumers.
Intermediate transportation customers utilize our gathering
and high-pressure transmission system to transport the gas to
storage fields, processing plants, pipeline interconnections
or other locations. 4




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
    OtherIncludes revenues from providing appliance maintenance,
facility development and other energy-related services. We expect to achieve modest revenue growth, net of changes in weather and purchased gas costs,
through initiatives to expand our gas markets and our residential, commercial and industrial
customer base, as well as by continuing to provide energy-related services that capitalize on our
expertise, capabilities and efficient systems. We also anticipate revenue growth through increased
rates as a result of our current rate case, which was filed in September 2003. In September 2004,
the MPSC issued an order granting interim relief of $35 million annually (see Note 3). Our operations are not dependent upon a limited number of customers, and the loss of any one or a
few customers is not reasonably likely to have a material adverse effect on MichCon. Our gas sales, end user transportation and intermediate transportation volumes, revenues and net
income are impacted by weather. Given the seasonal nature of our business, revenues and net income
are concentrated in the first and fourth quarters of the calendar year. By the end of the first
quarter, the heating season is largely over, and we typically realize substantially reduced
revenues and earnings in the second quarter and losses in the third quarter. We obtain our natural gas supply from various sources in different geographic areas (the Gulf
Coast, the Mid-Continent, Canada and Michigan) under agreements that vary in both pricing and
terms. Because of our geographic diversity of supply and our 124 billion cubic feet (Bcf) of
storage capacity, we are able to reliably meet our supply requirements. We have purchase commitments of approximately 108 Bcf, or 58% of our normal 2005 gas supply
requirement. We have entered into fixed-price contracts for approximately 22 Bcf or 12% of our
expected 2005 supply requirements. The balance of the gas supply requirement is expected to be met
by purchasing gas at market prices. At December 31, 2004, we owned and operated four natural gas
storage fields in Michigan with a working storage capacity of approximately 124 Bcf. These
facilities play an important role in providing reliable and cost-effective service to our
customers. Generally, we use our storage capacity to supplement our supply during the winter
months, replacing the gas in April through October when demand and prices are historically at lower
levels. The use of storage capacity also allows us to lower our peak-day entitlements, thereby
reducing interstate pipeline charges. Our gas distribution system has a planned maximum daily
send-out capacity of 2.8 Bcf, with approximately 67% of the volume coming from underground storage
for 2004. 5




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Following is a listing of our sources of gas supply: Gas Supply(Bcf)
    
    2004
    
    
    2003
    
    
    2002Long TermCitygate suppliers
    
    
    21.0
    
    
    
    61.0
    
    
    
    70.8Interstate pipeline suppliers
    
    
    108.0
    
    
    
    82.3
    
    
    
    80.1Canadian pipeline suppliers
    
    
    28.1
    
    
    
    28.5
    
    
    
    28.5Spot Market
    
    
    11.6
    
    
    
    21.6
    
    
    
    8.5Exchange Gas Receipts
    
    
    .4
    
    
    
    .5
    
    
    
    .8Gas From (To) Storage
    
    
    5.1
    
    
    
    (12.6
    )
    
    
    (11.1
    )174.2
    
    
    
    181.3
    
    
    
    177.6
 We have long-term firm transportation agreements expiring on various dates through 2011 with
ANR Pipeline Company (ANR), Panhandle Eastern Pipeline Company (Panhandle), Trunkline Gas Company
(Trunkline), Viking Gas Transmission Company (Viking), Vector Pipeline L.P. (Vector) and Great
Lakes Gas Transmission Limited Partnership (Great Lakes). The ANR capacity delivers 120 million
cubic feet per day (MMcf/d) of supply sourced from the Gulf Coast, 75 MMcf/d sourced from the
Midcontinent and 50 MMcf/d from Canada. Viking transports the 50 MMcf/d of Canadian supply to the
ANR system for delivery to us. Trunkline transports 10 MMcf/d of Gulf Coast supply into the
Panhandle system. Panhandle transports the 10 MMcf/d of Gulf Coast supply from the Trunkline
system and 65 MMcf/d from the Mid-Continent production area to us. Additional Canadian supplies of
30 MMcf/d are delivered through firm transport agreements with Great Lakes. Vector transports up
to 50 MMcf/d from the Chicago hub. We have supply contracts with independent Michigan producers, for less than 1% of our supply, which
expire on various dates through 2006. Many of these contracts tie prices to spot market indices
coupled with transportation rates. REGULATION We are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates,
recovery of certain costs, including the costs of regulatory assets, conditions of service,
accounting and other operating-related matters. We are subject to the requirements of other
regulatory agencies with respect to safety, the environment and health. In the late 1990s, the MPSC began an initiative 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 1999, the MPSC approved a comprehensive experimental three-year gas Customer
Choice program that allowed an increasing number of customers to purchase natural gas from
suppliers other than their local utility. In December 2001, the MPSC issued an order that continued
the gas Customer Choice program on a permanent and expanding basis. The permanent gas Customer
Choice program was phased in over a three-year period, with all customers having the option to
choose their gas supplier by April 2004. Since MichCon continues to transport and deliver the gas
to the participating customer premises at prices comparable to margins earned on gas sales,
customers switching to other suppliers have little impact on MichCons earnings. Under the December 2001 MPSC order, we returned to a gas cost recovery (GCR) mechanism, effective
January 2002. Under this mechanism, our gas sales rates include a gas commodity component designed
to 6




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recover our actual gas costs and therefore does not have a commodity price risk for prudently
incurred gas costs. In September 2003, we filed an application with the MPSC for an increase in service and
distribution charges (base rates) for our gas sales and transportation customers. The filing
requests an overall increase in base rates of $194 million per year (approximately 7% increase,
inclusive of gas costs), beginning January 1, 2005. In September 2004, the MPSC issued an order
granting interim rate relief of $35 million annually. A final order is expected in the first
quarter of 2005. See Note 3  Regulatory Matters, for additional information regarding the September 2004 interim
rate order and our regulatory environment. ENERGY ASSISTANCE PROGRAMS Energy assistance programs funded by the federal government and the State of Michigan remain
critical to MichCons ability to control its uncollectible accounts receivable expenses. We are working with the State of Michigan and others to increase the share of funding allocated to
our customers to be representative of the number of low-income individuals in our service
territory. PROPERTIES We own distribution, transmission and storage properties and facilities that are all located in the
State of Michigan. At December 31, 2004, our distribution system included approximately 18,000
miles of distribution mains, approximately 1,164,000 service lines and approximately 1,275,000
active meters. We own approximately 2,600 miles of transmission lines that deliver natural gas to
the distribution districts and interconnect our storage fields with the sources of supply and the
market areas. We own properties relating to four underground natural gas storage fields with an
aggregate working gas storage capacity of approximately 124 Bcf. Substantially all of our property
is subject to the lien of our Indenture of Mortgage and Deed of Trust under which our First
Mortgage Bonds are issued. Some properties are being fully utilized, and new properties are being added to meet the expansion
requirements of existing areas. Our capital investments for 2004 totaled $112 million, which
compares with $98 million in 2003 and $90 million in 2002. Our subsidiaries own a 68-mile gathering pipeline that transports natural gas and natural gas
liquids from reserves in east-central Michigan to natural gas processing plants in northern
Michigan and 132 miles of gathering lines and a 2,400 horsepower compressor station located in
northern Michigan. Other MichCon subsidiaries have a 46% interest in a partnership that owns
lateral lines related to the 68-mile gathering pipeline and an 80% interest in an additional
32-miles of gathering pipelines in northern Michigan. We also operate through a wholly owned
subsidiary, 210 miles of pipeline and 325 miles of gathering lines in northern Michigan. We lease a
portion of our pipeline system to the Vector Pipeline Partnership through a capital lease
arrangement (Note 7). 7




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STRATEGY & COMPETITION We generate approximately 95% of our revenues from providing gas sales and transportation and
distribution services to end user and intermediate transportation service customers. Our strategy
is to expand our role as the preferred provider of natural gas in Michigan. As a result of more
efficient furnaces and appliances, we expect future sales volumes to remain at current levels or
slightly decline. To offset these factors, we plan to expand our gas markets and to continue
providing energy-related services that capitalize on our expertise, capabilities and efficient
systems. Competition in the gas business primarily involves other natural gas providers, alternative fuels
and energy sources. Other natural gas providers As previously discussed,we are operating under the gas Customer
Choice program that allows our customers to purchase natural gas from other suppliers. We continue
to transport and deliver gas to customers who choose to purchase gas from other suppliers thereby
retaining favorable distribution margins. Alternative fuels Natural gas continues to be the preferred space and water-heating fuel for
Michigan residences and businesses. Developers in our service territories select natural gas in
new construction because of the convenience, cleanliness and relative price advantage compared to
propane, fuel oil and other alternative fuels. The primary focus of competition in the end user transportation market is cost and reliability.
Some large commercial and industrial customers have the ability to switch to alternative fuel
sources such as coal, electricity, oil and steam. If these customers were to choose an alternative
fuel source, they would not have a need for our end user transportation service. In addition, some
of these customers could bypass our pipeline system and have their gas delivered directly from an
interstate pipeline. However, price differentials must be sufficient to offset the costs, risks and
loss of service flexibility associated with fuel switching or bypass. Since 1988, only one MichCon
industrial customer has bypassed our distribution system. We compete against alternative fuel
sources by providing competitive pricing and reliable service, supported by our extensive storage
capacity. Our extensive transmission pipeline system has enabled us to develop a 500 to 600 Bcf annual market
for transportation services for Michigan gas producers, marketers, distribution companies and other
pipeline companies. We operate in a pivotal geographic location with links to major interstate
pipelines that reach markets elsewhere in the Midwest, the eastern United States and eastern
Canada. ENVIRONMENTAL MATTERS We are subject to extensive environmental regulation. Additional costs may result as the effects
of various chemicals on the environment are studied and governmental regulations are developed and
implemented. We expect to continue recovering environmental costs through rates charged to our
customers. Greater details on environmental issues are provided in Note 9  Commitments and
Contingencies. Contaminated Sites- Prior to the construction of major interstate natural gas pipelines, gas for
heating and other uses was manufactured locally from processes involving coal, coke or oil. We
own, or previously owned, 17 such former manufactured gas plant (MGP) sites. Investigations have
revealed contamination related to the by-products of gas manufacturing at each site. We are
remediating eight of the former MGP 8




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sites and conducting more extensive investigations at four other former MGP sites. We received
Michigan Department of Environmental Quality (MDEQ) closure of one site and a determination that we
are not a responsible party for three other sites. We received closure from the EPA in 2002 for one
site. While we cannot make any assurances, we believe that a cost deferral and rate recovery
mechanism approved by the MPSC will prevent these costs from having a material adverse impact on
our results of operations. RISK FACTORS There are various risks associated with the operations of our business. To provide a framework to
understand our operating environment, we are providing a brief explanation of the more significant
risks associated with our business. Although we have tried to identify and discuss key risk
factors, others could emerge in the future. Each of the following risks could affect our
performance. Weather significantly affects our operations.Deviations from normal cold weather conditions
affect our earnings and cash flow. Mild temperatures can result in decreased utilization of our
assets, lowering income and cash flow. We are subject to rate regulation. We operate in a regulated industry. Our gas rates are set by
the MPSC and cannot be increased without regulatory authorization. We may be impacted by new
regulations or interpretations by the MPSC or other regulatory bodies. New legislation, regulations
or interpretations could change how our business operates, impact our ability to recover costs
through rate increases or require us to incur additional expenses. Adverse changes in our credit ratings may affect us.Increased scrutiny of the energy industry and
regulatory changes, as well as changes in our economic performance could result in credit agencies
reexamining our credit rating. While credit ratings reflect the opinions of the credit agencies
issuing such ratings and may not necessarily reflect actual performance, a downgrade in our credit
rating could restrict or discontinue our ability to access capital markets at attractive rates and
increase our borrowing costs. Regional and national economic conditions may unfavorably impact us.Our business follows the
economic cycles of the customers we serve. Should national or regional economic conditions
decline, reduced volumes of gas we supply will result in decreased earnings and cash flow. Economic
conditions in our service territory also impact our collections of accounts receivable and
financial results. Environmental laws and liability may be costly.We are subject to numerous environmental
regulations. We may become a responsible party for environmental clean up at sites identified by a regulatory
body. We cannot predict with certainty the amount and timing of future expenditures related to
environmental matters because of the difficulty of estimating clean up costs. There is also
uncertainty in quantifying liabilities under environmental laws that impose joint and several
liability on all potentially responsible parties. The regulatory environment is subject to significant change and, therefore, we cannot predict
future issues. Since there can be no assurances that environmental costs may be recovered through
the regulatory process, our financial performance may be negatively impacted as a result of
environmental matters. The supply of natural gas may impact our financial results.Our access to natural gas supplies is
critical to ensure reliability of service for our customers. 9




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A work interruption may affect us.Unions represent a majority of our employees. A union choosing
to strike as a negotiating tactic would have an impact on our business. Our ability to access capital markets at attractive interest rates is important.Our ability to
access capital markets is important to operate our business. Heightened concerns about the energy
industry, the level of borrowing by other energy companies and the market as a whole could limit
our access to capital markets. Changes in interest rates could increase our borrowing costs and
financial performance. Property tax reform may be costly. We are a large payer of property taxes in the State of
Michigan. Should the legislature change how schools are financed, we could face increased property
taxes. We may not be fully covered by insurance.While we have a comprehensive insurance program in place
to provide coverage for various types of risks, catastrophic damage as a result of acts of God,
terrorism, war or a combination of significant unforeseen events could impact our operations and
economic losses might not be covered in full by insurance. Terrorism could affect our business. Damage to downstream infrastructure or our own assets by
terrorist groups would impact our operations. Failure to successfully implement new information systems could interrupt our operations.Our
business depends on numerous information systems for operations and financial information and
billings. We are in the process of implementing our DTE2 project, a multiyear Company-wide
initiative to improve existing processes and implement new core information systems. Failure to
successfully implement DTE2 and other new systems could interrupt our operations. EMPLOYEES We had 2,276 employees at December 31, 2004, of which 1,479 were represented by unions. Of the
represented employees, 1,041 are under a three year contract that was ratified in 2004. The
contracts of the remaining represented employees expire in 2005. 
 Item 3. Legal Proceedings We are involved in certain legal, regulatory, administrative and environmental proceedings
before various courts, arbitration panels and governmental agencies concerning matters arising in
the ordinary course of business. These proceedings include certain contract disputes,
environmental reviews and investigations, audits, inquiries from various regulators, and pending
judicial matters. We cannot predict the final disposition of such proceedings. We regularly
review legal matters and record provisions for claims that are considered probable of loss. The
resolution of pending proceedings is not expected to have a material effect on our operations or
financial statements in the period they are resolved. For additional discussion on legal matters,
see the following Notes to the Consolidated Financial Statements: Note
    
    Title3
    
    Regulatory Matters9
    
    Commitments and Contingencies
 10




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Item 4. Submission of Matters to a Vote of Security Holders Omitted per general instruction I (2) (c) of Form 10-K for wholly owned subsidiaries (reduced
disclosure format). 
 Part II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities All of the 10,300,000 issued and outstanding shares of common stock of MichCon, par value $1
per share, are indirectly owned by DTE Energy, and constitute 100% of the voting securities of
MichCon. Therefore, no market exists for our common stock. We paid cash dividends on our common stock of $50 million in 2004 and $50 million in 2003. We did
not pay cash dividends in 2002. 
 Item 6. Selected Financial Data Omitted per general instruction I (2) (a) of Form 10-K for wholly owned subsidiaries (reduced
disclosure format). 11




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Item 7. Managements Narrative Analysis of Results of Operations The Results of Operations discussion for MichCon is presented in accordance with General
Instruction I (2) (a) of Form 10-K for wholly owned subsidiaries (reduced disclosure format). Certain losses reflected in the accompanying consolidated financial statements have been eliminated
at DTE Energy as a result of purchase accounting adjustments. We had earnings of $19 million in 2004, compared to earnings of $45 million in 2003 and $20 million
in 2002. Results for 2004 were impacted by increases in operation and maintenance expenses due to
higher uncollectible accounts expense and increased pension and health care costs. Partially
offsetting these higher 2004 expenses was a $6 million benefit from interim rate relief (Note 3)
and additional margin from the acceleration of several midstream services contracts. The higher
earnings for 2003 were primarily due to improved gross margins, as well as charges recorded in 2002
from the sale of our former headquarters and the termination of a contract for computer services. Increase (Decrease) in Income Statement ComponentsCompared to Prior Year(in Millions)
    
    2004
    
    
    2003Operating revenues
    
    $
    153
    
    
    $
    180Cost of gas
    
    
    160
    
    
    
    134Gross margin
    
    
    (7
    )
    
    
    46Operation and maintenance
    
    
    38
    
    
    
    72Depreciation, depletion and amortization
    
    
    3
    
    
    
    (2
    )Taxes other than income
    
    
    (4
    )
    
    
    1Property write-down and contract losses
    
    
    (4
    )
    
    
    (43
    )Loss on sale of assets
    
    
    (6
    )
    
    
    3Other (income) and deductions
    
    
    10
    
    
    
    (7
    )Income tax provision
    
    
    (18
    )
    
    
    (3
    )Net income
    
    $
    (26
    )
    
    $
    25
 Operating revenuesincreased $153 million in 2004 and $180 million in 2003. Both periods
reflect an increase in gas sales and intermediate transportation revenues. The comparisons were
also affected by varying levels of end user transportation revenues. 12




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(in Millions)
    
    2004
    
    
    2003
    
    
    2002Operating RevenuesGas Sales
    
    $
    1,401
    
    
    $
    1,237
    
    
    $
    1,078End User Transportation
    
    
    119
    
    
    
    135
    
    
    
    1221,520
    
    
    
    1,372
    
    
    
    1,200Intermediate Transportation
    
    
    55
    
    
    
    51
    
    
    
    48Other
    
    
    70
    
    
    
    69
    
    
    
    64$
    1,645
    
    
    $
    1,492
    
    
    $
    1,312Gas Markets (Bcf)Gas Sales
    
    
    169
    
    
    
    177
    
    
    
    170End User Transportation
    
    
    145
    
    
    
    151
    
    
    
    170314
    
    
    
    328
    
    
    
    340Intermediate Transportation
    
    
    536
    
    
    
    576
    
    
    
    492850
    
    
    
    904
    
    
    
    832
 Effect of Weather on Gas Markets and Earnings
    
    2004
    

    
    2003
    
    
    2002Percentage Colder (Warmer) Than Normal
    
    
    (6
    )%
    
    
    
    %
    
    
    (6
    )%Decrease From Normal in:Gas markets (in Bcf)
    
    
    (12
    )
    
    
    (1
    )
    
    
    (13
    )Net income (in Millions)
    
    $
    (11
    )
    
    $
    (1
    )
    
    $
    (11
    )
 Gas sales revenues in total increased $164 million in 2004 and $159 million in 2003. The
increase in revenues for both 2004 and 2003 is due primarily to an increase in the gas commodity
component of sales rates reflecting higher natural gas prices. This portion of revenues is offset
by a similar increase in gas costs which are collectible through the Gas Cost Recovery (GCR)
mechanism. The comparison was also affected by an interim rate increase in 2004 and a $26 million
accrual in 2002 for the possible disallowance of gas cost in a GCR reconciliation case.
Additionally, gas sales revenues and volumes in both periods reflect the impact of weather, which
was 6% warmer in 2004 and 6% colder in 2003 compared to the prior year. End user transportation revenues for 2004 and 2003 reflect the impact of weather and lower
deliveries associated with customers participating in the Customer Choice program. Customers
participating in this program purchase gas from other suppliers, while MichCon continues to deliver
the gas to their premises. Accordingly, margins earned from selling gas and margins generated from
providing end user transportation services to Customer Choice participants are the same. There were
approximately 111,000 and 129,000 and 190,000 customers participating in the gas Customer Choice
program at December 31, 2004, 2003 and 2002, respectively. Intermediate transportation revenues increased $4 million in 2004 and increased $3 million in 2003.
Intermediate transportation deliveries decreased 40 billion cubic feet (Bcf) in 2004 and increased
84 Bcf in 2003. A significant portion of the volume variations is attributable to customers who
pay a fixed fee for intermediate transportation capacity regardless of actual usage. Although
volumes associated with these fixed-fee customers may vary, the related revenues are not affected. Cost of gasis affected by variations in sales volumes, cost of purchased gas and related
transportation costs, and the effects of any permanent liquidation of inventory gas. Cost
of gas sold increased $160 13




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##### Table of Contents



million in 2004 and $134 million in 2003 primarily due to prices paid
for gas supply. The average cost of gas sold increased $1.17 per Mcf (24%) and increased $.57 per
Mcf (13%) for 2004 and 2003, respectively. Operation and maintenanceexpenses increased $38 million in 2004 and increased $72 million in 2003,
reflecting higher reserves for uncollectible accounts receivable and pension and health care costs.
The increase in uncollectible accounts expense reflects high past due amounts attributable to an
increase in gas prices, continued weak economic conditions and a lack of adequate public assistance
for low-income customers. (BAR CHART) Property write-down and contract lossesdeclined $43 million in 2003. The decline reflects charges
recorded in 2002 for an anticipated loss from the sale of our former headquarters and for the
termination of a contract for computer services. See Note 12. Loss on sale of assetsdecreased $6 million in 2004 and increased $3 million in 2003. In 2004, we
recorded a $3 million gain from sales of a storage facility and land. In 2003, we recorded a $3
million loss from the sale of our former headquarters. Other income and deductionsincreased $10 million in 2004 and decreased $7 million in 2003. The
comparisons primarily reflect a $6 million gain from the sale of our interests in a series of
partnerships. Income taxesdecreased $18 million in 2004 and decreased $3 million in 2003 (Note 4). Income tax
comparisons were affected by variations in pre-tax earnings. Income taxes in 2004 and 2003 were
also favorably affected by an increase in the amortization of tax benefits previously deferred in
accordance with MPSC regulations. 14




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk We have commodity price risk arising from market price fluctuations on gas purchase contracts and
gas inventories. To limit our exposure to commodity price fluctuations, we have entered into
forward contracts. Our commodity price risk is limited due to the GCR mechanism (Note 1). See Note 8  Financial and Other Derivative Instruments for further discussion. Interest Rate Risk We are subject to interest rate risk in connection with the issuance of debt securities. Our
exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial
paper rates and London Inter-Bank Offered Rates (LIBOR). We estimate that if interest rates were
10% higher or lower, the fair value of long-term debt at December 31, 2004 would decrease $30
million and increase $32 million, respectively. Credit Risk We sell gas to numerous companies operating in the steel, automotive, energy and retail industries.
A number of customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy
Code. We have negotiated or are currently involved in negotiations with each of the companies, or
their successor companies, that have filed for bankruptcy protection. We regularly review
contingent matters relating to sale contracts and record provisions for amounts considered probable
of loss. We believe our accrued amounts are adequate for probable losses. The final resolution of
these matters is not expected to have a material effect on our financial statements in the period
they are resolved. 15




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data PageReport of Independent Registered Public Accounting Firm
    
    
17Consolidated Statement of Operations
    
    
18Consolidated Statement of Financial Position
    
    
19Consolidated Statement of Cash Flows
    
    
20Consolidated Statement of Retained Earnings and Comprehensive Income
    
    
21Notes to Consolidated Financial Statements
    
    
22Financial Statement Schedule Schedule II  Valuation and Qualifying Accounts
    
    
52
 16




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of
Michigan Consolidated Gas Company We have audited the consolidated statement of financial position of Michigan Consolidated Gas
Company and subsidiaries (the Company) as of December 31, 2004 and 2003 and the related
consolidated statements of operations, cash flows, and retained
earnings and comprehensive income for each of the three
years in the period ended December 31, 2004. Our audits also included the consolidated financial
statement schedule listed in the Index at Item 15. These financial statements and the financial
statement schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on the consolidated financial statements and the financial statement schedule
based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Michigan Consolidated Gas Company and subsidiaries at December 31, 2004
and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in connection with the required
adoption of a new accounting principle, in 2003 the Company changed its method of accounting for
asset retirement obligations. /S/ DELOITTE & TOUCHE LLP Detroit, Michigan
March 15, 2005  17




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##### Table of Contents



MICHIGAN CONSOLIDATED GAS COMPANY 
 CONSOLIDATED STATEMENT OF OPERATIONS
   Year Ended December 312004
    
    
    2003
    
    
    2002(in Millions)Operating Revenues
    
    $
    1,645
    
    
    $
    1,492
    
    
    $
    1,312Operating ExpensesCost of gas
    
    
    1,048
    
    
    
    888
    
    
    
    754Operation and maintenance
    
    
    387
    
    
    
    349
    
    
    
    277Depreciation, depletion and amortization
    
    
    108
    
    
    
    105
    
    
    
    107Taxes other than income
    
    
    48
    
    
    
    52
    
    
    
    51Property write-down and contract losses (Note 12)
    
    
    1
    
    
    
    5
    
    
    
    48(Gain) loss on sale of assets, net (Note 12)
    
    
    (3
    )
    
    
    3
    
    
    
    1,589
    
    
    
    1,402
    
    
    
    1,237Operating Income
    
    
    56
    
    
    
    90
    
    
    
    75Other (Income) and DeductionsInterest expense
    
    
    57
    
    
    
    57
    
    
    
    59Interest income
    
    
    (9
    )
    
    
    (10
    )
    
    
    (10
    )(Gain) loss on sale of joint venture, net (Note 12)
    
    
    1
    
    
    
    (6
    )
    
    
    Other, net
    
    
    (3
    )
    
    
    (5
    )
    
    
    (6
    )46
    
    
    
    36
    
    
    
    43Income Before Income Taxes
    
    
    10
    
    
    
    54
    
    
    
    32Income Tax Provision (Benefit) (Note 4)
    
    
    (9
    )
    
    
    9
    
    
    
    12Net Income
    
    $
    19
    
    
    $
    45
    
    
    $
    20
   See Notes to Consolidated Financial Statements 18




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MICHIGAN CONSOLIDATED GAS COMPANY 
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 
 December 312004
    
    
    2003(in Millions)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    
    
    
    $
    1Accounts receivableCustomer (less allowance for doubtful accounts of $71 and
$43, respectively)
    
    
    184
    
    
    
    178Accrued unbilled revenues
    
    
    167
    
    
    
    117Other
    
    
    82
    
    
    
    100Accrued gas cost recovery revenue
    
    
    55
    
    
    
    19InventoriesGas
    
    
    89
    
    
    
    117Material and supplies
    
    
    15
    
    
    
    14Other
    
    
    77
    
    
    
    67669
    
    
    
    613Property, Plant and Equipment
    
    
    3,195
    
    
    
    3,124Less accumulated depreciation, depletion and amortization (Note 2)
    
    
    (1,409
    )
    
    
    (1,344
    )1,786
    
    
    
    1,780Other AssetsOther investments
    
    
    92
    
    
    
    87Notes receivable
    
    
    81
    
    
    
    83Regulatory assets (Note 3)
    
    
    64
    
    
    
    61Prepaid benefit costs and due from affiliate
    
    
    367
    
    
    
    333Other
    
    
    17
    
    
    
    20621
    
    
    
    584$
    3,076
    
    
    $
    2,977LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    149
    
    
    $
    131Dividends
payable (Note 11)
    
    
    13
    
    
    
    13Short-term borrowings
    
    
    242
    
    
    
    235Current portion of long-term debt, including capital leases
    
    
    
    
    
    
    3Federal income, property and other taxes payable
    
    
    38
    
    
    
    14Regulatory liabilities
    
    
    28
    
    
    
    26Other
    
    
    72
    
    
    
    73542
    
    
    
    495Other LiabilitiesDeferred income taxes
    
    
    184
    
    
    
    134Regulatory liabilities (Note 3)
    
    
    564
    
    
    
    563Unamortized investment tax credit
    
    
    18
    
    
    
    20Accrued postretirement benefit costs
    
    
    118
    
    
    
    96Accrued environmental costs
    
    
    17
    
    
    
    16Other
    
    
    57
    
    
    
    55958
    
    
    
    884Long-Term debt, including capital lease obligations
    
    
    785
    
    
    
    775Commitments and Contingencies (Notes 3 and 9)Shareholders EquityCommon stock, $1 par value, 15,100,000 shares authorized,
10,300,000 shares issued and outstanding
    
    
    10
    
    
    
    10Additional paid in capital
    
    
    432
    
    
    
    432Retained earnings
    
    
    350
    
    
    
    381Accumulated other comprehensive loss
    
    
    (1
    )
    
    
    791
    
    
    
    823$
    3,076
    
    
    $
    2,977
 
 See Notes to Consolidated Financial Statements 19




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MICHIGAN CONSOLIDATED GAS COMPANY 
 CONSOLIDATED STATEMENT OF CASH FLOWS
   Year Ended December 312004
    
    
    2003
    
    
    2002(in Millions)Operating ActivitiesNet income
    
    $
    19
    
    
    $
    45
    
    
    $
    20Adjustments to reconcile net income to net cash from
operating activities:Depreciation, depletion and amortization
    
    
    108
    
    
    
    105
    
    
    
    107Property write-down and contract losses
    
    
    1
    
    
    
    5
    
    
    
    35Deferred income taxes and investment tax credit, net
    
    
    45
    
    
    
    (23
    )
    
    
    5Gain on sale of assets
    
    
    (2
    )
    
    
    (3
    )
    
    
    Changes in assets and liabilities:Accounts receivable, net
    
    
    12
    
    
    
    (48
    )
    
    
    13Accrued unbilled revenues
    
    
    (50
    )
    
    
    (1
    )
    
    
    (6
    )Inventories
    
    
    27
    
    
    
    (62
    )
    
    
    (48
    )Postretirement obligation
    
    
    22
    
    
    
    19
    
    
    
    7Prepaid benefit costs and due from affiliate
    
    
    (34
    )
    
    
    (41
    )
    
    
    (62
    )Accrued gas cost recovery
    
    
    (36
    )
    
    
    3
    
    
    
    (7
    )Accounts payable
    
    
    18
    
    
    
    27
    
    
    
    (33
    )Federal income, property and other taxes payable
    
    
    24
    
    
    
    (18
    )
    
    
    32Other
    
    
    (17
    )
    
    
    8
    
    
    
    (18
    )Net cash from operating activities
    
    
    137
    
    
    
    16
    
    
    
    45Investing ActivitiesCapital expenditures
    
    
    (112
    )
    
    
    (98
    )
    
    
    (90
    )Proceeds from sale of assets
    
    
    6
    
    
    
    11
    
    
    
    Other
    
    
    6
    
    
    
    (2
    )
    
    
    5Net cash used for investing activities
    
    
    (100
    )
    
    
    (89
    )
    
    
    (85
    )Financing ActivitiesCapital contribution by parent company
    
    
    
    
    
    
    
    
    
    
    200Issuance of long-term debt
    
    
    117
    
    
    
    199
    
    
    
    Redemption of long-term debt
    
    
    (112
    )
    
    
    (194
    )
    
    
    (23
    )Short-term borrowings, net
    
    
    7
    
    
    
    112
    
    
    
    (134
    )Dividends paid
    
    
    (50
    )
    
    
    (50
    )
    
    
    Net cash (used for) from financing activities
    
    
    (38
    )
    
    
    67
    
    
    
    43Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (1
    )
    
    
    (6
    )
    
    
    3Cash and Cash Equivalents at Beginning of Period
    
    
    1
    
    
    
    7
    
    
    
    4Cash and Cash Equivalents at End of Period
    
    $
    
    
    
    $
    1
    
    
    $
    7Cash Paid for:Interest paid (excluding interest capitalized)
    
    $
    56
    
    
    $
    57
    
    
    $
    59Income taxes paid
    
    
    
    
    
    
    34
    
    
    
    
   See Notes to Consolidated Financial Statements 20




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MICHIGAN CONSOLIDATED GAS COMPANY 
 CONSOLIDATED STATEMENT OF RETAINED EARNINGS
AND COMPREHENSIVE INCOME
   Year Ended December 31(in Millions)
    
    2004
    
    
    2003
    
    
    2002Balance  beginning of period
    
    $
    381
    
    
    $
    398
    
    
    $
    378Net income
    
    
    19
    
    
    
    45
    
    
    
    20Common stock dividends declared
    
    
    (50
    )
    
    
    (62
    )
    
    
    Balance  end of period
    
    $
    350
    
    
    $
    381
    
    
    $
    398
   The following table displays other comprehensive loss:   Year Ended December 31(in Millions)
    
    2004
    
    
    2003
    
    
    2002Net income
    
    $
    19
    
    
    $
    45
    
    
    $
    20Other comprehensive loss, net of tax:Net unrealized losses on derivatives:Losses arising during the period, net of
taxes of $(1), $1
and $-, respectively
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )(1
    )
    
    
    1
    
    
    
    (1
    )Pension obligations, net of taxes of $-, $-
and $-, respectively
    
    
    
    
    
    
    1
    
    
    
    (1
    )Comprehensive income
    
    $
    18
    
    
    $
    47
    
    
    $
    18
   See Notes to Consolidated Financial Statements 21




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##### Table of Contents



Michigan Consolidated Gas Company 
 Notes to Consolidated Financial Statements
 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Corporate Structure Michigan Consolidated Gas Company (MichCon) is a public utility engaged in the purchase, storage,
transmission, distribution and sale of natural gas in the State of Michigan. MichCon is subject to
the accounting requirements of and rate regulation by the Michigan Public Service Commission (MPSC)
with respect to the distribution and intrastate transportation of natural gas. The major services
provided by MichCon are gas sales, end user transportation and intermediate transportation.
MichCon serves more than 1.2 million residential, commercial and industrial customers throughout
Michigan. MichCons non-regulated operations are not significant. MichCon is an indirect, wholly
owned subsidiary of DTE Enterprises Inc. (Enterprises), an exempt holding company under the Public
Utility Holding Company Act of 1935. Enterprises is a wholly owned subsidiary of DTE Energy
Company (DTE Energy). References in this report to we, us, and our are to MichCon. Principles of Consolidation We consolidate all majority owned subsidiaries and investments in entities in which we have
controlling influence. Non-majority owned investments are accounted for using the equity method
when the Company is able to influence the operating policies of the investee. Non-majority owned
investments include investments in limited liability companies, partnerships or joint ventures.
When we do not influence the operating policies of an investee, the cost method is used. We
eliminate all intercompany balances and transactions. For entities that are considered variable interest entities, we apply the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. (FIN) 46-R, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51.For a detailed discussion of FIN 46-R see
Note 2  New Accounting Pronouncements. Basis of Presentation The accompanying consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America. These generally accepted accounting principles
require us to use estimates and assumptions that impact reported amounts of assets, liabilities,
revenues, expenses and the disclosure of contingent assets and liabilities. Actual results may
differ from our estimates. We reclassified certain prior year balances to match the current years financial statement
presentation. Revenues and Cost of Gas Revenues from the transportation and storage of natural gas are recognized as services are
provided. We record revenues for gas services provided but unbilled at the end of each month. Our accrued revenues include a component for the cost of gas sold that is recoverable through the
Gas Cost Recovery (GCR) mechanism. Annual GCR proceedings before the MPSC permit MichCon to recover prudent and reasonable supply costs. Any overcollection or undercollection of costs,
including interest, will be reflected in future rates. 22




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##### Table of Contents



Comprehensive Income We comply with Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, that established standards for reporting comprehensive income. SFAS No. 130 defines
comprehensive income as the change in common shareholders equity during a period from transactions
and events from non-owner sources, including net income. As shown in the following table, amounts
recorded to other comprehensive income at December 31, 2004 include unrealized gains and losses
from derivatives accounted for as cash flow hedges under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.   Net
    
    
    AccumulatedUnrealized
    
    
    OtherLosses on
    
    
    ComprehensiveDerivatives
    
    
    Loss(in Millions)Beginning balance
    
    $
    
    
    
    $
    Current  period change
    
    
    (1
    )
    
    
    (1
    )Ending balance
    
    $
    (1
    )
    
    $
    (1
    )
   Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and temporary investments with
remaining maturities of three months or less. Inventories Materials and supplies are valued at average cost. Gas inventory is determined using the last-in,
first-out (LIFO) method. At December 31, 2004, the replacement cost of gas remaining in storage
exceeded the $89 million LIFO cost by $330 million. At December 31, 2003, the replacement cost of
gas remaining in storage exceeded the $117 million LIFO cost by
$251 million. During 2004, MichCon liquidated 5.7 billion cubic
feet of prior years LIFO layers. The liquidation benefited 2004 cost of
gas by approximately $7 million, but had no impact on earnings as a
result of the GCR mechanism 23




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##### Table of Contents



Property, Retirement and Maintenance, and Depreciation and Depletion Property is stated at cost and includes construction-related labor, materials, overheads and an
allowance for fund used during construction (AFUDC). The cost of properties retired, less
salvage are charged to accumulated depreciation. Expenditures for maintenance and repairs are
charged to expense when incurred. We base depreciation provisions on straight-line and units of production rates approved by the
MPSC. Unit of production depreciation and depletion is used for certain production and
transmission property. Our composite depreciation rate was 3.6% in 2004, 3.5% in 2003 and 3.6% in
2002. The average estimated useful life for gas distribution and transmission property was 26 years and
28 years, respectively, at December 31, 2004. Long-Lived Assets Long-lived assets that we own are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the
carrying amount of the asset exceeds the expected future cash flows generated by the asset, an
impairment loss is recognized resulting in the asset being written down to its estimated fair
value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
cost to sell. 24




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##### Table of Contents



Intangible
Assets, Including Software Costs Our
intangible assets consist primarily of software. We capitalize the
costs associated with computer software we develop or obtain for use
in our business. We amortize intangible assets on a straight-line
basis over expected periods of benefit. Intangible assets
amortization expense was $10 million in 2004, $9 million in 2003 and
$10 million in 2002. The gross carrying amount and accumulated
amortization of intangible assets at December 31, 2004 were $162
million and $55 million, respectively. The gross carrying amount and
accumulated amortization of intangible assets at December 31, 2003
were $161 million and $50 million, respectively. Amortization expense
of intangible assets is estimated to be $10 million annually for 2005
through 2009. Excise and Sales Taxes We record the billing of excise and sales taxes as receivable with an offsetting payable to the
applicable taxing authority, with no impact on the consolidated statement of operations. Deferred Debt Costs The costs related to the issuance of long-term debt are deferred and amortized over the life of
each debt issue. In accordance with MPSC regulations, the unamortized discount, premium and expense
related to debt redeemed with a refinancing are amortized over the life of the replacement issue. Insured
and Uninsured Risks We
have a comprehensive insurance program in place to provide coverage
for various types of risks. Our insurance policies cover risk of loss
from various events, including property damage, general liability,
workers' compensation, auto liability and officers' liability. Under
our risk management policy, we self-insure portions of certain risks
up to specified limits, depending on the type of exposure. We
periodically review our insurance coverage. During 2003, we reviewed
our process for estimating and recognizing reserves for self-insured
risks. As a result of this review, we revised the process for
estimating liabilities under our self-insured layers to include an
actuarially determined estimate of incurred but not
reported (IBNR)
claims. We have an actuarially determined estimate of our IBNR
liability prepared annually and adjust the related reserve as
appropriate. Investments in Debt and Equity Securities We generally classify investments in debt and equity securities as trading and have recorded such
investments at market value with unrealized gains or losses included in earnings. See the following notes for other accounting policies impacting our financial statements: Note
    
    Title2
    
    New Accounting Pronouncements3
    
    Regulatory Matters4
    
    Income Taxes8
    
    Financial and Other Derivative Instruments10
    
    Retirement Benefits and Trusteed Assets
 NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS Asset Retirement Obligations On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations, which
requires the fair value of an asset retirement obligation be recognized in the period in which it
is incurred. We believe that adoption of SFAS No. 143 results primarily in timing differences in
the recognition of legal asset retirement costs that we are currently recovering in rates and are
deferring such differences under SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation. If a reasonable estimate of fair value cannot be made in the period the asset retirement obligation
is incurred, such as assets with an indeterminate life, the liability is to be recognized when a
reasonable estimate of fair value can be made. Generally, distribution assets have an
indeterminate life, retirement cash flows cannot be determined and there is a low probability of
retirement, therefore no liability has been recorded for these assets. The adoption of SFAS No.
143 had an immaterial impact on the consolidated financial statements. A reconciliation of the
asset retirement obligation for 2004 follows.   (in Millions)Asset retirement obligations at January 1, 2004
    
    $
    5Accretion
    
    
    Liabilities settled
    
    
    (
    )Asset retirement obligations at December 31, 2004
    
    $
    5
   25




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##### Table of Contents



SFAS No. 143 also requires the quantification of the estimated cost of removal obligations, arising
from other than legal obligations, which have been accrued through depreciation charges. At
December 31, 2003, we reclassified approximately $417 million of previously accrued asset removal
costs, which had been previously netted against accumulated depreciation to regulatory liabilities.
There is a generic case before the MPSC to determine the accounting and regulatory treatment of
removal costs for Michigan utilities. Consolidation of Variable Interest Entities In January 2003, FASB Interpretation No. (FIN) 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51,was issued and requires
an investor with a majority of the variable interests (primary beneficiary) in a variable interest
entity to consolidate the assets, liabilities and results of operations of the entity. A variable
interest entity is an entity in which the equity investors do not have controlling interests, the
equity investment at risk is insufficient to finance the entitys activities without receiving
additional subordinated financial support from other parties, or equity investors do not share
proportionally in gains or losses. In October 2003 and December 2003, the FASB issued Staff Position No. FIN 46-6 and FIN 46-Revised
(FIN 46-R), respectively, which clarified and replaced FIN 46 and also provided for the deferral of
the effective date of FIN 46 for certain variable interest entities. We have evaluated all of our
equity and non-equity interests and have adopted all current provisions of FIN 46-R. The adoption
of FIN 46-R did not have a material effect on our financial statements. Medicare Act Accounting In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(Medicare Act) was signed into law. The Medicare Act provides for a non-taxable federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially
equivalent to the benefit established by law. We elected at that time to defer the provisions of
the Medicare Act, and its impact on our accumulated postretirement benefit obligation and net
periodic postretirement benefit cost, pending the issuance of specific authoritative accounting
guidance by the FASB. In May 2004, FASB Staff Position (FSP) No. 106-2 was issued on accounting for the effects of the
Medicare Act. The guidance in this FSP is applicable to sponsors of single-employer defined benefit
postretirement health care plans for which (a) the employer has concluded the prescription drug
benefits available under the plan to some or all participants are actuarially equivalent to
Medicare Part D and thus qualify for the subsidy under the Medicare Act and (b) the expected
subsidy will offset or reduce the employers share of the cost of the underlying postretirement
prescription drug coverage on which the subsidy is based. We believe we qualify for the subsidy
under the Medicare Act and the expected subsidy will partially offset our share of the cost of
postretirement prescription drug coverage. In June 2004, we adopted FSP No. 106-2, retroactive to January 1, 2004. As a result of the
adoption, our accumulated postretirement benefit obligation for the subsidy related to benefits
attributed to past service was reduced by approximately $24 million and was accounted for as an
actuarial gain. The effects of the subsidy reduced net postretirement costs by $3 million in 2004. 26




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NOTE 3  REGULATORY MATTERS Regulation We are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates,
recovery of certain costs, including the costs of regulatory assets, conditions of service,
accounting and operating-related matters. Regulatory Assets and Liabilities We apply the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation. SFAS No. 71 requires the recording of regulatory assets and liabilities for certain
transactions that would have been treated as revenue and expense in non-regulated businesses.
Continued applicability of SFAS No. 71 requires that rates be designed to recover specific costs
of providing regulated services and be charged to and collected from customers. Future
regulatory changes or changes in the competitive environment could result in the Company
discontinuing the application of SFAS No. 71 for some or all of its business and require the
write-off of the portion of any regulatory asset or liability that was no longer probable of
recovery through regulated rates. Management believes that currently available facts support the
continued application of SFAS No. 71. The following are the balances of the regulatory assets and liabilities as of December 31:   (in Millions)
    
    2004
    
    
    2003AssetsDeferred environmental costs
    
    $
    29
    
    
    $
    27Unamortized loss on reacquired debt
    
    
    34
    
    
    
    32Accrued GCR revenue
    
    
    55
    
    
    
    19Recoverable minimum pension liability
    
    
    1
    
    
    
    2119
    
    
    
    80Less amount included in current assets
    
    
    (55
    )
    
    
    (19
    )$
    64
    
    
    $
    61LiabilitiesAsset removal costs
    
    $
    429
    
    
    $
    417Refundable income taxes
    
    
    135
    
    
    
    146Accrued GCR potential disallowance
    
    
    28
    
    
    
    26Other
    
    
    2
    
    
    
    3594
    
    
    
    592Less amount included in current liabilities and other liabilities
    
    
    (30
    )
    
    
    (29
    )$
    564
    
    
    $
    563
   ASSETS  
    Deferred environmental costs The MPSC approved the deferral and
recovery of investigation and remediation costs associated with
former manufactured gas plant sites.  
    Unamortized loss on reacquired debt The unamortized discount,
premium and expense related to debt redeemed with a refinancing
are deferred, amortized and recovered over the life of the
replacement issue.  
    Accrued GCR revenue Receivable for the temporary under-recovery
of and a return on gas costs incurred by MichCon which are
recoverable through the GCR mechanism. 27




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##### Table of Contents




    Recoverable minimum pension liability An additional minimum
pension liability was recorded under generally accepted accounting
principles due to the current under funded status of certain
pension plans. The traditional rate setting process allows for the
recovery of pension costs as measured by generally accepted
accounting principles. Accordingly, the minimum pension liability
associated with utility operations is recoverable. See Note 10. LIABILITIES  
    Asset removal costs The amount collected from customers for the
funding of future asset removal activities.  
    Refundable income taxes Income taxes refundable to MichCons
customers representing the difference in property-related deferred
income taxes payable and amounts recognized pursuant to MPSC
authorization.  
    Accrued GCR potential disallowance Potential refund resulting
from an MPSC order in MichCons 2002 GCR plan case that required
MichCon to reduce revenues in the calculation of its 2002 GCR
expense. Gas Rate Case Rate Request In September 2003, MichCon filed an application with the MPSC for an increase
in service and distribution charges (base rates) for its gas sales and transportation customers.
The filing requests an overall increase in base rates of $194 million per year (approximately 7%
increase, inclusive of gas costs), beginning January 1, 2005. MichCon requested that the MPSC
increase base rates by $154 million per year on an interim basis by April 1, 2004. MPSC Interim Rate Order In September 2004, the MPSC issued an order granting interim rate relief
to MichCon in the amount of $35 million. The interim rate order was based on a 50% debt and 50%
equity capital structure, and an 11.5% rate of return on common equity. Amounts collected are
subject to a potential refund pending a final order in this rate case. MPSC Staff Recommendation on Final Rate Relief The Staff has recommended a $76 million increase
in base rates compared to MichCons requested base rate relief of $194 million. The Staff also
supports a provision, proposed by MichCon, that would allow MichCon to recover or refund 90% of
uncollectible accounts receivables expense above or below the amount that is reflected in base
rates. In addition, the Staff proposed a 50% debt and 50% equity capital structure utilizing a
reduced rate of return on common equity of 11%. MichCons current allowed rate of return on common
equity is 11.5%. MPSC Proposal for Decision (PFD) The Administrative Law Judge (ALJ) issued a PFD on MichCons
rate request on December 10, 2004. The PFD provides for an increase in base rates of $60 million.
The PFD supports the Staffs recommendations for capital structure, rate of return on common equity
and for the proposed reconciliation of uncollectible accounts receivables. MichCon expects a final
order in the first quarter of 2005. Gas Industry Restructuring In December 2001, the MPSC approved MichCons application for a voluntary, expanded permanent
gas Customer Choice program, which replaced the experimental program that expired in March 2002.
The number of customers eligible to participate in the gas Customer Choice program increased over a
three-year period. Effective April 2004, all of MichCons 1.2 million customers could elect to
participate in the Customer Choice program thereby purchasing their gas from suppliers other than
MichCon. The MPSC also approved the use of deferred accounting for the recovery of implementation
costs of the gas 28




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##### Table of Contents



Customer Choice program. As of December 2004, approximately 111,000 customers are participating in
the gas Customer Choice program. Gas Cost Recovery Proceedings 2002 Plan Year- In December 2001, the MPSC issued an order that permitted MichCon to
implement GCR factors up to $3.62 per thousand cubic feet (Mcf) for January 2002 billings and up to
$4.38 per Mcf for the remainder of 2002. The order also allowed MichCon to recognize a regulatory
asset of approximately $14 million representing the difference between the $4.38 factor and the
$3.62 factor for volumes that were unbilled at December 31, 2001. The regulatory asset is subject
to the 2002 GCR reconciliation process. In March 2003, the MPSC issued an order in MichCons 2002
GCR plan case. The MPSC ordered MichCon to reduce its gas cost recovery expenses by $26.5 million
for purposes of calculating the 2002 GCR factor due to MichCons decision to utilize storage gas
during 2001 that resulted in a gas inventory decrement for the 2001 calendar year. Although we recorded a $26.5 million reserve in 2002 to reflect the impact of this order, a final
determination of actual 2002 revenue and expenses including any disallowances or adjustment, will
be decided in MichCons 2002 GCR reconciliation case that was filed with the MPSC in February 2003.
The Staff and various intervening parties in this proceeding are seeking to have the MPSC disallow
an additional $26 million, representing unbilled revenues at December 2001. One party has also
proposed the disallowance of half of an $8 million payment made to settle Enron bankruptcy issues.
The other parties to the case have recommended that the Enron bankruptcy settlement be addressed in
the 2003 GCR reconciliation case. An MPSC Administrative Law Judge has recommended disallowances of
$26.5 million related to the use of storage gas in 2001 and $26 million related to the December
2001 unbilled issue, and recommended that the $8 million related to the Enron issue be addressed in
the 2003 GCR reconciliation case. We have included this item in our testimony in the 2003 GCR
reconciliation filed in February 2004. The Staff has recommended that MichCon be allowed to recover
the entire $8 million related to the Enron issue. A final order in this proceeding is expected in
2005. In addition, we filed an appeal of the March 2003 MPSC order with the Michigan Court of
Appeals. In November 2004, the Michigan Court of Appeals denied the appeal. 2003 Plan Year In July 2003, the MPSC approved an increase in MichCons 2003 GCR rate to a
maximum of $5.75 per Mcf for the billing months of August 2003 through December 2003. MichCons
2003 GCR reconciliation case was filed with the MPSC in February 2004. In November 2004, the ALJ
issued a PFD in the 2003 reconciliation case. The ALJ recommended that MichCon recover the full $8
million related to the Enron issue since MichCon had reason to believe at that time that
cancellation of the contract was in the best interests of customers and since customers ultimately
realized a benefit from the cancellation. The ALJ agreed with the MPSC Staff that a $2 million
accounting adjustment related to exchange gas be disallowed. 2004 Plan Year In September 2003, MichCon filed its 2004 GCR plan case proposing a maximum GCR
factor of $5.36 per Mcf. MichCon agreed to switch from a calendar year to an operational year as a
condition of its settlement in the 2003 GCR plan case. The operational GCR year would run from
April to March of the following year. To accomplish the switch, the 2004 GCR plan case reflects a
15-month transitional period, January 2004 through March 2005. Under the transition proposal,
MichCon would file two reconciliations pertaining to the transition period; one addressing the
January 2004 to March 2004 period, the other addressing the remaining April 2004 to March 2005
period. The plan also proposes a quarterly GCR ceiling price adjustment mechanism. This mechanism
allows MichCon to increase the maximum GCR factor to compensate for increases in market prices,
thereby reducing the possibility of a GCR under recovery. Due to the sustained increase in market
prices for natural gas, in June 2004 the MPSC approved a temporary increase in the maximum GCR factor and a contingent factor 29




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##### Table of Contents



which resulted in a new temporary maximum factor of $6.62 per Mcf, effective from July 1, 2004
until the MPSC issues its final order in this case. As of December 31, 2004, MichCon has accrued a
$55 million regulatory asset representing the under-recovery of actual gas costs incurred in 2004,
and the 2003 and 2002 GCR under-recovery. 2005-2006 Plan Year In December 2004, MichCon filed its 2005-2006 GCR plan case proposing a
maximum GCR factor of $7.99 per Mcf. The plan includes a quarterly GCR ceiling price adjustment
mechanism. This mechanism allows MichCon to increase the maximum GCR factor to compensate for
increases in market prices, thereby reducing the possibility of a GCR under recovery. Other We are unable to predict the outcome of the regulatory matters discussed herein. Resolution
of these matters is dependent upon future MPSC orders, which may materially impact the financial
position, results of operations and cash flows of the Company. NOTE 4  INCOME TAXES We are part of the consolidated federal income tax return of DTE Energy. Our federal income tax
expense is determined on an individual company basis with no allocation of tax benefits or expenses
from other affiliates of DTE Energy. Total income tax expense (benefit) varied from the statutory federal income tax rate for the
following reasons:   (Dollars in Millions)
    
    2004
    
    
    2003
    
    
    2002Effective federal income tax rate
    
    
    (98.3
    )%
    
    
    16.5
    %
    
    
    37.2
    %Statutory federal income taxes at a rate of 35%
    
    $
    3
    
    
    $
    19
    
    
    $
    11Investment tax credit
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Depreciation
    
    
    (7
    )
    
    
    (7
    )
    
    
    (1
    )Grantor Trust
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Employee Stock Ownership Plan Dividends
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )Medicare Benefits
    
    
    (1
    )
    
    
    
    
    
    
    Other, net
    
    
    (2
    )
    
    
    1
    
    
    
    6Total
    
    $
    (9
    )
    
    $
    9
    
    
    $

    12
   Components of income tax expense (benefit) were as follows:   (in Millions)
    
    2004
    
    
    2003
    
    
    2002Current federal and other income tax expense (benefit)
    
    $
    (44
    )
    
    $
    8
    
    
    $
    9Deferred federal and other income tax expense
    
    
    35
    
    
    
    1
    
    
    
    3Total
    
    $
    (9
    )
    
    $
    9
    
    
    $
    12
   30




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##### Table of Contents



Deferred tax assets and liabilities are recognized for the estimated future tax effect of
temporary differences between the tax basis of assets or liabilities and the reported amounts in
the financial statements. Deferred tax assets and liabilities are classified as current or
noncurrent according to the classification of the related assets or liabilities. Deferred tax
assets and liabilities not related to assets or liabilities are classified according to the
expected reversal date of the temporary differences. Deferred income tax assets (liabilities) were comprised of the following at December 31:   (in Millions)
    
    2004
    
    
    2003Property
    
    $
    (90
    )
    
    $
    (63
    )Employee benefits
    
    
    (65
    )
    
    
    (53
    )Other, net
    
    
    (16
    )
    
    
    (8
    )$
    (171
    )
    
    $
    (124
    )Deferred income tax liabilities
    
    $
    (483
    )
    
    $
    (398
    )Deferred income tax assets
    
    
    312
    
    
    
    274$
    (171
    )
    
    $
    (124
    )
   The Internal Revenue Service is currently conducting audits of MichCon for the years 1999
through 2001. The Company accrues tax and interest related to tax uncertainties that arise due to
actual or potential disagreements with governmental agencies about the tax treatment of specific
items. At December 31, 2004, the Company had accrued approximately $4 million for such
uncertainties. We believe that our accrued tax liabilities are adequate for all years. NOTE 5  LONG-TERM DEBT AND PREFERRED SECURITIES Long-Term Debt Our long-term debt outstanding and interest rates of debt outstanding at December 31 were:   (in Millions)
    
    2004
    
    
    2003First Mortgage Bonds, interest payable semi-annually7.15% series due 2006
    
    $
    40
    
    
    $
    407.21% series due 2007
    
    
    30
    
    
    
    307.06% series due 2012
    
    
    40
    
    
    
    408.25% series due 2014
    
    
    80
    
    
    
    80Remarketable securities, interest payable semi-annually6.45% series due 2038
    
    
    75
    
    
    
    75Senior notes, interest payable semi-annually6.125% series due 2008
    
    
    200
    
    
    
    2005.0% series due 2019
    
    
    120
    
    
    
    5.7% series due 2033
    
    
    200
    
    
    
    200Senior notes, interest payable quarterly6.85% series due 2038
    
    
    
    
    
    
    526.85% series due 2039
    
    
    
    
    
    
    55Other long-term debt
    
    
    
    
    
    
    2Long-term capital lease obligations
    
    
    
    
    
    
    1Total
    
    $
    785
    
    
    $
    775
   31




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##### Table of Contents



In October 2004, we issued $120 million of 5.0% senior notes due in 2019. The proceeds will be
principally used to redeem the following two issues: $52 million of 6.85% senior notes due 2038 and
$55 million of 6.85% senior notes due 2039. These securities were called for redemption in
November 2004 at a price of 100 percent of the principal amount plus accrued and unpaid interest
from September 1, 2004. In 2003, we redeemed various issues of long-term debt totaling $192 million. The redeemed debt
securities had an average interest rate of 6.8% and were due in 2003  2038. We issued $200
million of 5.7% senior secured notes due 2033. In 1998, we issued a total of $150 million of remarketable debt securities with various interest
rates. These securities are structured such that the interest rates of the issues can be reset at
various remarketing dates over the life of the debt. In June 2003, we redeemed $75 million of the
remarketable securities. The remarketing date on the remaining $75 million is in June 2008. In the
event that a remarketing fails, we would be required to purchase these securities. Our remarketable securities and senior notes are secured by fall-away mortgage debt and, as such,
are secured debt as long as our other first mortgage bonds are outstanding and become senior
unsecured debt thereafter. In
2004, we paid $4 million and terminated a nonrecourse credit
agreement for our non-utility subsidiaries. In 2003, we terminated a variable interest rate swap agreement with notional principal amount of
$40 million issued in connection with our first mortgage bonds. Substantially all of the net utility property of MichCon is subject to the lien of a Mortgage and
Deed of Trust (Mortgage). Should we fail to timely pay our indebtedness under the Mortgage, such
failure will create cross defaults in the indebtedness of DTE Energy. Maturities and sinking fund requirements during the next five years for long-term debt outstanding
at December 31, 2004 are $40 million in 2006, $30 million in 2007 and $275 million in 2008. There
are no long-term debt maturities due in 2005 and 2009. Preferred and Preference Securities  Authorized and Unissued At December 31, 2004, MichCon had 7 million shares of preferred stock with a par value of $1 per
share and 4 million shares of preference stock with a par value of $1 per share authorized, with no
shares issued. NOTE 6  SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS In October 2004, we entered into a $243.75 million, five-year unsecured revolving credit facility
and lowered our existing three-year revolving credit facility from $162.5 million to $81.25
million. The five-year facility replaces the October 2003 364-day facility, which expired. The
three-year revolving credit 32




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##### Table of Contents



facility expires in October 2006. The five- and three-year credit
facilities are with a syndicate of banks and may be utilized for general corporate borrowings, but
primarily are intended to provide liquidity support for our commercial paper program. Borrowings
under the facilities will be available at prevailing short-term interest rates. The agreements
require us to maintain a debt to total capitalization ratio of no more than .65 to l and an
earnings before interest, taxes, depreciation and amortization (EBITDA) to interest ratio of no
less than 2 to 1. We currently are in compliance with these financial covenants. At December 31, 2004, we had outstanding commercial paper of $232 million and other short-term
borrowings of $10 million. As of December 31, 2003, we had outstanding commercial paper of $232
million and other short-term borrowings of $3 million. The weighted average interest rates for short-term borrowings were 2.4% and 1.1% at December 31,
2004 and 2003, respectively. NOTE 7  CAPITAL AND OPERATING LEASES Lessee- We lease certain property under capital and operating lease arrangements expiring at
various dates to 2024. Some leases contain renewal options.   OperatingLeases(in Millions)2005
    
    $
    32006
    
    
    12007
    
    
    12008
    
    
    2009
    
    
    Thereafter
    
    
    Total minimum lease payments
    
    $
    5
   Rental expense for operating leases was $3 million in 2004 and $2 million in 2003 and 2002. Lessor We lease a portion of our pipeline system to the Vector Pipeline Partnership through a
capital lease contract that expires in 2020, with renewal options extending for five years. The
components of the net investment in the capital lease at December 31, 2004 were as follows:   (in Millions)2005
    
    $
    92006
    
    
    92007
    
    
    92008
    
    
    92009
    
    
    9Thereafter
    
    
    98Total minimum future lease receipts
    
    
    143Residual value of leased pipeline
    
    
    40Less  unearned income
    
    
    (101
    )Net investment in direct financing lease
    
    
    82Less  current portion
    
    
    (1
    )$
    81
   33




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##### Table of Contents



NOTE 8  FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS We comply with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133, established accounting and reporting standards for derivative instruments and hedging
activities. Listed below are important SFAS No. 133 requirements:  
    All derivative instruments must be recognized as assets or
liabilities and measured at fair value, unless they meet the
normal purchases and sales exemption.  
    The accounting for changes in fair value depends upon the purpose
of the derivative instrument and whether it is designated as a
hedge and qualifies for hedge accounting.  
    Special accounting is allowed for a derivative instrument
qualifying as a hedge and designated as a hedge for the
variability of cash flow associated with a forecasted transaction.
Gain or loss associated with the effective portion of the hedge is
recorded in other comprehensive income. The ineffective portion
is recorded to earnings. Amounts recorded in other comprehensive
income will be reclassified to net income when the forecasted
transaction affects earnings. If a cash flow hedge is
discontinued because it is likely the forecasted transaction will
not occur, net gains or losses are immediately recorded to
earnings.  
    Special accounting is also allowed for a derivative instrument
qualifying as a hedge and designated as a hedge of the changes in
fair value of an existing asset, liability or firm commitment.
Gain or loss on the hedging instrument is recorded into earnings.
An offsetting loss or gain on the underlying asset, liability or
firm commitment is also recorded to earnings. Our primary market risk exposure is associated with commodity prices, credit and interest rates.
We have risk management policies to monitor and decrease market risks. We use derivative
instruments to manage some of the exposure. Commodity Price Risk We purchase, store, transmit and distribute and sell natural gas. We have fixed-priced contracts
for portions of our expected gas supply requirements through 2005. These contracts are designated
and qualify for the normal purchases and sales exemption and are therefore accounted for under the
accrual method. Our commodity price risk is limited due to the GCR mechanism (Note 1). Credit Risk We are exposed to credit risk if our customers or counterparties do not comply with their
contractual obligations. We maintain credit policies that significantly minimize overall credit
risk. These policies include an evaluation of potential customers and counterparties financial
condition, credit rating, collateral requirements or other credit enhancements such as letters of
credit or guarantees. We use standardized agreements that allow the netting of positive and
negative transactions associated with a single counterparty. Interest Rate Risk We occasionally use treasury locks and other interest rate derivatives to hedge the risk associated
with interest rate market volatility. In 2004, we entered into an interest rate derivative to
limit our sensitivity to market interest rate risk associated with the issuance of long-term debt.
Such instrument was designated as a cash flow hedge. We subsequently issued long-term debt and
terminated the hedge at a cost that is included in other comprehensive loss. 34




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##### Table of Contents



Fair Value of Financial Instruments The fair value of financial instruments is determined by using various market data and other
valuation techniques. The table below shows the fair value relative to the carrying value for
long-term debt securities. The carrying value of certain other financial instruments, such as
notes payable, customer deposits and notes receivable approximate fair value and are not shown.   2004
    
    
    2003Fair Value
    
    
    Carrying Value
    
    
    Fair Value
    
    
    Carrying ValueLong-Term Debt
    
    $834 million
    
    $785 million
    
    $835 million
    
    $777 million
   NOTE 9  COMMITMENTS AND CONTINGENCIES Environmental Matters Contaminated Sites Prior to the construction of major interstate natural gas pipelines, gas for
heating and other uses was manufactured locally from processes involving coal, coke or oil. We
own, or previously owned, 17 such former manufactured gas plant (MGP) sites. During the mid-1980s, we conducted preliminary environmental investigations at former MGP sites,
and some contamination related to the by-products of gas manufacturing was discovered at each site.
The existence of these sites and the results of the environmental investigations have been reported
to the Michigan Department of Environmental Quality (MDEQ). We are remediating eight of the former MGP sites and conducting more extensive investigations at
four other former MGP sites. We received MDEQ closure of one site and a determination that we are
not a responsible party for three other sites. We received closure from the EPA in 2002 for one
site. In 1984, we established a $12 million reserve for costs associated with environmental investigation
and remediation activities. During 1993, we received MPSC approval of a cost deferral and rate
recovery mechanism for investigation and remediation costs incurred at former MGP sites in excess
of this reserve. We employed outside consultants to evaluate remediation alternatives for these
sites, to assist in estimating its potential liabilities and to review its archived insurance
policies. As a result of these studies, we recorded an additional liability and a corresponding
regulatory asset of $32 million during 1995. In early December 2004, we retained multiple
environmental consultants to estimate the projected cost to remediate each MGP facility. The
results of the evaluation indicated that the MGP reserve should be set at $22 million. During 2004, 2003 and 2002, we spent $2.3 million, $1.5 million and $3.2 million, respectively,
investigating and remediating these former MGP sites. At December 31, 2004, the reserve balance
was $21.5 million, of which $4.5 million was classified as current. Any significant change in
assumptions, such as remediation techniques, nature and extent of contamination and regulatory
requirements, could impact the estimate of remedial action costs for the sites and, therefore, have
an effect on our financial position and cash flows. However, we anticipate the cost deferral and
rate recovery mechanism approved by the MPSC will prevent environmental costs from having a
material adverse impact on our results of operations. 35




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##### Table of Contents



Personal Property Taxes Prior to 1999, MichCon and other Michigan utilities 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 determine the taxable 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 currently used to calculate property tax expense. 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 superseded tables. The
legal actions regarding the appropriateness of the new tables were before the Michigan Tax Tribunal
(MTT) which, in April 2002, issued its decision essentially affirming the validity of the STCs new
tables. In June 2002, petitioners in the case filed an appeal of the MTTs decision with the
Michigan Court of Appeals. In January 2004, the Michigan Court of Appeals upheld the validity of
the new tables. With no further appeal by the petitioners available, the MTT began to schedule
utility personal property valuation cases for Prehearing General Calls. MichCon has filed motions
and the MTT agreed to place their cases in abeyance pending the conclusion of settlement
negotiations being conducted by State of Michigan Treasury officials. On February 14, 2005, MTT
issued a scheduling order that lifts the prior abeyances in a significant number of our appeals.
The scheduling order sets litigation calendars for these cases extending into mid-2006. We continue to record property tax expense based on the new tables. We will continue through
settlement or litigation to seek to apply the new tables retroactively and to ultimately resolve
the pending tax appeals related to 1997 through 1999. This is a solution supported by the STC in
the past. To the extent that settlements cannot be achieved with the jurisdictions, litigation
regarding the valuation of utility property will delay any recoveries by MichCon. Other Commitments At December 31, 2004, we have entered into numerous long-term purchase commitments relating to a
variety of goods and services required for our business. These agreements primarily consist of
long-term gas purchase and transportation agreements. We estimate that these commitments will be
approximately $1.1 billion through 2011. We also estimate that our 2005 base level capital
expenditures will be approximately $115 million. We have made certain commitments in connection
with such expected capital expenditures. Bankruptcies We sell gas to numerous companies operating in the steel, automotive, energy and retail industries.
A number of customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy
Code. We have negotiated or are currently involved in negotiations with each of the companies, or
their successor companies, that have filed for bankruptcy protection. We regularly review
contingent matters relating to sale contracts and record provisions for amounts considered probable
of loss. We believe our previously accrued amounts are adequate for probable losses. The final resolution of these matters
is not expected to have a material effect on our financial statements in the period they are
resolved. Other We are involved in certain legal, regulatory, administrative and environmental proceedings before
various courts, arbitration panels and governmental agencies concerning matters arising in the
ordinary course of business. These proceedings include certain contract disputes, environmental
reviews and investigations, 36




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##### Table of Contents



audits, inquiries from various regulators, and pending judicial
matters. We cannot predict the final disposition of such proceedings. We regularly review legal
matters and record provisions for claims that are considered probable of loss. The resolution of
pending proceedings is not expected to have a material effect on our operations or financial
statements in the period they are resolved. See Note 3 for a discussion of contingencies related to Regulatory Matters. 37




---



##### Table of Contents



NOTE 10- RETIREMENT BENEFITS AND TRUSTEED ASSETS Measurement Date In the fourth quarter of 2004, we changed the date for actuarial measurement of our obligations for
benefit programs from December 31 to November 30. We believe the one-month change of the
measurement date is a preferable change as it allows time for management to plan and execute its
review of the completeness and accuracy of its benefit programs results and to fully reflect the
impact on its financial results. The change did not have a material effect on retained earnings as
of January 1, 2004, and net income amounts for any interim period in 2004. Accordingly, all
amounts reported in the following tables for balances as of December 31, 2004 are based on a
measurement date of November 30, 2004. Amounts reported in tables for the year ended December 31,
2003 and for balances as of December 31, 2002 are based on a measurement date of December 31, 2003
and December 31, 2002. Pension Plan Benefits We have a defined benefit retirement plan for MichCon represented employees and participate in a
defined benefit retirement plan for other DTE Energy represented and nonrepresented employees. The
plans are noncontributory, cover substantially all employees and provide retirement benefits to
MichCon employees based on the employees years of benefit service, average final compensation and
age at retirement. Certain nonrepresented employees are covered under cash balance benefits based
on annual employer contributions and interest credits. Currently these plans meet the full funding
requirements of the Internal Revenue Code. Accordingly, no contributions for the 2004, 2003 or
2002 plan years were made. We do not anticipate making a contribution
to our qualified pension plan in 2005. Effective December 31, 2001, the MCN Energy Group Retirement Plan, that covered nonrepresented
employees, merged into the DTE Energy Company Retirement Plan. Detroit Edison operates as the
sponsor of the merged DTE Energy represented and nonrepresented plan, which is treated as a plan
covering employees of various affiliates of DTE Energy from the affiliates perspective.
Accordingly, the liabilities and assets associated with this Plan are no longer reflected in the
tables below, and the associated prepaid pension asset of
$246 million and $219 million at December 31, 2004 and
December 31, 2003, respectively, are now reflected as an
amount due from affiliate. We are allocated income or an expense each year as
a result of our participation in the DTE Energy Retirement Plan. The annual income for 2004, 2003
and 2002 was $27 million, $31 million and $44 million, respectively. Net pension credit includes the following components:   (in Millions)
    
    2004
    
    
    2003
    
    
    2002Service Cost
    
    $
    5
    
    
    $
    4
    
    
    $
    3Interest Cost
    
    
    15
    
    
    
    14
    
    
    
    14Expected Return on Plan Assets
    
    
    (28
    )
    
    
    (29
    )
    
    
    (33
    )Amortization ofNet gain
    
    
    
    
    
    
    
    
    
    
    (4
    )Prior service cost
    
    
    1
    
    
    
    2
    
    
    
    2Net transition asset
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Net Pension Credit
    
    $
    (7
    )
    
    $
    (10
    )
    
    $
    (19
    )
   38




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##### Table of Contents



The following table reconciles the obligations, assets and funded status of the plans as well
as the amounts recognized as prepaid pension cost in the consolidated statement of financial
position at December 31:   (in Millions)
    
    2004
    
    
    2003Measurement Date
    
    November 30
    
    December 31Accumulated Benefit Obligation  End of Period
    
    $
    242
    
    
    $
    239Projected Benefit Obligation  Beginning of Period
    
    $
    247
    
    
    $
    212Service Cost
    
    
    5
    
    
    
    4Interest Cost
    
    
    15
    
    
    
    14Actuarial Loss
    
    
    7
    
    
    
    31Benefits Paid
    
    
    (13
    )
    
    
    (14
    )Plan Amendments
    
    
    (5
    )
    
    
    Projected Benefit Obligation  End of Period
    
    $
    256
    
    
    $
    247Plan Assets at Fair Value  Beginning of Period
    
    $
    319
    
    
    $
    274Actual Return on Plan Assets
    
    
    24
    
    
    
    59Benefits Paid
    
    
    (13
    )
    
    
    (14
    )Plan Assets at Fair Value  End of Period
    
    $
    330
    
    
    $
    319Funded Status of the Plans
    
    $
    74
    
    
    $
    72UnrecognizedNet loss
    
    
    41
    
    
    
    30Prior service cost
    
    
    6
    
    
    
    12Prepaid Pension Cost
    
    $
    121
    
    
    $
    114
 
  
 2004
    
    
    2003
    
    
    2002Projected Benefit ObligationDiscount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.75
    %Annual increase in future compensation levels
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Net Pension CostsDiscount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.25
    %Annual increase in future compensation levels
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Expected long-term rate of return on Plan assets
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    9.5
    %
   39




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##### Table of Contents



At December 31, 2004, the benefits expected to be paid in each of the next five years and in
the aggregate for the five fiscal years thereafter are as follows:   (in Millions)2005
    
    $
    142006
    
    
    142007
    
    
    142008
    
    
    152009
    
    
    152010 - 2014
    
    
    82Total
    
    $
    154
   We employ a consistent formal process in determining the long-term rate of return for various
asset classes. We evaluate input from our consultants, including their review of historic financial
market risks and returns and long-term historic relationships between the asset classes of
equities, fixed income and other assets, consistent with the widely accepted capital market
principle that asset classes with higher volatility generate a greater return over the long-term.
Current market factors such as inflation, interest rates, asset class risks and asset class returns
are evaluated and considered before long-term capital market assumptions are determined. The
long-term portfolio return is also established employing a consistent formal process, with due
consideration of diversification, active investment management and rebalancing. Peer data is
reviewed to check for reasonability. We employ a total return investment approach whereby a mix of equities, fixed income and other
investments are used to maximize the long-term return of plan assets consistent with prudent levels
of risk. The intent of this strategy is to minimize plan expenses over the long term. Risk
tolerance is established through consideration of future plan cash flows, plan funded status, and
corporate financial considerations. The investment portfolio contains a diversified blend of
equity, fixed income and other investments. Furthermore, equity investments are diversified across
U.S. and non-U.S. stocks, growth and value investment styles, and large and small market
capitalizations. Other assets such as private equity and absolute return funds are used judiciously
to enhance long term returns while improving portfolio diversification. Derivatives may be used to
gain market exposure in an efficient and timely manner; however, derivatives may not be used to
leverage the portfolio beyond the market value of the underlying investments. Investment risk is
measured and monitored on an ongoing basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio reviews. Our plans weighted-average asset allocations by asset category at December 31 were as follows:   2004
    
    
    2003Equity Securities
    
    
    69
    %
    
    
    67

    %Debt Securities
    
    
    26
    
    
    
    27Other
    
    
    5
    
    
    
    6100
    %
    
    
    100
    %
   40




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##### Table of Contents



Our plans weighted-average asset target allocations by asset category at December 31, 2004
were as follows:   Equity Securities
    
    
    65
    %Debt Securities
    
    
    28Other
    
    
    7100
    %
   We also sponsor a defined contribution retirement savings plan for union employees, the
MichCon Investment and Stock Ownership Plan, and participate in a defined contribution plan for
nonunion employees. Effective December 31, 2001, the MCN Energy Group Savings and Stock Ownership
Plan, that covered nonunion employees of MichCon, MCN Energy and MCN Energy Enterprises, merged
into the DTE Energy Company Savings and Stock Ownership Plan. Participation in one of these plans
is available to substantially all union and nonunion employees. We match employee contributions up
to certain predefined limits based upon eligible compensation, the employees contribution rate
and, in some cases, years of credited service. The cost of these plans was $5 million in 2004, $5
million in 2003, and $4 million in 2002. Other Postretirement Benefits We provide certain postretirement health care and life insurance benefits for retired employees who
are eligible for these benefits. Our policy is to fund certain trusts to meet our postretirement
benefit obligations. Separate qualified Voluntary Employees Beneficiary Association (VEBA) trusts
exist for represented and nonrepresented employees. No contributions were made to the VEBA trusts
in 2004, 2003 or 2002. Net postretirement cost includes the following components:   (in Millions)
    
    2004
    
    
    2003
    
    
    2002Service Cost
    
    $
    8
    
    
    $
    6
    
    
    $
    5Interest Cost
    
    
    23
    
    
    
    20
    
    
    
    18Expected Return on Plan Assets

    
    
    (11
    )
    
    
    (14
    )
    
    
    (17
    )Amortization ofNet (gain) loss
    
    
    2
    
    
    
    (2
    )
    
    
    (6
    )Prior service cost
    
    
    1
    
    
    
    1
    
    
    
    1Net transition obligation
    
    
    8
    
    
    
    9
    
    
    
    10Net Postretirement Cost
    
    $
    31
    
    
    $
    20
    
    
    $
    11
   41




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##### Table of Contents



The following table reconciles the obligations, assets and funded status of the plans
including amounts recorded as accrued postretirement cost in the consolidated statement of
financial position at December 31:   (in Millions)
    
    2004
    
    
    2003Measurement Date
    
    November 30
    
    December 31Accumulated Postretirement Benefit Obligation  Beginning of Period
    
    $
    379
    
    
    $
    352Service Cost
    
    
    8
    
    
    
    6Interest Cost
    
    
    23
    
    
    
    20Actuarial Loss
    
    
    39
    
    
    
    38Benefits Paid
    
    
    (15
    )
    
    
    (18
    )Plan Amendments
    
    
    (15
    )
    
    
    (19
    )Accumulated Postretirement Benefit Obligation  End of Period
    
    $
    419
    
    
    $
    379Plan Assets at Fair Value  Beginning of Period
    
    $
    117
    
    
    $
    111Actual Return on Plan Assets
    
    
    9
    
    
    
    23Benefits Paid
    
    
    
    
    
    
    (17
    )Plan Assets at Fair Value  End of Period
    
    $
    126
    
    
    $
    117Funded Status of the Plans
    
    $
    (293
    )
    
    $
    (262
    )UnrecognizedNet loss
    
    
    114
    
    
    
    75Prior service cost
    
    
    16
    
    
    
    7Net transition obligation
    
    
    51
    
    
    
    84Accrued Postretirement Liability at Measurement Date
    
    
    (112
    )
    
    
    (96
    )Company Contribution And Benefit Payments in December 2004
    
    
    (6
    )
    
    
    Accrued Postretirement Liability  End of Period
    
    $
    (118
    )
    
    $
    (96
    )
   Assumptions used in determining the projected benefit obligation and net benefit cost are
listed below:   2004
    
    
    2003
    
    
    2002Projected Benefits ObligationDiscount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.75
    %Net Benefit CostsDiscount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.25
    %Expected long-term rate of return on Plan assets
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    9.5
    %
   Benefit costs were calculated assuming health care cost trend rates beginning at 9.0% for 2005
and decreasing to 5.0% in 2010 and thereafter for persons under age 65 and decreasing from 8.0% to
5.0% for persons age 65 and over. A one-percentage-point increase in health care cost trend rates
would have increased the total service cost and interest cost components of benefit costs by $5
million and increased the accumulated benefit obligation by $49 million at December 31, 2004. A
one-percentage-point decrease in the health care cost trend rates would have decreased the total
service cost and interest cost components of benefit costs by $4 million and would have decreased
the accumulated benefit obligation by $43 million at December 31, 2004. Effective 2005, we amended our postretirement health care plan. The changes decreased our expected
2005 postretirement cost by $1 million. 42




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##### Table of Contents



At December 31, 2004, the benefits expected to be paid, including prescription drug benefits, in
each of the next five years and in the aggregate for the five fiscal years thereafter are as
follows:   (in Millions)2005
    
    $
    232006
    
    
    252007
    
    
    262008
    
    
    262009
    
    
    282010 - 2014
    
    
    157Total
    
    $
    285
   The process used in determining the long-term rate of return for assets and the investment
approach for our other postretirement benefits plans is similar to those previously described for
our pension plans. Our plans weighted-average asset allocations by asset category at December 31 were as follows:   2004
    
    
    2003Equity Securities
    
    
    67
    %
    
    
    66
    %Debt Securities
    
    
    33
    
    
    
    34100
    %
    
    
    100
    %
   Our plans weighted-average asset target allocations by asset category at December 31, 2004
were as follows:   Equity Securities
    
    
    65
    %Debt Securities
    
    
    28Other
    
    
    7100
    %
   In December 2003, the Medicare Act was signed into law which provides for a non-taxable
federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by law. As discussed in Note 2, we
adopted FSP No. 106-2 in 2004, which provides guidance on the accounting for the Medicare Act. As
a result of the adoption, our accumulated postretirement benefit obligation for the subsidy related
to benefits attributed to past service was reduced by approximately $24 million at January 1, 2004
and was accounted for as an actuarial gain. The effects of the subsidy reduced net periodic
postretirement benefit costs by $3 million in 2004. The impact of the Medicare Act on the
components of other postretirement benefit costs for the year ended December was as follows:   (in Millions)
    
    2004Reduction in service cost
    
    $
    Reduction in interest cost
    
    
    2Amortization of actuarial gain
    
    
    1Decrease in postretirement benefit cost
    
    $
    3
   43




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##### Table of Contents



At December 31, 2004, the gross amount of federal subsidies expected to be received in each of
the next five years and in the aggregate for the five fiscal years thereafter was as follows:   (in Millions)2005
    
    $
    2006
    
    
    22007
    
    
    22008
    
    
    22009
    
    
    22010 - 2014
    
    
    16Total
    
    $
    24
   Grantor Trust We maintain a Grantor Trust that invests in life insurance contracts and income securities.
Employees and retirees have no right, title or interest in the assets of the Grantor Trust, and we
can revoke the trust subject to providing the MPSC with prior notification. We account for our
investment at fair value with unrealized gains and losses recorded to earnings. NOTE 11- RELATED PARTY TRANSACTIONS We have transactions with affiliated companies to provide transportation and storage services and
for the purchase of natural gas. Under a service agreement with DTE Energy, various DTE affiliates,
including MichCon provide corporate support services and various financial, auditing, tax, legal,
treasury and cash management, human resources, information technology, regulatory and other
services, which were billed to DTE Energy corporate. These administrative and general expenses
along with interest and financing costs were then billed down to various subsidiaries of DTE
Energy, including MichCon. The net amount of such expenses included in the consolidated statement
of operations was $100 million in 2004, $106 million in 2003 and $68 million in 2002. The increase
in 2003 corporate expenses is related primarily to costs incurred by an affiliate to upgrade our
customer service operations and higher benefit costs associated with corporate support staff. In addition, we had intercompany revenue of $11 million, $14 million and $13 million in 2004, 2003
and 2002, respectively. We had intercompany expenses of $20 million, $29 million and $15 million in
2004, 2003 and 2002, respectively. Our accounts receivable from
affiliated companies totaled $57 million and $70 million, and accounts
payable to affiliated companies totaled $10 million and $25 million at December 31, 2004 and 2003,
respectively. We had a short-term note payable
to DTE Energy and our parent company of $9 million in 2004 and
$2 million to our parent company in 2003. This note is subject
to a credit agreement with DTE Energy whereby short-term excess cash
or cash shortfalls are remitted to or funded by DTE Energy. This
credit arrangement involves the charge and payment of interest at
approximate market rates. We had an exchange gas
payable of $1 million in 2004 related to an operational
balancing agreement with an affiliate owned gas storage facility. We declared and paid dividends of $50 million to our parent company in 2004. We declared dividends
of $62.5 million and paid dividends of $50 million to our parent company in 2003. We received a
$200 million capital contribution from our parent company in 2002. 44




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##### Table of Contents



NOTE 12  UNUSUAL CHARGES Property Write-down In 2002, we recorded a $33 million pre-tax ($22 million net of taxes) charge from the sale of our
former headquarters. An additional $5 million pre-tax ($4 million net of taxes) charge was
recorded in 2003 to further reduce the carrying value of the property to fair value based on the
estimated selling price less cost to sell. Contract Loss In 2002, we recorded a $15 million pre-tax ($10 million net of taxes) charge related to the
termination of a contract for computer services with an unrelated third party. Sale of Assets In 2003, we recorded a $3 million pre-tax ($2 million net of taxes) loss from the sale of our
former headquarters. In 2004, we recorded a $3 million pre-tax ($2 million net of taxes) gain from
sales of a storage facility and land. Joint Ventures In 2003, we recorded a $6 million pre-tax ($4 million net of taxes) gain from the sale of our
interests in a series of partnerships. 45




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##### Table of Contents



NOTE 13  SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Due to the seasonal nature of MichCons business, revenues and net income tend to be higher in the
first and fourth quarters of the calendar year.   First
    
    
    Second
    
    
    Third
    
    
    Fourth(in Millions)
    

Quarter(1)
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Year2004Operating Revenues
    
    $
    715
    
    
    $
    271
    
    
    $
    155
    
    
    $
    504
    
    
    $
    1,645Operating Income (Loss)
    
    $
    93
    
    
    $
    (37
    )
    
    $
    (39
    )
    
    $
    39
    
    
    $
    56Net Income (Loss)
    
    $
    70

    
    
    $
    (37
    )
    
    $
    (53
    )
    

    $
    39
    
    
    $
    192003Operating Revenues
    
    $
    652
    
    
    $
    284
    
    
    $
    142
    
    
    $
    414
    
    
    $
    1,492Operating Income (Loss)
    
    $
    111
    
    
    $
    (5
    )
    
    $
    (42
    )
    
    $
    26
    
    
    $
    90Net Income (Loss)
    
    $
    75
    
    
    $
    (11
    )
    
    $
    (37
    )
    
    $
    18
    
    
    $
    45
     (1)
    
    Previously reported first quarter 2004 amounts have been adjusted to reflect the
retroactive adoption of FSP No. 106-2, relating to the impact of the Medicare Act on postretirement
benefit costs (Note 2). 46




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures (a) Evaluation of disclosure controls and procedures Management of the Company carried out an evaluation, under the supervision and with the
participation of the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2004, which is the end of the period covered by this
report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that such controls and procedures are effectively designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the
Companys management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. (b) Changes in internal control over financial reporting There has been no change in the Companys internal control over financial reporting during the
fourth quarter of 2004 that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting. 
 Item 9B. Other Information None. 47




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##### Table of Contents



Part III 
 Item 10. Directors and Executive Officers of the Registrant 
 Item 11. Executive Compensation 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters 
 Item 13. Certain Relationships and Related Transactions All omitted per general instruction I (2) (c) of Form 10-K for wholly owned subsidiaries
(reduced disclosure format). 
 Item 14. Principal Accountant Fees and Services For the years ended December 31, 2004 and 2003, professional services were performed by
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, Deloitte). The following table presents fees for professional services
rendered by Deloitte for the audit of MichCons annual financial statements for the years ended
December 31, 2004 and December 31, 2003, and fees billed for other services rendered by Deloitte
during those periods. 2004
    
    
    2003Audit fees (1)
    
    $
    1,304,900
    
    
    $
    788,736Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total
    
    $
    1,304,900
    
    
    $
    788,736
   (1)
    
    Represents the aggregate fees billed for the audit of MichCons annual financial
statements and for the reviews of the financial statements included in MichCons Quarterly Reports on
Form 10-Q. The above listed fees were
pre-approved by the DTE Energy audit committee. Prior to engagement, the DTE Energy audit committee pre-approves these services by category of
service. The DTE Energy audit committee may delegate to the chair of the audit committee, or to
one or more other designated members of the audit committee, the authority to grant pre-approvals
of all permitted services or classes of these permitted services to be provided by the
independent auditor up to but not exceeding a pre-defined limit. The decisions of the designated
member to pre-approve a permitted service will be reported to the DTE Energy audit committee at
least quarterly. 
 Part IV 
 Item 15. Exhibits and Financial Statement Schedules  (a)
    The following documents are filed as part of this Annual Report on Form 10-K.  (1)
    Consolidated financial statements. See Item 8  Financial Statements and Supplementary
Data. 48




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##### Table of Contents



(2)
    Financial statement schedule. See Item 8  Financial Statements and Supplementary Data.(3)
    Exhibits. Exhibit No.
    
    Description(i)
    
    Exhibits filed herewith.12-5
    
    Computation of Ratio of Earnings to Fixed Charges.18-1
    
    Letter Regarding Change in Accounting Principle.31-13
    
    Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report.31-14
    
    Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report.(ii)
    
    Exhibits incorporated herein by reference.3(a)
    
    Restated Articles of Incorporation (Exhibit 3-1 to Form 10-Q for quarter ended
March 31, 1993).3(b)
    
    By-Laws (Exhibit 3-2 to Form 10-Q for quarter ended March 31, 1993).4(a)
    
    Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company
and Citibank, N.A., as trustee, related to Senior Debt Securities (Exhibit 4-1
to Registration Statement No. 333-63370).4(b)
    
    First Supplemental Indenture dated as of June 18, 1998, establishing
Extendable Mandatory Par Put Remarketed Securities(SM) due June 30, 2038 and
Resetable Mandatory Putable/Remarketable Securities, due June 30, 2038
(Exhibit 4-1 to Form 8-K dated June 18, 1998).4(c)
    
    Second Supplemental Indenture dated as of June 9, 1999, establishing 6.85%
Senior Secured Insured Quarterly Notes due 2038 and 6.85% Senior Notes due
2039 (Exhibit 4-1 to Form 8-K dated June 4, 1999).4(d)
    
    Third Supplemental Indenture dated as of August 15, 2001, establishing 6 1/8%
Senior Notes due 2008 (Exhibit 4-2 to Form 10-Q for quarter ended September
30, 2001).4(e)
    
    Fourth Supplemental Indenture dated as of February 15, 2003, establishing
5.70% Senior Notes, 2003 Series A due 2033 (Exhibit 4-3 to Form 10-Q for
quarter ended March 31, 2003).4(f)
    
    Fifth Supplemental Indenture dated as of October 1, 2004, establishing 5.00%
Senior Notes, 2004 Series E due 2019 (Exhibit 4-6 to Form 10-Q for quarter
ended September 31, 2004).4(g)
    
    Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 (Exhibit 7-D
to Registration Statement No. 2-5252).
 49




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##### Table of Contents



Exhibit No.
    
    Description4(h)
    
    Twenty-ninth Supplemental Indenture dated as of July 15, 1989, among Michigan
Consolidated Gas Company and Citibank, N.A. and Robert T. Kirchner, as
trustees, creating an issue of first mortgage bonds and providing for the
modification and restatement of the Indenture of Mortgage and Deed of Trust
dated as of March 1, 1944 (Exhibit 4-2 to Registration Statement No.
333-63370).4(i)
    
    Thirtieth Supplemental Indenture dated as of September 1, 1991, creating first
mortgage bonds, 9 1/2 Series due 2021 (Exhibit 4-1 to Form 8-K dated September
27, 1991).4(j)
    
    Thirty-first Supplemental Indenture dated as of December 15, 1991, creating
first mortgage bonds designated Secured Term Notes, Series A (Exhibit 4-1 to
Form 8-K dated February 28, 1992).4(k)
    
    Thirty-second Supplemental Indenture dated as of January 5, 1993, creating
first mortgage bonds designated Secured Term Notes, Series B (Exhibit 4-1 to
Form 10-K for year ended December 31, 1992).4(l)
    
    Thirty-third Supplemental Indenture dated as of May 1, 1995, creating first
mortgage bonds designated Secured Medium Term Notes, Series B (Exhibit 4-2 to
Registration Statement No. 33-59093).4(m)
    
    Thirty-fourth Supplemental Indenture dated as of November 1, 1996, creating
first mortgage bonds designated Secured Medium Term Notes, Series C (Exhibit
4-2 to Registration Statement No. 333-16285).4(n)
    
    Thirty-fifth Supplemental Indenture dated as of June 18, 1998, creating an
issue of first mortgage bonds designated as collateral bonds (Exhibit 4-2 to
Form 8-K dated June 18, 1998).4(o)
    
    Thirty-sixth Supplemental Indenture dated as of August 15, 2001, creating
6 1/8% collateral bonds due 2008 (Exhibit 4-3 to Form 10-Q for quarter ended
September 30, 2001).4(p)
    
    Thirty-seventh Supplemental Indenture dated as of February 15, 2003,
establishing the 5.70% collateral bonds due 2033 (Exhibit 4-4 to Form 10-Q for
quarter ended March 31, 2003).4(q)
    
    Thirty-eighth Supplemental Indenture dated as of October 1, 2004, establishing
the 2004 Series E collateral bonds (Exhibit 4-5 to Form 10-Q for quarter ended
September 31, 2004).10(a)
    
    MichCon Investment and Stock Ownership Plan, as amended and restated effective
as of January 1, 1998 (Exhibit 10-12 to Form 10-K for the year ended December
31, 1998).10(b)
    
    Five-Year Credit Agreement dated as of October 15, 2004 among Michigan
Consolidated Gas Company, Bank One, N.A., as administrative agent, and the
Lenders named therein ($243,750,000) (Exhibit 10.1 to Form 8-K dated October
15, 2004).99(a)
    
    Three-Year Credit Agreement dated as of October 24, 2003 among Michigan
Consolidated Gas Company, Bank One, N.A., as administrative agent, and the
Lenders named therein (as amended by the Five-Year Credit Agreement identified
as Exhibit 10(b) above, $81,250,000) (Exhibit 99-12 to Form 10-Q for quarter
ended September 30, 2003).
 50




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##### Table of Contents



Exhibit No.
    
    Description(iii)
    
    Exhibits furnished herewith.32-13
    
    Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report.32-14
    
    Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report.
 51




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##### Table of Contents



MICHIGAN CONSOLIDATED
GAS COMPANY SCHEDULE
II  VALUATION AND QUALIFYING ACCOUNTS   (in Millions)
    
    
    
    
    
    Additions
    
    
    DeductionsProvisions charged to
    
    
    for PurposesBalance at
    
    
    
    
    
    
    Utility Plant/
    
    
    for Which the
    
    
    BalanceBeginning
    
    
    
    
    
    
    Regulatory
    
    
    Reserves Were
    
    
    at EndDescription
    
    of Period
    
    
    Income
    
    
    Asset
    
    
    Provided
    
    
    of PeriodYear Ended December 31, 2004Reserve deducted from Assets in
Consolidated Statement of Financial Position:Allowance for doubtful accounts
    
    $
    43
    
    
    $
    62
    
    
    $
    4
    
    
    $
    38
    
    
    $
    71Reserve included in Current Liabilities  Other
and in Accrued Environmental Costs
in Consolidated Statement of Financial Position:Environmental
    
    $
    21
    
    
    $
    1
    
    
    $
    3
    
    
    $
    2
    
    
    $
    23Year Ended December 31, 2003Reserve deducted from Assets in
Consolidated Statement of Financial Position:Allowance for doubtful accounts
    
    $
    27
    
    
    $
    39
    
    
    $
    
    
    
    $
    23
    
    
    $
    43Reserve included in Current Liabilities  Other
and in Accrued Environmental Costs
in Consolidated Statement of Financial Position:Environmental
    
    $
    22
    
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    21Year Ended December 31, 2002Reserve deducted from Assets in
Consolidated Statement of Financial Position:Allowance for doubtful accounts
    
    $
    21
    
    
    $
    21
    
    
    $
    
    
    
    $
    15
    
    
    $
    27Reserve included in Current Liabilities  Other
and in Accrued Environmental Costs
in Consolidated Statement of Financial Position:Environmental
    
    $
    25
    
    
    $
    
    
    
    $
    
    
    
    $
    3
    
    
    $
    22
   52




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. MICHIGAN CONSOLIDATED GAS COMPANY(Registrant)Date: March 15, 2005
    By:
    /s/ DANIEL G. BRUDZYNSKIDaniel G. BrudzynskiChief Accounting Officer,
Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated. By
    
    /s/ ANTHONY F. EARLEY, JR.
    
    By
    
    /s/ DANIEL G. BRUDZYNSKIAnthony F. Earley, Jr.
    
    
    
    Daniel G. BrudzynskiChairman of the Board and
    
    
    
    Chief Accounting Officer,Chief Executive Officer
    
    
    
    Vice President and ControllerBy
    
    
    
    By
    
    /s/ DAVID E. MEADORSusan M. Beale
    
    
    
    David E. MeadorDirector, Vice President
    
    
    
    Director, Executive Viceand Corporate Secretary
    
    
    
    President and Chief
Financial Officer
 Date            March 15, 2005 53




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description(i)
    
    Exhibits filed herewith.12-5
    
    Computation of Ratio of Earnings to Fixed Charges.18-1
    
    Letter Regarding Change in Accounting Principle.31-13
    
    Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report.31-14
    
    Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report.(ii)
    
    Exhibits incorporated herein by reference.3(a)
    
    Restated Articles of Incorporation (Exhibit 3-1 to Form 10-Q for quarter ended
March 31, 1993).3(b)
    
    By-Laws (Exhibit 3-2 to Form 10-Q for quarter ended March 31, 1993).4(a)
    
    Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company
and Citibank, N.A., as trustee, related to Senior Debt Securities (Exhibit 4-1
to Registration Statement No. 333-63370).4(b)
    
    First Supplemental Indenture dated as of June 18, 1998, establishing
Extendable Mandatory Par Put Remarketed Securities(SM) due June 30, 2038 and
Resetable Mandatory Putable/Remarketable Securities, due June 30, 2038
(Exhibit 4-1 to Form 8-K dated June 18, 1998).4(c)
    
    Second Supplemental Indenture dated as of June 9, 1999, establishing 6.85%
Senior Secured Insured Quarterly Notes due 2038 and 6.85% Senior Notes due
2039 (Exhibit 4-1 to Form 8-K dated June 4, 1999).4(d)
    
    Third Supplemental Indenture dated as of August 15, 2001, establishing 6 1/8%
Senior Notes due 2008 (Exhibit 4-2 to Form 10-Q for quarter ended September
30, 2001).4(e)
    
    Fourth Supplemental Indenture dated as of February 15, 2003, establishing
5.70% Senior Notes, 2003 Series A due 2033 (Exhibit 4-3 to Form 10-Q for
quarter ended March 31, 2003).4(f)
    
    Fifth Supplemental Indenture dated as of October 1, 2004, establishing 5.00%
Senior Notes, 2004 Series E due 2019 (Exhibit 4-6 to Form 10-Q for quarter
ended September 31, 2004).4(g)
    
    Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 (Exhibit 7-D
to Registration Statement No. 2-5252).




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##### Table of Contents



Exhibit No.
    
    Description4(h)
    
    Twenty-ninth Supplemental Indenture dated as of July 15, 1989, among Michigan
Consolidated Gas Company and Citibank, N.A. and Robert T. Kirchner, as
trustees, creating an issue of first mortgage bonds and providing for the
modification and restatement of the Indenture of Mortgage and Deed of Trust
dated as of March 1, 1944 (Exhibit 4-2 to Registration Statement No.
333-63370).4(i)
    
    Thirtieth Supplemental Indenture dated as of September 1, 1991, creating first
mortgage bonds, 9 1/2 Series due 2021 (Exhibit 4-1 to Form 8-K dated September
27, 1991).4(j)
    
    Thirty-first Supplemental Indenture dated as of December 15, 1991, creating
first mortgage bonds designated Secured Term Notes, Series A (Exhibit 4-1 to
Form 8-K dated February 28, 1992).4(k)
    
    Thirty-second Supplemental Indenture dated as of January 5, 1993, creating
first mortgage bonds designated Secured Term Notes, Series B (Exhibit 4-1 to
Form 10-K for year ended December 31, 1992).4(l)
    
    Thirty-third Supplemental Indenture dated as of May 1, 1995, creating first
mortgage bonds designated Secured Medium Term Notes, Series B (Exhibit 4-2 to
Registration Statement No. 33-59093).4(m)
    
    Thirty-fourth Supplemental Indenture dated as of November 1, 1996, creating
first mortgage bonds designated Secured Medium Term Notes, Series C (Exhibit
4-2 to Registration Statement No. 333-16285).4(n)
    
    Thirty-fifth Supplemental Indenture dated as of June 18, 1998, creating an
issue of first mortgage bonds designated as collateral bonds (Exhibit 4-2 to
Form 8-K dated June 18, 1998).4(o)
    
    Thirty-sixth Supplemental Indenture dated as of August 15, 2001, creating
6 1/8% collateral bonds due 2008 (Exhibit 4-3 to Form 10-Q for quarter ended
September 30, 2001).4(p)
    
    Thirty-seventh Supplemental Indenture dated as of February 15, 2003,
establishing the 5.70% collateral bonds due 2033 (Exhibit 4-4 to Form 10-Q for
quarter ended March 31, 2003).4(q)
    
    Thirty-eighth Supplemental Indenture dated as of October 1, 2004, establishing
the 2004 Series E collateral bonds (Exhibit 4-5 to Form 10-Q for quarter ended
September 31, 2004).10(a)
    
    MichCon Investment and Stock Ownership Plan, as amended and restated effective
as of January 1, 1998 (Exhibit 10-12 to Form 10-K for the year ended December
31, 1998).10(b)
    
    Five-Year Credit Agreement dated as of October 15, 2004 among Michigan
Consolidated Gas Company, Bank One, N.A., as administrative agent, and the
Lenders named therein ($243,750,000) (Exhibit 10.1 to Form 8-K dated October
15, 2004).99(a)
    
    Three-Year Credit Agreement dated as of October 24, 2003 among Michigan
Consolidated Gas Company, Bank One, N.A., as administrative agent, and the
Lenders named therein (as amended by the Five-Year Credit Agreement identified
as Exhibit 10(b) above, $81,250,000) (Exhibit 99-12 to Form 10-Q for quarter
ended September 30, 2003).




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##### Table of Contents



Exhibit No.
    
    Description(iii)
    
    Exhibits furnished herewith.32-13
    
    Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report.32-14
    
    Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report.