##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q

|                                                 |  |                                                                                          
|------------------------------------------------ |  | -----------------------------------------------------------------------------------------
|                                                
|                                                
|                                                
|                                                
|(Mark One)                                      
|[X]                                              |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                
|For the quarterly period ended June 30, 2000, or
|                                                
|[     ]                                          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
                    to

Commission file number 1-10070

MCN ENERGY GROUP INC.

(Exact name of registrant as specified in its charter)

Michigan





500 Griswold Street, Detroit, Michigan



38-2820658






48226



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

No Changes

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

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

Yes  [X]
            No 
 [   ]

Number of shares outstanding of
each of the registrants classes of common stock, as of
August 11, 2000:

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



---






---

TABLE OF CONTENTS



|                                                                                      |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Managements Discussion And Analysis of Financial Condition and Results of Operations
|MARKET RISK INFORMATION                                                              
|NEW ACCOUNTING PRONOUNCEMENTS                                                        
|FORWARD-LOOKING STATEMENTS                                                           
|AVAILABLE INFORMATION                                                                
|Consolidated Statement of Financial Position (Unaudited)                             
|Consolidated Statement of Financial Position (Unaudited)                             
|Consolidated Statement of Operations (Unaudited)                                     
|Consolidated Statement of Retained Earnings (Deficit) (Unaudited)                    
|Consolidated Statement of Cash Flows (Unaudited)                                     
|Notes to the Consolidated Financial Statements                                       
|Consolidating Statement of Financial Position                                        
|CONSOLIDATING STATEMENTS OF OPERATIONS                                               
|Other Information Exhibits And Reports On Form 8-K                                   
|Signature                                                                            
|Exhibit Index                                                                        
|Letter re unaudited interim                                                          
|Letter re Change in Accounting Principles                                            
|Financial Data Schedule                                                              



---



INDEX TO FORM 10-Q

For Quarter Ended June 30, 2000

|                                                                                                               |  |        |    | 
|-------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                               |  | Page  
|                                                                                                               |  | Number
|                                                                                                               |  |       
|COVER                                                                                                          |  |        | i  | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|INDEX                                                                                                          |  |        | ii | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|PART I   FINANCIAL INFORMATION                                                                                |  |        |    | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 1. Financial Statements                                                                                   |  |        | 22 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 2. Managements Discussion and Analysis of
	Financial
	            Condition and Results of 
	 Operations |  |        | 1  | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|PART II  OTHER INFORMATION                                                                                    |  |        |    | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 5. Other Information                                                                                      |  |        | 46 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Item 6. Exhibits and Reports on Form 8-K                                                                       |  |        | 46 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|SIGNATURE                                                                                                      |  |        | 47 | 

ii



---



##### Table of Contents








MANAGEMENTS DISCUSSION AND ANALYSIS


OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Results reflect Energy Marketing losses, asset sales and
reduced contributions from MichCons gas sales program MCNs earnings for the 2000 second quarter were
$22.2 million or $.25 per diluted share compared with losses
 of $78.7 million or $.94 per share for the 1999 second quarter.
Earnings for the 2000 six-month period were $91.7 million or
 $1.03 per diluted share compared to earnings of
$10.2 million or $.12 per diluted share for the same 1999
period. Earnings for the 2000 twelve-month period were
$62.5 million or $.72 per diluted share compared to losses
of $149.0 million or $1.86 per share in the corresponding
1999 period. As subsequently discussed, the comparability of
earnings was affected by the impact of several unusual items,
merger costs and an accounting change for start-up costs. Also
affecting comparability was the implementation of mark-to-market
accounting for storage-related trading activities, in combination
 with a change in accounting for inventory (Notes 3 and 4).

|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |        |  
|--------------------------------------------- | ------------------------------------- | ------- | ---- | -------- | - | --------- | ----- | ----- | - | ---- | ---- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ------ | -
|                                             
|                                             
|                                              |                                       |         |      |          |   |          
|                                              |                                       | Quarter |      | 6 Months |   | 12 Months
|                                              |                                       |         |      |          |   |          
|                                              |                                       | 2000    |      | 1999     |   | 2000      |       | 1999  |   | 2000 |      | 1999 
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |      
|(in Millions, Except Per Share Amounts)       |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|Net Income (Loss)                             |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|Diversified Energy:                           |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         | $    | (25.5    | ) |           | $     | (3.2  | ) |      | $    | (31.0 | ) |   | $     | 2.3   |   |   | $     | (55.9 | ) |   | $      | (15.7  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |      | 45.8     |   |           |       | (81.8 | ) |      |      | 54.1  |   |   |       | (79.8 | ) |   |       | 42.9  |   |   |        | (227.4 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (.9      | ) |           |       |      |   |      |      | (.9   | ) |   |       |      |   |   |       | (6.8  | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | 19.4 |          |   |           | (85.0 | )     |   |      | 22.2 |       |   |   | (77.5 | )     |   |   | (19.8 | )     |   |   | (243.1 | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|Gas Distribution:                             |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |      | 3.5      |   |           |       | 6.3   |   |      |      | 70.4  |   |   |       | 90.6  |   |   |       | 100.0 |   |   |        | 113.7  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5f)               |         |      |         |   |           |       |      |   |      |      |      |   |   |       |      |   |   |       |      |   |   |        | (16.7  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (.7      | ) |           |       |      |   |      |      | (.9   | ) |   |       |      |   |   |       | (17.7 | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | 2.8  |          |   |           | 6.3   |       |   |      | 69.5 |       |   |   | 90.6  |       |   |   | 82.3  |       |   |   | 97.0   |       
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|Total Before Accounting Change:               |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |      | (22.0    | ) |           |       | 3.1   |   |      |      | 39.4  |   |   |       | 92.9  |   |   |       | 44.1  |   |   |        | 98.0   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |      | 45.8     |   |           |       | (81.8 | ) |      |      | 54.1  |   |   |       | (79.8 | ) |   |       | 42.9  |   |   |        | (244.1 | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (1.6     | ) |           |       |      |   |      |      | (1.8  | ) |   |       |      |   |   |       | (24.5 | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | 22.2 |          |   |           | (78.7 | )     |   |      | 91.7 |       |   |   | 13.1  |       |   |   | 62.5  |       |   |   | (146.1 | )     
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-up Costs (Note 7) |                                       |         |     |          |   |           |      |       |   |      |     |       |   |   | (2.9  | )     |   |   |      |       |   |   | (2.9   | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       | $       | 22.2 |          |   | $         | (78.7 | )     |   | $    | 91.7 |       |   | $ | 10.2  |       |   | $ | 62.5  |       |   | $ | (149.0 | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|Diluted Earnings (Loss) Per Share             |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|Diversified Energy:                           |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         | $    | (.29     | ) |           | $     | (.04  | ) |      | $    | (.31  | ) |   | $     | .03   |   |   | $     | (.64  | ) |   | $      | (.20   | )
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |      | .52      |   |           |       | (.98  | ) |      |      | .59   |   |   |       | (.97  | ) |   |       | .49   |   |   |        | (2.83  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (.01     | ) |           |       |      |   |      |      | (.01  | ) |   |       |      |   |   |       | (.08  | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | .22  |          |   |           | (1.02 | )     |   |      | .27  |       |   |   | (.94  | )     |   |   | (.23  | )     |   |   | (3.03  | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|Gas Distribution:                             |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |      | .04      |   |           |       | .08   |   |      |      | .77   |   |   |       | 1.10  |   |   |       | 1.15  |   |   |        | 1.42   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5f)               |         |      |         |   |           |       |      |   |      |      |      |   |   |       |      |   |   |       |      |   |   |        | (.21   | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (.01     | ) |           |       |      |   |      |      | (.01  | ) |   |       |      |   |   |       | (.20  | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | .03  |          |   |           | .08   |       |   |      | .76  |       |   |   | 1.10  |       |   |   | .95   |       |   |   | 1.21   |       
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|Total Before Accounting Change:               |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Before unusual items and merger costs |         |      | (.25     | ) |           |       | .04   |   |      |      | .46   |   |   |       | 1.13  |   |   |       | .51   |   |   |        | 1.22   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Unusual items (Note 5)                |         |      | .52      |   |           |       | (.98  | ) |      |      | .59   |   |   |       | (.97  | ) |   |       | .49   |   |   |        | (3.04  | )
|                                             
|                                             
|                                             
|                                             
|                                              | Merger costs (Note 2)                 |         |      | (.02     | ) |           |       |      |   |      |      | (.02  | ) |   |       |      |   |   |       | (.28  | ) |   |        |       |  
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       |         | .25  |          |   |           | (.94  | )     |   |      | 1.03 |       |   |   | .16   |       |   |   | .72   |       |   |   | (1.82  | )     
|                                             
|                                             
|                                             
|                                             
|Accounting Change for Start-up Costs (Note 7) |                                       |         |     |          |   |           |      |       |   |      |     |       |   |   | (.04  | )     |   |   |      |       |   |   | (.04   | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                              |                                       | $       | .25  |          |   | $         | (.94  | )     |   | $    | 1.03 |       |   | $ | .12   |       |   | $ | .72   |       |   | $ | (1.86  | )     
|                                              |                                       |         |      |          |   |           |       |       |   |      |      |       |   |   |       |       |   |   |       |       |   |   |        |       
|                                             

1



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Excluding the unusual items, merger costs and the accounting
change for start-up costs, MCNs earnings decreased
$25.1 million or $.29 per diluted share in the 2000 quarter,
 $53.5 million or $.67 per diluted share in the 2000
six-month period and $53.9 million or $.71 per diluted share
 in the 2000 twelve-month period, as compared to the
corresponding 1999 periods. The earnings comparisons reflect
losses within the Diversified Energy group as well as reduced
contributions from the Gas Distribution segment.

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

|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |     | 
|--------------------------------------- |  | ------- | ---- | -------- |  | --------- | --- | ---- |  | ---- | ---- | ---- |  | - | ---- |  |  | - | ---- |  |  | - | --- | 
|                                       
|                                       
|                                        |  |         |      |          |  |          
|                                        |  | Quarter |      | 6 Months |  | 12 Months
|                                        |  |         |      |          |  |          
|                                        |  | 2000    |      | 1999     |  | 2000      |     | 1999 |  | 2000 |      | 1999
|(in Millions, Except Per Share Amounts) |  |         |      |          |  |           |     |      |  |      |      |     
|Net Income                              |  | $       | 26.6 |          |  | $         | 7.6 |      |  | $    | 37.2 |      |  | $ | 10.9 |  |  | $ | 38.2 |  |  | $ | 4.4 | 
|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |     | 
|Diluted Earnings Per Share              |  | $       | .30  |          |  | $         | .09 |      |  | $    | .40  |      |  | $ | .13  |  |  | $ | .44  |  |  | $ | .05 | 
|                                        |  |         |      |          |  |           |     |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |     | 
|                                       

Pending merger  MCN and DTE Energy
Company (DTE) signed a definitive merger agreement dated
October 4, 1999 under which DTE will acquire all outstanding
 shares of MCN common stock. The boards of directors and
shareholders of both companies have approved the proposed merger.
 The transaction is subject to regulatory approvals and other
customary merger conditions. Both companies continue their
discussions with the Federal Trade Commission (FTC) in
connection with its review of the proposed merger. Because of the
 length of the FTC review, it appears unlikely that the
transaction will be completed before the fourth quarter of 2000.
MCN recorded legal, accounting, employee benefit and other
expenses associated with the merger which had the effect of
reducing earnings by $1.6 million for the 2000 quarter,
$1.8 million for the 2000 six-month period and
$24.5 million for the 2000 twelve-month period. MCN will
incur additional merger-related costs during 2000.

Strategic direction  MCNs
objective is to achieve competitive long-term returns for its
shareholders. In 1999, MCN significantly revised its strategic
direction that now includes: focusing on the Midwest-to-Northeast
 region; emphasizing operational efficiencies and growth through
the integration of existing businesses; and reducing capital
investment levels to approximately $150 million to
$350 million annually.

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

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

Midstream & Supplydevelops and manages MCNs gas
 producing, gathering, processing, storage and transmission
facilities within the Midwest-to-Northeast target region. It also
 integrates all of MCNs gas-supply functions, including
purchasing the commodity itself and aggregating the
transportation and storage capacity required to deliver gas to
the Gas Distribution, Energy Marketing and Power segments.

2



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Energy Marketingconsists of MCNs non-regulated
marketing activities as well as trading activities. The marketing
 activities primarily relate to industrial and commercial
customers, both inside and outside the Gas Distribution
segments service areas. The segment also provides
full-service energy solutions to business customers. Trading
activities are utilized to optimize the value of storage assets.

Powerdevelops and manages independent electric power
projects that produce electricity and other useful forms of
thermal energy, such as steam.

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

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

|                                        |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |        |  
|--------------------------------------- | ---------------------------------- | ------- | ---- | -------- |  | --------- | ----- | ----- | - | ---- | ---- | ---- |  | - | ----- | ----- | - | - | ---- | ---- | - | - | ------ | ------ | -
|                                       
|                                       
|                                        |                                    |         |      |          |  |          
|                                        |                                    | Quarter |      | 6 Months |  | 12 Months
|                                        |                                    |         |      |          |  |          
|                                        |                                    | 2000    |      | 1999     |  | 2000      |       | 1999  |   | 2000 |      | 1999
|                                        |                                    |         |      |          |  |           |       |       |   |      |      |     
|(in Millions, Except Per Share Amounts) |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|                                       
|                                       
|                                       
|                                       
|Unusual Items (Net of Taxes)            |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|Diversified Energy                      |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines & Processing (Note 5a)   |         | $    | 15.7     |  |           | $     |      |   |      | $    | 17.9 |  |   | $     |      |   |   | $    | 17.9 |   |   | $      | (89.5  | )
|                                       
|                                       
|                                       
|                                       
|                                        | Electric Power (Note 5b)           |         |      | 28.0     |  |           |       |      |   |      |      | 30.3 |  |   |       |      |   |   |      | 27.1 |   |   |        | (1.6   | )
|                                       
|                                       
|                                       
|                                       
|                                        | Energy Marketing (Note 5c)         |         |      |         |  |           |       |      |   |      |      |     |  |   |       |      |   |   |      | (1.6 | ) |   |        |       |  
|                                       
|                                       
|                                       
|                                       
|                                        | Exploration & Production (Note 5d) |         |      | 2.1      |  |           |       | (81.8 | ) |      |      | 5.9  |  |   |       | (79.8 | ) |   |      | (.5  | ) |   |        | (129.6 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Corporate & Other (Note 5e)        |         |      |         |  |           |       |      |   |      |      |     |  |   |       |      |   |   |      |     |   |   |        | (6.7   | )
|                                        |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|                                        |                                    |         |      | 45.8     |  |           |       | (81.8 | ) |      |      | 54.1 |  |   |       | (79.8 | ) |   |      | 42.9 |   |   |        | (227.4 | )
|                                       
|                                       
|                                       
|                                       
|Gas Distribution (Note 5f)              |                                    |         |     |          |  |           |      |       |   |      |     |      |  |   |      |       |   |   |     |      |   |   | (16.7  | )     
|                                        |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|                                        |                                    | $       | 45.8 |          |  | $         | (81.8 | )     |   | $    | 54.1 |      |  | $ | (79.8 | )     |   | $ | 42.9 |      |   | $ | (244.1 | )     
|                                        |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|Diluted Earnings (Loss) Per Share       |                                    | $       | .52  |          |  | $         | (.98  | )     |   | $    | .59  |      |  | $ | (.97  | )     |   | $ | .49  |      |   | $ | (3.04  | )     
|                                        |                                    |         |      |          |  |           |       |       |   |      |      |      |  |   |       |       |   |   |      |      |   |   |        |       
|                                       

Diversified Energy

Results reflect Energy Marketing losses and asset sales The Diversified Energy groups earnings were
$19.4 million and $22.2 million for the 2000 quarter
and six-month period, respectively, compared to losses of
$85.0 million and $77.5 million for the same 1999
periods. Diversified Energy had losses of $19.8 million in
the 2000 twelve-month period compared to losses of $243.1 million
 in the corresponding 1999 period. The comparability of results
was impacted by several unusual items and merger costs, as
previously discussed. Excluding the unusual items and merger
costs, Diversified Energys earnings declined by
$22.3 million, $33.3 million and $40.2 million in
the 2000 quarter, six- and twelve-month periods, respectively.
The results for all three 2000 periods reflect losses of the
Energy Marketing segment and reduced earnings attributable to the
 sale of properties and joint

3



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


venture interests in the Exploration & Production (E&P),
Pipelines & Processing and Electric Power segments.

|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |         |  
|------------------------------------ | ------------------------------------------------- | ------- | ----- | -------- | - | --------- | ------ | ----- | - | ---- | ----- | ----- | - | - | ------ | ----- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                    
|                                    
|                                     |                                                   |         |       |          |   |          
|                                     |                                                   | Quarter |       | 6 Months |   | 12 Months
|                                     |                                                   |         |       |          |   |          
|                                     |                                                   | 2000    |       | 1999     |   | 2000      |        | 1999  |   | 2000 |       | 1999 
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |      
|(in Millions)                        |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|Diversified Energy Operations        |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|Operating Revenues*                  |                                                   | $       | 303.2 |          |   | $         | 309.7  |       |   | $    | 775.3 |       |   | $ | 608.3  |       |   | $ | 1,510.0 |         |   | $ | 1,086.0 |        
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Operating Expenses*                  |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items (Note 5)                            |         |       | (70.4    | ) |           |        | 118.3 |   |      |       | (83.3 | ) |   |        | 115.3 |   |   |         | (66.0   | ) |   |         | 342.4   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Merger costs (Note 2)                             |         |       | 1.4      |   |           |        |      |   |      |       | 1.4   |   |   |        |      |   |   |         | 10.5    |   |   |         |        |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other operating expenses                          |         |       | 326.4    |   |           |        | 302.3 |   |      |       | 795.2 |   |   |        | 581.8 |   |   |         | 1,543.8 |   |   |         | 1,077.6 |  
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                     |                                                   |         | 257.4 |          |   |           | 420.6  |       |   |      | 713.3 |       |   |   | 697.1  |       |   |   | 1,488.3 |         |   |   | 1,420.0 |        
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Operating Income (Loss)              |                                                   |         | 45.8  |          |   |           | (110.9 | )     |   |      | 62.0  |       |   |   | (88.8  | )     |   |   | 21.7    |         |   |   | (334.0  | )      
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Equity in Earnings of Joint Ventures |                                                   |         | 5.1   |          |   |           | 11.6   |       |   |      | 15.3  |       |   |   | 23.6   |       |   |   | 42.1    |         |   |   | 56.6    |        
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Other Income & (Deductions)*         |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                   |         |       | 1.1      |   |           |        | 1.5   |   |      |       | 3.2   |   |   |        | 2.0   |   |   |         | 5.4     |   |   |         | 2.8     |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                  |         |       | (13.0    | ) |           |        | (15.4 | ) |      |       | (28.4 | ) |   |        | (32.2 | ) |   |         | (59.6   | ) |   |         | (64.8   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends on preferred securities of subsidiaries |         |       | (7.5     | ) |           |        | (10.4 | ) |      |       | (16.1 | ) |   |        | (20.7 | ) |   |         | (35.5   | ) |   |         | (38.1   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Investment losses (Note 5d)                       |         |       |         |   |           |        | (7.5  | ) |      |       |      |   |   |        | (7.5  | ) |   |         |        |   |   |         | (7.5    | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                             |         |       | (1.6     | ) |           |        | 1.3   |   |      |       | (2.4  | ) |   |        | 4.6   |   |   |         | .6      |   |   |         | 4.3     |  
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                     |                                                   |         | (21.0 | )        |   |           | (30.5  | )     |   |      | (43.7 | )     |   |   | (53.8  | )     |   |   | (89.1   | )       |   |   | (103.3  | )      
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Income (Loss) Before Income Taxes    |                                                   |         | 29.9  |          |   |           | (129.8 | )     |   |      | 33.6  |       |   |   | (119.0 | )     |   |   | (25.3   | )       |   |   | (380.7  | )      
|                                    
|                                    
|                                    
|                                    
|Income Tax Provision (Benefit)       |                                                   |         | 10.5  |          |   |           | (44.8  | )     |   |      | 11.4  |       |   |   | (41.5  | )     |   |   | (5.5    | )       |   |   | (137.6  | )      
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|Net Income (Loss)                    |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual items                              |         |       | (25.5    | ) |           |        | (3.2  | ) |      |       | (31.0 | ) |   |        | 2.3   |   |   |         | (55.9   | ) |   |         | (15.7   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual items and merger costs (Notes 2 and 5)    |         |       | 44.9     |   |           |        | (81.8 | ) |      |       | 53.2  |   |   |        | (79.8 | ) |   |         | 36.1    |   |   |         | (227.4  | )
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                     |                                                   | $       | 19.4  |          |   | $         | (85.0  | )     |   | $    | 22.2  |       |   | $ | (77.5  | )     |   | $ | (19.8   | )       |   | $ | (243.1  | )      
|                                     |                                                   |         |       |          |   |           |        |       |   |      |       |       |   |   |        |       |   |   |         |         |   |   |         |        
|                                    



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

Operating and Joint Venture Income



4



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


month periods include increased Pipelines & Processing
earnings and a decline in earnings from the E&P segment.

|                                              |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |      |  
|--------------------------------------------- | ------------------------ | ------- | ----- | -------- | - | --------- | ------ | ---- |  | ---- | ---- | ----- | - | - | ------ | ---- |  | - | ---- | ----- | - | - | ------ | ---- | -
|                                             
|                                             
|                                              |                          |         |       |          |   |          
|                                              |                          | Quarter |       | 6 Months |   | 12 Months
|                                              |                          |         |       |          |   |          
|                                              |                          | 2000    |       | 1999     |   | 2000      |        | 1999 |  | 2000 |      | 1999 
|                                              |                          |         |       |          |   |           |        |      |  |      |      |      
|(in Millions)                                 |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                             
|                                             
|                                             
|                                             
|Operating and Joint Venture Income (Loss)     |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                             
|                                             
|                                             
|                                             
|Before Unusual Items:                         |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing   |         | $     | 3.9      |   |           | $      | 4.6  |  |      | $    | 9.7   |   |   | $      | 9.6  |  |   | $    | 19.3  |   |   | $      | 15.4 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power           |         |       | .7       |   |           |        | 3.9  |  |      |      | 2.5   |   |   |        | 11.4 |  |   |      | 14.1  |   |   |        | 25.0 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing         |         |       | (24.4    | ) |           |        | 9.4  |  |      |      | (20.1 | ) |   |        | 19.7 |  |   |      | (32.8 | ) |   |        | 5.8  |  
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production |         |       | 1.8      |   |           |        | .2   |  |      |      | 4.5   |   |   |        | 8.2  |  |   |      | 10.9  |   |   |        | 20.3 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Corporate & Other        |         |       | (.1      | ) |           |        | .9   |  |      |      | (1.2  | ) |   |        | 1.2  |  |   |      | (3.2  | ) |   |        | (1.5 | )
|                                              |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                              |                          |         | (18.1 | )        |   |           | 19.0   |      |  |      | (4.6 | )     |   |   | 50.1   |      |  |   | 8.3  |       |   |   | 65.0   |     
|                                             
|                                             
|                                             
|                                             
|Unusual Items and Merger Costs (Notes 2 &  5) |                          |         | 69.0  |          |   |           | (118.3 | )    |  |      | 81.9 |       |   |   | (115.3 | )    |  |   | 55.5 |       |   |   | (342.4 | )   
|                                              |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                              |                          | $       | 50.9  |          |   | $         | (99.3  | )    |  | $    | 77.3 |       |   | $ | (65.2  | )    |  | $ | 63.8 |       |   | $ | (277.4 | )   
|                                              |                          |         |       |          |   |           |        |      |  |      |      |       |   |   |        |      |  |   |      |       |   |   |        |     
|                                             

Pipelines & Processingoperating and joint
venture results, excluding unusual items, decreased
$.7 million in the 2000 quarter, and increased
$.1 million and $3.9 million in the 2000 six- and
twelve-month periods, respectively. Results for all three 2000
periods were unfavorably affected by the sale of interests in
pipeline projects that were located in areas outside MCNs
target region. The 2000 periods also include increased losses
from Pipelines & Processings interest in an asphalt
manufacturing plant as well as reduced contributions from certain
 joint ventures that had fixed returns. The asphalt facility was
designed to produce annually up to 100,000 tons of high-quality
asphalt. The plant is experiencing technical difficulties in
producing economical quantities of asphalt and, as a result, is
encountering operating losses. MCN is aggressively working to
resolve the technical issues. Pipelines & Processing recorded
 earnings in the 1999 periods from certain joint ventures where
its allocated income was based on its share of the ventures
 earnings but not less than a predetermined fixed amount. Joint
venture income from these investments in the 1999 periods was
based on the fixed amounts. Under the joint venture agreements,
the fixed amounts were lowered or eliminated in 2000.

Pipelines & Processings improved operating and joint
venture income for the 2000 six- and twelve-month periods
reflects contributions from new and expanded gas pipeline,
gathering and processing ventures. Gas processed to remove
natural gas liquids (NGLs) increased .8 billion cubic feet
(Bcf) and 19.7 Bcf in the 2000 six- and twelve-month
periods, respectively. In addition to the higher volumes, the
increased earnings are attributable to improved processing
margins. The 2000 six- and twelve-month periods also reflect
improved results from MCNs 25%-owned methanol production
venture resulting from higher methanol prices and margins as well
 as an increase in methanol volumes produced. Pipelines &
Processings average methanol sales prices increased 33% in
the 2000 six-month period and 25% in the 2000 twelve-month
period. Methanol production rose

5



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


8.9 million and 11.3 million gallons for the current
six- and twelve-month periods, respectively, primarily due to the
 shutdown of the methanol plant for scheduled maintenance in
March 1999.

|                                    |                             |         |      |          |  |           |      |      |  |      |      |      |  |  |       |      |  |  |       |      |  |  |       |      | 
|----------------------------------- | --------------------------- | ------- | ---- | -------- |  | --------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ----- | ---- |  |  | ----- | ---- |  |  | ----- | ---- | 
|                                   
|                                   
|                                    |                             |         |      |          |  |          
|                                    |                             | Quarter |      | 6 Months |  | 12 Months
|                                    |                             |         |      |          |  |          
|                                    |                             | 2000    |      | 1999     |  | 2000      |      | 1999 |  | 2000 |      | 1999
|                                    |                             |         |      |          |  |           |      |      |  |      |      |     
|Pipelines & Processing Statistics*  |                             |         |      |          |  |           |      |      |  |      |      |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|Methanol Produced (Million Gallons) |                             |         | 16.7 |          |  |           | 16.8 |      |  |      | 33.8 |      |  |  | 24.9  |      |  |  | 66.3  |      |  |  | 55.0  |     
|                                   
|                                   
|                                   
|                                   
|Transportation (Bcf)                |                             |         | 28.5 |          |  |           | 53.0 |      |  |      | 72.0 |      |  |  | 101.1 |      |  |  | 179.5 |      |  |  | 192.4 |     
|                                   
|                                   
|                                   
|                                   
|Gas Processed (Bcf):                |                             |         |      |          |  |           |      |      |  |      |      |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   
|                                   
|                                   
|                                   
|                                    | Carbon dioxide treatment    |         |      | 13.7     |  |           |      | 12.9 |  |      |      | 26.5 |  |  |       | 25.8 |  |  |       | 52.6 |  |  |       | 51.1 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Natural gas liquids removal |         |      | 14.8     |  |           |      | 22.6 |  |      |      | 32.3 |  |  |       | 31.5 |  |  |       | 73.8 |  |  |       | 54.1 | 
|                                    |                             |         |      |          |  |           |      |      |  |      |      |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                    |                             |         | 28.5 |          |  |           | 35.5 |      |  |      | 58.8 |      |  |  | 57.3  |      |  |  | 126.4 |      |  |  | 105.2 |     
|                                    |                             |         |      |          |  |           |      |      |  |      |      |      |  |  |       |      |  |  |       |      |  |  |       |     
|                                   



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

Electric Poweroperating and joint venture results,
 excluding unusual items, decreased $3.2 million,
$8.9 million and $10.9 million in the 2000 quarter,
six- and twelve-month periods, respectively. The declines in
earnings for all three 2000 periods reflect the sale of
interests in a number of power projects which were sold as a
condition of MCNs pending merger with DTE (Note 2).
MCN sold its 23% interest in the 1,370 megawatt (MW) Midland
 Cogeneration Venture facility and its 33% interest in the
42 MW Carson Cogeneration facility in the 2000 first
quarter. In addition, MCN sold its 50% interest in the
123 MW Michigan Power Project, its 50% interest in the
30 MW Ada Cogeneration facility and its 95% interest in the
140 MW Cobisa-Person facility in the 2000 second quarter.
Also contributing to the decreases was the sale in 1999 of
MCNs 40% interest in a joint venture that held minority
interests in electric distribution companies and power generation
 facilities in India.

|                         |                                   |         |   |          |  |           |       |       |  |      |       |       |  |  |         |         |  |  |         |         |  |  |         |         | 
|------------------------ | --------------------------------- | ------- | - | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                        
|                        
|                         |                                   |         |   |          |  |          
|                         |                                   | Quarter |   | 6 Months |  | 12 Months
|                         |                                   |         |   |          |  |          
|                         |                                   | 2000    |   | 1999     |  | 2000      |       | 1999  |  | 2000 |       | 1999 
|                         |                                   |         |   |          |  |           |       |       |  |      |       |      
|(Thousands of MW hours)* |                                   |         |   |          |  |           |       |       |  |      |       |       |  |  |         |         |  |  |         |         |  |  |         |        
|                        
|                        
|                        
|                        
|Electric Power           |                                   |         |   |          |  |           |       |       |  |      |       |       |  |  |         |         |  |  |         |         |  |  |         |        
|                        
|                        
|                        
|                        
|                         | Electricity Sales  Domestic      |         |   |         |  |           |       | 691.1 |  |      |       | 185.2 |  |  |         | 1,392.0 |  |  |         | 1,549.0 |  |  |         | 2,704.6 | 
|                        
|                        
|                        
|                        
|                         | Electricity Sales  International |         |   |         |  |           |       |      |  |      |       |      |  |  |         |        |  |  |         |        |  |  |         | 750.7   | 
|                         |                                   |         |   |          |  |           |       |       |  |      |       |       |  |  |         |         |  |  |         |         |  |  |         |        
|                         |                                   |         |  |          |  |           | 691.1 |       |  |      | 185.2 |       |  |  | 1,392.0 |         |  |  | 1,549.0 |         |  |  | 3,455.3 |        
|                         |                                   |         |   |          |  |           |       |       |  |      |       |       |  |  |         |         |  |  |         |         |  |  |         |        
|                        



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

Energy Marketingoperating and joint venture
results, excluding unusual items, decreased $33.8 million,
$39.8 million and $38.6 million in the 2000 quarter,
six- and twelve-month periods, respectively. Results for all
three 2000 periods were impacted by reduced gas sales margins,
significantly higher reserves for potentially uncollectible
accounts receivable balances, higher storage and transportation
expenses, and fair value and mark-to-market accounting
adjustments.

Energy Marketings gas sales margins have declined in all
three 2000 periods as a result of the narrowing or reversal of
seasonal and geographical price differentials. As subsequently
discussed, seasonal price differentials allow Energy Marketing to
 profit from its ability to purchase and store gas in the summer
months and sell such gas in winter months. Geographical price
differentials allow Energy Marketing to purchase lower priced gas
 in the Midcontinent/ Gulf Coast region, and transport and sell
such gas at higher prices in the Midwest and Eastern Regions. The
 lower price differentials have reduced the value of Energy
Marketings storage and transportation assets and

6



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


have continued into the 2000 third quarter. The decline in gas
sales margins in the 2000 second quarter and six-month period is
also attributable to a 56.7 Bcf and a 10.9 Bcf decrease in gas
sales and exchange gas deliveries, respectively. The decline in
gas sales and exchange gas deliveries is due in part to the
exiting of two marketing joint ventures during 2000.

|                 |                         |         |      |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|---------------- | ----------------------- | ------- | ---- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                
|                
|                 |                         |         |      |          |  |          
|                 |                         | Quarter |      | 6 Months |  | 12 Months
|                 |                         |         |      |          |  |          
|                 |                         | 2000    |      | 1999     |  | 2000      |       | 1999  |  | 2000 |       | 1999 
|                 |                         |         |      |          |  |           |       |       |  |      |       |      
|(Bcf)*           |                         |         |      |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|Energy Marketing |                         |         |      |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|                 | Gas Sales               |         |      | 87.8     |  |           |       | 144.5 |  |      |       | 262.3 |  |  |       | 282.6 |  |  |       | 565.4 |  |  |       | 518.8 | 
|                
|                
|                
|                
|                 | Exchange Gas Deliveries |         |      | .1       |  |           |       | .1    |  |      |       | 15.0  |  |  |       | 5.6   |  |  |       | 21.3  |  |  |       | 9.9   | 
|                 |                         |         |      |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                         |         | 87.9 |          |  |           | 144.6 |       |  |      | 277.3 |       |  |  | 288.2 |       |  |  | 586.7 |       |  |  | 528.7 |      
|                 |                         |         |      |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                



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

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

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

As discussed in Notes 3 and 4 to the Consolidated Financial
Statements included herein, Energy Marketing began trading
activities upon changing its operating strategy in the 2000
quarter to optimize the value of its storage assets. In
connection with this change in strategy, Energy Marketing also
changed to the Fair Value method of accounting for
gas in inventory and implemented mark-to-market accounting for
the related derivative financial and storage capacity contracts.
The fair value accounting change and the mark-to-market
adjustments had the effect of increasing Energy Marketings
operating and joint venture income by $1.1 million,
$12.2 million and $23.7 million for the 2000 quarter,
six- and twelve-month periods, respectively, compared to the same
 1999 periods.

|                                        |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |     | 
|--------------------------------------- | -------------------------- | ------- | - | -------- | - | --------- | - | ---- |  | ---- | - | ----- | - |  | - | ---- |  |  | - | ----- | - |  | - | --- | 
|                                       
|                                       
|                                        |                            |         |   |          |   |          
|                                        |                            | Quarter |   | 6 Months |   | 12 Months
|                                        |                            |         |   |          |   |          
|                                        |                            | 2000    |   | 1999     |   | 2000      |   | 1999 |  | 2000 |   | 1999 
|                                        |                            |         |   |          |   |           |   |      |  |      |   |      
|(in Millions, Except Per Share Amounts) |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                       
|                                       
|                                       
|                                       
|Energy Marketing Adjustments            |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                       
|                                       
|                                       
|                                       
|                                        | Mark-to-Market Accounting  |         | $ | (28.2    | ) |           | $ |     |  |      | $ | (28.2 | ) |  | $ |     |  |  | $ | (28.2 | ) |  | $ |    | 
|                                       
|                                       
|                                       
|                                       
|                                        | Fair Value Accounting      |         |   | 41.0     |   |           |   | 11.7 |  |      |   | 57.2  |   |  |   | 16.8 |  |  |   | 58.7  |   |  |   | 6.8 | 
|                                        |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                        | Pre-Tax Income             |         | $ | 12.8     |   |           | $ | 11.7 |  |      | $ | 29.0  |   |  | $ | 16.8 |  |  | $ | 30.5  |   |  | $ | 6.8 | 
|                                        |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                        | Net Income                 |         | $ | 8.3      |   |           | $ | 7.6  |  |      | $ | 18.8  |   |  | $ | 10.9 |  |  | $ | 19.8  |   |  | $ | 4.4 | 
|                                        |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                        | Diluted Earnings Per Share |         | $ | .09      |   |           | $ | .09  |  |      | $ | .21   |   |  | $ | .13  |  |  | $ | .23   |   |  | $ | .05 | 
|                                        |                            |         |   |          |   |           |   |      |  |      |   |       |   |  |   |      |  |  |   |       |   |  |   |    
|                                       

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

7



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


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

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

Exploration & Production operating and joint
venture income, excluding unusual items, increased
$1.6 million in the 2000 quarter, and decreased
$3.7 million and $9.4 million in the 2000 six- and
twelve-month periods, respectively. Results for all three 2000
periods were impacted by a significant decline in overall gas
production due to the sale of MCNs Western and
Midcontinent/ Gulf Coast E&P properties in early and
mid-1999, as well as the sale of its Appalachian properties in
December 1999. Gas and oil production decreased by
10.9 Bcf equivalent (Bcfe) in the 2000 quarter,
26.7 Bcfe in the 2000 six-month period and 43.3 Bcfe in
 the 2000 twelve-month period.

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

8



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


E&P operating and joint venture income was moderated by
hedging with swap and futures agreements, as discussed in the
Risk Management Strategy section that follows.

|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |      | 
|------------------------------------------- | ---------------------------------------------- | ------- | ---- | -------- |  | --------- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                                           
|                                           
|                                            |                                                |         |      |          |  |          
|                                            |                                                | Quarter |      | 6 Months |  | 12 Months
|                                            |                                                |         |      |          |  |          
|                                            |                                                | 2000    |      | 1999     |  | 2000      |      | 1999 |  | 2000 |      | 1999
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |     
|Exploration & Production Statistics         |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           
|                                           
|                                           
|                                           
|Gas and Oil Production (Bcf equivalent):    |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           
|                                           
|                                           
|                                           
|                                            | Michigan                                       |         |      | 6.2      |  |           |      | 6.9  |  |      |      | 11.9 |  |   |      | 13.9 |  |   |      | 25.4 |  |   |      | 22.7 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Western, Midcontinent/ Gulf Coast & Appalachia |         |      | .5       |  |           |      | 10.7 |  |      |      | 1.4  |  |   |      | 26.1 |  |   |      | 16.7 |  |   |      | 62.7 | 
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                            |                                                |         | 6.7  |          |  |           | 17.6 |      |  |      | 13.3 |      |  |   | 40.0 |      |  |   | 42.1 |      |  |   | 85.4 |     
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|Production Costs (per Mcf equivalent)       |                                                | $       | 1.07 |          |  | $         | .98  |      |  | $    | 1.05 |      |  | $ | .88  |      |  | $ | 1.05 |      |  | $ | .87  |     
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|Average Selling Price (per Mcf equivalent)* |                                                | $       | 2.54 |          |  | $         | 2.19 |      |  | $    | 2.60 |      |  | $ | 2.16 |      |  | $ | 2.37 |      |  | $ | 2.09 |     
|                                            |                                                |         |      |          |  |           |      |      |  |      |      |      |  |   |      |      |  |   |      |      |  |   |      |     
|                                           



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

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

Corporate & Otheroperating and joint venture
results, excluding unusual items, declined $1.0 million,
$2.4 million and $1.7 million for the 2000 quarter,
six-and twelve-month periods, respectively. The results primarily
 reflect adjustments recorded in the 1999 periods that reduced or
 eliminated accruals for employee incentive awards that are based
 on MCNs operating or stock-price performance.

Other Income and Deductions



9



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Income Taxes



Outlook



Gas Distribution

Results reflect reduced contributions from gas sales
program 


10



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


higher financing costs drove the earnings decline in the 2000
twelve-month period and contributed to the decline in the 2000
six-month period.

|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |       |  
|---------------------------------------- | ----------------------------------------------- | ------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                        
|                                        
|                                         |                                                 |         |       |          |   |          
|                                         |                                                 | Quarter |       | 6 Months |   | 12 Months
|                                         |                                                 |         |       |          |   |          
|                                         |                                                 | 2000    |       | 1999     |   | 2000      |       | 1999  |   | 2000 |       | 1999 
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |      
|Gas Distribution Operations(in Millions) |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Revenues*                      |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                        
|                                        
|                                        
|                                        
|                                         | Gas sales                                       |         | $     | 136.8    |   |           | $     | 135.6 |   |      | $     | 515.5 |   |   | $     | 578.6 |   |   | $       | 861.5 |   |   | $       | 918.6 |  
|                                        
|                                        
|                                        
|                                        
|                                         | End user transportation                         |         |       | 25.7     |   |           |       | 23.4  |   |      |       | 64.6  |   |   |       | 50.2  |   |   |         | 118.3 |   |   |         | 89.2  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Intermediate transportation                     |         |       | 12.7     |   |           |       | 13.9  |   |      |       | 27.2  |   |   |       | 28.6  |   |   |         | 56.4  |   |   |         | 58.0  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Other                                           |         |       | 19.2     |   |           |       | 19.6  |   |      |       | 40.8  |   |   |       | 44.8  |   |   |         | 80.3  |   |   |         | 77.5  |  
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                         |                                                 |         | 194.4 |          |   |           | 192.5 |       |   |      | 648.1 |       |   |   | 702.2 |       |   |   | 1,116.5 |       |   |   | 1,143.3 |      
|                                        
|                                        
|                                        
|                                        
|Cost of Sales                            |                                                 |         | 75.0  |          |   |           | 65.7  |       |   |      | 299.2 |       |   |   | 321.4 |       |   |   | 485.1   |       |   |   | 504.0   |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Gross Margin                             |                                                 |         | 119.4 |          |   |           | 126.8 |       |   |      | 348.9 |       |   |   | 380.8 |       |   |   | 631.4   |       |   |   | 639.3   |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Operating Expenses*                |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                        
|                                        
|                                        
|                                        
|                                         | Operation and maintenance                       |         |       | 60.8     |   |           |       | 67.7  |   |      |       | 127.5 |   |   |       | 138.2 |   |   |         | 267.9 |   |   |         | 268.9 |  
|                                        
|                                        
|                                        
|                                        
|                                         | Depreciation, depletion and amortization        |         |       | 26.5     |   |           |       | 25.1  |   |      |       | 52.9  |   |   |       | 50.0  |   |   |         | 103.0 |   |   |         | 97.5  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Property and other taxes                        |         |       | 13.8     |   |           |       | 12.9  |   |      |       | 33.0  |   |   |       | 31.5  |   |   |         | 47.4  |   |   |         | 55.9  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Unusual items (Note 5f)                         |         |       |         |   |           |       |      |   |      |       |      |   |   |       |      |   |   |         |      |   |   |         | 33.3  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Merger costs (Note 2)                           |         |       | 1.0      |   |           |       |      |   |      |       | 1.4   |   |   |       |      |   |   |         | 27.2  |   |   |         |      |  
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                         |                                                 |         | 102.1 |          |   |           | 105.7 |       |   |      | 214.8 |       |   |   | 219.7 |       |   |   | 445.5   |       |   |   | 455.6   |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Income                         |                                                 |         | 17.3  |          |   |           | 21.1  |       |   |      | 134.1 |       |   |   | 161.1 |       |   |   | 185.9   |       |   |   | 183.7   |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Equity in Earnings of Joint Ventures     |                                                 |         | .1    |          |   |           | .6    |       |   |      | .7    |       |   |   | 1.0   |       |   |   | 1.7     |       |   |   | 1.6     |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Income and (Deductions)*           |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                        
|                                        
|                                        
|                                        
|                                         | Interest income                                 |         |       | .6       |   |           |       | .8    |   |      |       | 1.2   |   |   |       | 1.8   |   |   |         | 1.7   |   |   |         | 5.5   |  
|                                        
|                                        
|                                        
|                                        
|                                         | Interest expense                                |         |       | (14.0    | ) |           |       | (12.7 | ) |      |       | (29.5 | ) |   |       | (26.5 | ) |   |         | (59.5 | ) |   |         | (56.0 | )
|                                        
|                                        
|                                        
|                                        
|                                         | Minority interest                               |         |       | (.2      | ) |           |       | (.2   | ) |      |       | (.3   | ) |   |       | (.5   | ) |   |         | (.8   | ) |   |         | 6.4   |  
|                                        
|                                        
|                                        
|                                        
|                                         | Other                                           |         |       | .1       |   |           |       | (.3   | ) |      |       | .5    |   |   |       | .1    |   |   |         | (.7   | ) |   |         | (.7   | )
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                         |                                                 |         | (13.5 | )        |   |           | (12.4 | )     |   |      | (28.1 | )     |   |   | (25.1 | )     |   |   | (59.3   | )     |   |   | (44.8   | )    
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Income Before Income Taxes               |                                                 |         | 3.9   |          |   |           | 9.3   |       |   |      | 106.7 |       |   |   | 137.0 |       |   |   | 128.3   |       |   |   | 140.5   |      
|                                        
|                                        
|                                        
|                                        
|Income Taxes                             |                                                 |         | 1.1   |          |   |           | 3.0   |       |   |      | 37.2  |       |   |   | 46.4  |       |   |   | 46.0    |       |   |   | 43.5    |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Net Income                               |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                        
|                                        
|                                        
|                                        
|                                         | Before unusual items and merger costs           |         |       | 3.5      |   |           |       | 6.3   |   |      |       | 70.4  |   |   |       | 90.6  |   |   |         | 100.0 |   |   |         | 113.7 |  
|                                        
|                                        
|                                        
|                                        
|                                         | Unusual items and merger costs (Notes 2 and 5f) |         |       | (.7      | ) |           |       |      |   |      |       | (.9   | ) |   |       |      |   |   |         | (17.7 | ) |   |         | (16.7 | )
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                         |                                                 | $       | 2.8   |          |   | $         | 6.3   |       |   | $    | 69.5  |       |   | $ | 90.6  |       |   | $ | 82.3    |       |   | $ | 97.0    |      
|                                         |                                                 |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                        



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

Gross Margin



11



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Gross margins for the 2000 twelve-month period include higher
margins generated under MichCons gas sales program. As a
result of the gas sales program beginning in January 1999,
the 2000 twelve-month period includes a full years
contribution, whereas the 1999 twelve-month period includes only
six months of contributions.

Gross margins for all three 2000 periods were affected by the
number of customers who chose to purchase their gas from other
suppliers under MichCons three-year customer choice
program. Year one of this program began in April 1999 with
approximately 70,000 customers choosing to participate. Year two
commenced in April 2000 with the number of customers
participating declining to approximately 55,000. Distribution
margins are retained from these customers as MichCon continues to
 transport and deliver the gas to the customers premises.

Gross margins for all three 2000 periods were also impacted by
varying weather which was 13.3% colder in the 2000 quarter, and
5.2% and .6% warmer in the 2000 six- and twelve-month periods,
respectively, compared to the same 1999 periods. Additionally,
the 2000 periods reflect a provision for customer refunds
(Note 8b), as well as a decline in intermediate
transportation revenues. Revenues from other gas-related services
 declined in the 2000 quarter and six-month period and increased
in the 2000 twelve-month period.

|                                              |                                     |                            |  |          |      |           |  |       |      |      |  |       |       |   |  |      |       |   |  |       |       |   |  |       |       |  
|--------------------------------------------- | ----------------------------------- | -------------------------- |  | -------- | ---- | --------- |  | ----- | ---- | ---- |  | ----- | ----- | - |  | ---- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                             
|                                             
|                                              |                                     |                            |  |          |      |          
|                                              |                                     | Quarter                    |  | 6 Months |      | 12 Months
|                                              |                                     |                            |  |          |      |          
|                                              |                                     | 2000                       |  | 1999     |      | 2000      |  | 1999  |      | 2000 |  | 1999 
|                                              |                                     |                            |  |          |      |           |  |       |      |      |  |      
|Effect of Weather on Gas Markets and Earnings |                                     |                            |  |          |      |           |  |       |      |      |  |       |       |   |  |      |       |   |  |       |       |   |  |      
|                                             
|                                             
|                                             
|                                             
|                                              | Percent Colder (Warmer) Than Normal |                            |  | (8.1     | )%   |           |  | (21.4 | )%   |      |  | (13.0 | )%    |   |  | (7.8 | )%    |   |  | (12.2 | )%    |   |  | (11.6 | )%   
|                                             
|                                             
|                                             
|                                             
|                                              | Increase (Decrease) From Normal in: |                            |  |          |      |           |  |       |      |      |  |       |       |   |  |      |       |   |  |       |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              |                                     | Gas markets (Bcf)          |  |          | (1.9 | )         |  |       | (5.3 | )    |  |       | (18.0 | ) |  |      | (10.4 | ) |  |       | (26.4 | ) |  |       | (25.4 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                                     | Net income (in Millions)   |  | $        | (1.7 | )         |  | $     | (5.1 | )    |  | $     | (16.7 | ) |  | $    | (10.3 | ) |  | $     | (25.0 | ) |  | $     | (23.7 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                                     | Diluted earnings per share |  | $        | (.02 | )         |  | $     | (.06 | )    |  | $     | (.18  | ) |  | $    | (.13  | ) |  | $     | (.29  | ) |  | $     | (.29  | )
|                                             

Gas sales and end user transportation revenuesin
total increased $3.5 million for the 2000 quarter, and
decreased $48.7 million and $28.0 million for the 2000
six- and twelve-month periods, respectively. Revenues for the
2000 quarter reflect an increase in gas sales volumes and end
user transportation deliveries due primarily to more normal
weather. The 2000 six-and twelve-month periods reflect a decline
in gas sales revenues due to lower sales volumes, partially
offset by higher end user transportation revenues due to
increased deliveries. Gas sales volumes decreased 13.6 Bcf
in the 2000 six-month period and 16.0 Bcf in the 2000
twelve-month period due primarily to warmer weather and customers
 who chose to purchase their gas from other suppliers under
MichCons customer choice program. End user transportation
deliveries increased 14.7 Bcf in the 2000 six-month period
and 25.6 Bcf in the 2000 twelve-month period. The
improvement includes volumes associated with customers
participating in the customer choice program who are reflected as
 end user transportation customers rather than gas sales
customers. Accordingly, gas sales revenues have decreased,
partially offset by an increase in end user transportation
revenues, resulting in a net decrease in total operating revenues
 due to the gas commodity component included in gas sales rates.
Partially offsetting the 2000 six- and twelve-month periods
 increase in end user transportation volumes attributable to the
customer choice program was the impact of warmer weather.

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

12



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Additionally, the gas sales revenues comparison for the
twelve-month period was impacted by the cost of the gas commodity
 component of gas sales rates. As previously discussed, this gas
commodity component was fixed under MichCons gas sales
program at $2.95 per Mcf beginning in January 1999. Prior to
 1999, MichCons sales rates were set to recover all of its
reasonably and prudently incurred gas costs. The gas commodity
component of MichCons sales increased $.12 per Mcf (4%) for
 the 2000 twelve-month period.

|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|---------------- | ---------------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                
|                
|                 |                              |         |       |          |  |          
|                 |                              | Quarter |       | 6 Months |  | 12 Months
|                 |                              |         |       |          |  |          
|                 |                              | 2000    |       | 1999     |  | 2000      |       | 1999  |  | 2000 |       | 1999 
|                 |                              |         |       |          |  |           |       |       |  |      |       |      
|(Bcf)            |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|Gas Distribution |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|                 | Gas Sales                    |         |       | 24.8     |  |           |       | 24.1  |  |      |       | 103.0 |  |  |       | 116.6 |  |  |       | 168.1 |  |  |       | 184.1 | 
|                
|                
|                
|                
|                 | End User Transportation      |         |       | 37.4     |  |           |       | 31.8  |  |      |       | 89.1  |  |  |       | 74.4  |  |  |       | 166.7 |  |  |       | 141.1 | 
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                              |         | 62.2  |          |  |           | 55.9  |       |  |      | 192.1 |       |  |  | 191.0 |       |  |  | 334.8 |       |  |  | 325.2 |      
|                
|                
|                
|                
|                 | Intermediate Transportation* |         |       | 111.7    |  |           |       | 135.0 |  |      |       | 294.6 |  |  |       | 262.4 |  |  |       | 564.1 |  |  |       | 503.1 | 
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                              |         | 173.9 |          |  |           | 190.9 |       |  |      | 486.7 |       |  |  | 453.4 |       |  |  | 898.9 |       |  |  | 828.3 |      
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                



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

Intermediate transportation revenuesdecreased
$1.2 million, $1.4 million and $1.6 million in the
 2000 quarter, six- and twelve-month periods, respectively.
Although revenues declined slightly, the related deliveries
fluctuated significantly, decreasing 23.3 Bcf in the 2000
quarter and increasing 32.2 Bcf and 61.0 Bcf in the
2000 six- and twelve-month periods, respectively. A significant
portion of the volume variations was for customers who pay a
fixed fee for intermediate transportation capacity regardless of
actual usage. Although volumes associated with these fixed-fee
customers may vary, the related revenues are not affected. The
decrease in intermediate transportation revenues is due to non
fixed-fee customers shifting volumes from a higher rate to a
lower rate transportation route.

Other operating revenuesdecreased $.4 million
 and $4.0 million in the 2000 quarter and six-month period,
respectively, and increased $2.8 million in the 2000
twelve-month periods. Revenues in the 2000 six-month period
reflect a decline in storage revenues, partially offset by an
increase in late payment fees and revenues from providing
appliance maintenance services. The increase in the 2000
twelve-month period is attributable to revenues from the
acquisition of three heating and cooling firms in
October 1998, as well as higher late payment fees and
appliance maintenance revenues.

Cost of Sales



Cost of gas sales increased $9.3 million in the 2000
quarter, and decreased $22.2 million and $18.9 million
in the 2000 six- and twelve-month periods, respectively. The cost
 of sales variations primarily reflects weather-driven gas sales
volumes as well as changes in sales volumes associated with
customers who have chosen to purchase gas from other suppliers
under MichCons customer

13



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


choice program. Also impacting cost of sales was an increase in
the price paid for gas purchased of $.10 per Mcf (4%) in the 2000
 quarter and $.11 per Mcf (4%) in both the 2000 six- and
twelve-month periods. Additionally, the comparison was impacted
by the cost of sales associated with the operations of the three
heating and cooling companies acquired in October 1998.

Other Operating Expenses

Operation and maintenance


Partially offsetting the improvement in the 2000 twelve-month
period were additional computer system support costs associated
with MichCons new customer information system, higher
injuries and damages costs, and higher employee incentive
payments.

Depreciation and depletionincreased
$1.4 million, $2.9 million and $5.5 million in the 2000
 quarter, six-and twelve-month periods, respectively, reflecting
depreciation on higher plant balances.

Property and other taxesincreased $.9 million
 and $1.5 million in the 2000 quarter and six-month period,
respectively, and decreased $8.5 million in the 2000
twelve-month period. All three 2000 periods were impacted by
taxes on higher plant balances. However, the effect of higher
plant balances in the 2000 twelve-month period was more than
offset by a change in the calculation of the value of personal
property subject to taxation by local taxing jurisdictions.
MichCon has pending tax appeals with various local taxing
jurisdictions to recover excess payments made in prior years
based on the revised calculation. This calculation change,
coupled with the favorable impact of new valuation tables
approved by the Michigan State Tax Commission (STC) in
November 1999, is expected to lower Gas Distributions
personal property taxes by approximately $8 million annually
 beginning in July 2000. Several local taxing jurisdictions
have taken legal action against the State of Michigan to prevent
the STC from implementing the new valuation tables
(Note 12a).

Unusual itemsof $33.3 million in the 1999
twelve-month period reflects a $24.8 million impairment of
certain gas gathering properties in northern Michigan as well as
an $8.5 million write-down of an investment in a small
Missouri natural-gas distribution company (Note 5f).

Merger costsof $1.0 million,
$1.4 million and $27.2 million in the 2000 quarter,
six- and twelve-month periods, respectively, include legal,
consulting, accounting, employee benefit and other expenses
associated with the pending merger between MCN and DTE Energy
Company (Note 2).

Equity in Earnings of Joint Ventures



14



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Other Income and Deductions



Income Taxes



Outlook



MichCon has begun, and plans to continue capitalizing on
opportunities resulting from the gas industry restructuring.
MichCon is currently operating under its Regulatory Reform Plan,
which includes a comprehensive experimental three-year customer
choice program that is designed to offer all sales customers
added choices and greater price certainty. Year two of the
customer choice program began April 1, 2000, and
approximately 55,000 customers have chosen to purchase natural
gas from suppliers other than MichCon. There are approximately
15,000 fewer customers participating in year two of the plan than
 in year one as a result of fewer natural gas marketers
participating due to higher gas prices.

As discussed in MCNs 1999 Annual Report on Form 10-K,
the Regulatory Reform Plan also suspended the GCR mechanism for
customers who continue to purchase gas from MichCon, and fixed
the gas commodity component of MichCons sales rates at
$2.95 per Mcf. The suspension of the GCR mechanism allows MichCon
 to profit from its ability to purchase gas at less than $2.95
per Mcf. The plan also increases MichCons risk associated
with generating margins that cover its gas costs. As part of its
gas acquisition strategy, MichCon entered into fixed-price
contracts at an average cost below $2.95 per Mcf for a
substantial portion of its expected supply requirements in 2000
and approximately 65% of such requirements in 2001. However,
margins are expected to be lower in future periods as
MichCons fixed-price supplies in 2000 and 2001 are at
prices higher than those paid in 1999. MichCon expects to meet
its remaining gas supply requirements for 2000 and 2001 through
open-market gas purchases, supplemented with gas from storage.
Margins in future periods could decline further if gas prices
remain at their current levels, which are high compared to
historical periods. The level of margins generated from selling
gas will also be affected by actual gas sales volumes, which will
 fluctuate as a result of changes in weather and the number of
customers who ultimately choose to purchase gas from suppliers
other than MichCon.

The State of Michigan is continuing its initiatives designed to
give all of Michigans natural gas customers added choices
and the opportunity to benefit from lower gas costs resulting
from

15



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


competition. Although MichCon supports customer choice
initiatives, management is concerned with the structure of the
current three-year customer choice and gas sales programs which
fixed the gas commodity component of its sales rates at $2.95 per
 Mcf. MichCon is unable to adjust its sales prices to levels that
 are responsive to changes in the marketplace. Given the current
environment of high gas prices, MichCon could incur losses on
incremental volumes associated with unexpected demand, such as
volumes resulting from colder weather or additional gas sales
customers. MichCon is exploring its options to minimize its
exposure to price risk, including supplementing its fixed-price
supplies with heavier reliance on withdrawals from storage and
seeking regulatory or legislative reform.

Change in Accounting for Start-up Costs

Reporting on the Costs of Start-up
Activities,


CAPITAL RESOURCES AND LIQUIDITY

|                                                     |                      |          |       |        |   |   |     |        |  
|---------------------------------------------------- | -------------------- | -------- | ----- | ------ | - | - | --- | ------ | -
|                                                    
|                                                    
|                                                     |                      |         
|                                                     |                      | 6 Months
|                                                     |                      |         
|                                                     |                      | 2000     |       | 1999  
|                                                     |                      |          |       |       
|(in Millions)                                        |                      |          |       |        |   |   |     |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents                            |                      |          |       |        |   |   |     |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flow Provided From (Used For):                  |                      |          |       |        |   |   |     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating activities |          | $     | 308.2  |   |   | $   | 290.9  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Financing activities |          |       | (632.7 | ) |   |     | (249.3 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investing activities |          |       | 289.3  |   |   |     | (38.6  | )
|                                                     |                      |          |       |        |   |   |     |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                      | $        | (35.2 | )      |   | $ | 3.0 |       
|                                                     |                      |          |       |        |   |   |     |       
|                                                    

Operating Activities



Financing Activities



MCNs FELINE PRIDES securities matured on May 16, 2000.
 Each security initially represented a stock purchase contract
and a preferred security. Under each stock purchase contract, MCN
 was obligated to sell, and the FELINE PRIDES holder was
obligated to purchase between 1.4132 and 1.7241 shares of
MCN common stock for $50. The number of MCN common shares
purchased

16



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


totaled approximately 4.6 million. Each FELINE PRIDES holder
 had the option to use the preferred securities, treasury
securities or cash to satisfy the $50 purchase commitment.
Holders of approximately 99% of the FELINE PRIDES used their
preferred securities to purchase MCN common shares. The remaining
 holders purchased their MCN shares with cash totaling
$1.5 million.

MCN had a $290 million revolving credit agreement that
expired in July 2000 and was not renewed. There were no
amounts outstanding under the credit agreement at June 30,
2000.

Diversified Energy



MCN received approximately $411.7 million during the 2000
six-month period from the sale of assets and joint venture
interests which was used to repay outstanding debt. Proceeds from
 additional sales are expected in 2000 and will be used to repay
outstanding borrowings and for general corporate purposes.

Gas Distribution



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

Investing Activities



17



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Capital investments equaled $130.2 million in the 2000
six-month period compared to $263.8 million for the same
period in 1999. The 2000 investments include significantly lower
levels of investments within the Diversified Energy Group.

|                                                    |                          |          |       |      |  |   |       |      | 
|--------------------------------------------------- | ------------------------ | -------- | ----- | ---- |  | - | ----- | ---- | 
|                                                   
|                                                   
|                                                    |                          |         
|                                                    |                          | 6 Months
|                                                    |                          |         
|                                                    |                          | 2000     |       | 1999
|                                                    |                          |          |       |     
|(in Millions)                                       |                          |          |       |      |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|Capital Investments                                 |                          |          |       |      |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|Consolidated Capital Expenditures:                  |                          |          |       |      |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Electric Power           |          | $     | .7   |  |   | $     | 31.9 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Exploration & Production |          |       | 2.2  |  |   |       | 70.2 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gas Distribution         |          |       | 50.0 |  |   |       | 58.4 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                    |          |       | 4.0  |  |   |       | 2.4  | 
|                                                    |                          |          |       |      |  |   |       |     
|                                                    |                          |          | 56.9  |      |  |   | 162.9 |     
|                                                    |                          |          |       |      |  |   |       |     
|MCNs Share of Joint Venture Capital Expenditures:* |                          |          |       |      |  |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Pipelines & Processing   |          |       | 57.2 |  |   |       | 51.1 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Electric Power           |          |       | 16.0 |  |   |       | 15.1 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                    |          |       | .1   |  |   |       | .1   | 
|                                                    |                          |          |       |      |  |   |       |     
|                                                    |                          |          | 73.3  |      |  |   | 66.3  |     
|                                                    |                          |          |       |      |  |   |       |     
|Acquisitions                                        |                          |          |      |      |  |   | 34.6  |     
|                                                    |                          |          |       |      |  |   |       |     
|Total Capital Investments                           |                          | $        | 130.2 |      |  | $ | 263.8 |     
|                                                    |                          |          |       |      |  |   |       |     
|                                                   

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

Outlook

2000 capital investments to approximate
$325 million 


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






MARKET RISK INFORMATION




Commodity Price Risk

Hedging Activities



18



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


sensitivity analysis performed for commodity price risk at
June 30, 2000 as compared to December 31, 1999.

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

The results of the sensitivity analysis calculations follow:

|                                  |  |               |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------- | ----- | ----------------- |  | ----------- | ------ | ----------- |  | - | ----- | - |  | - | ----- | -
|                                 
|                                 
|                                  |  |               |       |                  
|                                  |  | June 30, 2000 |       | December 31, 1999
|                                  |  |               |       |                  
|                                  |  | Assuming      |       | Assuming          |  | Assuming    |        | Assuming   
|                                  |  | a 10%         |       | a 10%             |  | a 10%       |        | a 10%      
|                                  |  | Increase in   |       | Decrease in       |  | Increase in |        | Decrease in
|                                  |  | Commodity     |       | Commodity         |  | Commodity   |        | Commodity  
|                                  |  | Prices        |       | Prices            |  | Prices      |        | Prices     
|                                  |  |               |       |                   |  |             |        |            
|(in Millions)                     |  |               |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|Commodity Price Sensitive:*       |  |               |       |                   |  |             |        |             |  |   |       |   |  |   |       |  
|                                 
|                                 
|                                 
|                                 
|Swaps: Pay fixed/receive variable |  | $             | 109.3 |                   |  | $           | (109.3 | )           |  | $ | 89.8  |   |  | $ | (89.8 | )
|                                 
|                                 
|                                 
|                                 
|Pay
	variable/receive fixed       |  | $             | (90.7 | )                 |  | $           | 90.7   |             |  | $ | (81.1 | ) |  | $ | 81.1  |  
|                                 
|                                 
|                                 
|                                 
|Futures: Longs                    |  | $             | 4.5   |                   |  | $           | (4.5   | )           |  | $ | 5.0   |   |  | $ | (5.0  | )
|                                 
|                                 
|                                 
|                                 
|Shorts                            |  | $             | (.1   | )                 |  | $           | .1     |             |  | $ | (2.1  | ) |  | $ | 2.1   |  
|                                 



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

Trading Activities



The results of the sensitivity analysis calculations previously
discussed follow:

|                                  |  |               |      |                   |  |             |      |             |  |  |     |  |  |  |     | 
|--------------------------------- |  | ------------- | ---- | ----------------- |  | ----------- | ---- | ----------- |  |  | --- |  |  |  | --- | 
|                                 
|                                 
|                                  |  |               |      |                  
|                                  |  | June 30, 2000 |      | December 31, 1999
|                                  |  |               |      |                  
|                                  |  | Assuming      |      | Assuming          |  | Assuming    |      | Assuming   
|                                  |  | a 10%         |      | a 10%             |  | a 10%       |      | a 10%      
|                                  |  | Increase in   |      | Decrease in       |  | Increase in |      | Decrease in
|                                  |  | Commodity     |      | Commodity         |  | Commodity   |      | Commodity  
|                                  |  | Prices        |      | Prices            |  | Prices      |      | Prices     
|                                  |  |               |      |                   |  |             |      |            
|(in Millions)                     |  |               |      |                   |  |             |      |             |  |  |     |  |  |  |     | 
|Commodity Price Sensitive:**      |  |               |      |                   |  |             |      |             |  |  |     |  |  |  |     | 
|                                 
|                                 
|                                 
|                                 
|Swaps: Pay fixed/receive variable |  | $             | 1.0  |                   |  | $           | (1.0 | )           |  |  | N/A |  |  |  | N/A | 
|                                 
|                                 
|                                 
|                                 
|Pay
	variable/receive fixed       |  | $             | (8.3 | )                 |  | $           | 8.3  |             |  |  | N/A |  |  |  | N/A | 
|                                 
|                                 
|                                 
|                                 
|Futures: Longs                    |  | $             | 1.0  |                   |  | $           | (1.0 | )           |  |  | N/A |  |  |  | N/A | 
|                                 
|                                 
|                                 
|                                 
|Shorts                            |  | $             | (1.9 | )                 |  | $           | 1.9  |             |  |  | N/A |  |  |  | N/A | 
|                                 



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

19



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Interest Rate Risk








NEW ACCOUNTING PRONOUNCEMENTS


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


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

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

MCN initiated a corporate-wide plan in 1998 to address the issues
 associated with adopting SFAS No. 133. The plan consists
of: i) inventorying and categorizing derivatives;
ii) assessing risk management policies and determining the
effectiveness of hedging methodologies; iii) modeling the
impact of hedging strategies; and iv) assessing processes
and technology requirements. MCN does not expect any
complications in completing the plan or having the related
computer systems operational by the end of 2000.

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






FORWARD-LOOKING STATEMENTS




20



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS







AVAILABLE INFORMATION




21



---



##### Table of Contents








CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)


|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |           | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------- | --------- | ----------- |  | ---------- | --------- | --------- |  | - | --------- | --------- | 
|                                             
|                                             
|                                              |                                                                                                          |         |           |            
|                                              |                                                                                                          | June 30 |           | December 31
|                                              |                                                                                                          |         |           |            
|                                              |                                                                                                          |         |           | 1999        |  | 1999      
|                                              |                                                                                                          |         |           | (Restated)  |  | (Restated)
|                                              |                                                                                                          | 2000    |           | Note 3      |  | Note 3    
|                                              |                                                                                                          |         |           |             |  |           
|(in Thousands)                                |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|ASSETS                                        |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Current Assets                                |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents, at cost (which approximates market
	value)                                    |         | $         | 24,201      |  |            | $         | 20,076    |  |   | $         | 59,366    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, less allowance for doubtful accounts of
	$36,812, $15,344 and $20,720, respectively |         |           | 387,852     |  |            |           | 326,648   |  |   |           | 546,689   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accrued unbilled revenues                                                                                |         |           | 18,435      |  |            |           | 20,516    |  |   |           | 100,439   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas in inventory (Note 9)                                                                                |         |           | 164,985     |  |            |           | 120,927   |  |   |           | 179,826   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Property taxes assessed applicable to future periods                                                     |         |           | 39,487      |  |            |           | 50,595    |  |   |           | 62,651    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |         |           | 41,570      |  |            |           |          |  |   |           | 32,508    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Assets from trading activities (Note 4)                                                                  |         |           | 6,326       |  |            |           |          |  |   |           |          | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |         |           | 53,509      |  |            |           | 46,178    |  |   |           | 51,043    | 
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |         | 736,365   |             |  |            | 584,940   |           |  |   | 1,032,522 |          
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|Deferred Charges and Other Assets             |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                    |         |           |            |  |            |           | 28,457    |  |   |           | 14,549    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in debt and equity securities                                                                |         |           | 100,797     |  |            |           | 70,516    |  |   |           | 72,077    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred swap losses and receivables (Note 13)                                                           |         |           | 110,820     |  |            |           | 64,567    |  |   |           | 43,907    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred environmental costs                                                                             |         |           | 28,422      |  |            |           | 31,174    |  |   |           | 31,173    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Prepaid benefit costs                                                                                    |         |           | 184,824     |  |            |           | 132,805   |  |   |           | 156,276   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |         |           | 102,963     |  |            |           | 114,501   |  |   |           | 108,288   | 
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |         | 527,826   |             |  |            | 442,020   |           |  |   | 426,270   |          
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|Investments in and Advances to Joint Ventures |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |         |           | 538,592     |  |            |           | 568,921   |  |   |           | 575,684   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power                                                                                           |         |           | 31,072      |  |            |           | 248,456   |  |   |           | 145,684   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing                                                                                         |         |           | 23,624      |  |            |           | 27,299    |  |   |           | 21,512    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |         |           | 2,677       |  |            |           | 1,978     |  |   |           | 2,898     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |         |           | 17,986      |  |            |           | 18,694    |  |   |           | 18,194    | 
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |         | 613,951   |             |  |            | 865,348   |           |  |   | 763,972   |          
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|Property, Plant and Equipment                 |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                   |         |           | 48,577      |  |            |           | 46,902    |  |   |           | 46,480    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production (Note 5d)                                                                       |         |           | 564,672     |  |            |           | 753,357   |  |   |           | 573,514   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution                                                                                         |         |           | 3,051,228   |  |            |           | 2,970,482 |  |   |           | 3,016,231 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                    |         |           | 76,254      |  |            |           | 65,139    |  |   |           | 76,245    | 
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |         | 3,740,731 |             |  |            | 3,835,880 |           |  |   | 3,712,470 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Less  Accumulated depreciation and depletion                                                            |         |           | 1,758,433   |  |            |           | 1,685,079 |  |   |           | 1,697,212 | 
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          |         | 1,982,298 |             |  |            | 2,150,801 |           |  |   | 2,015,258 |          
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                              |                                                                                                          | $       | 3,860,440 |             |  | $          | 4,043,109 |           |  | $ | 4,238,022 |          
|                                              |                                                                                                          |         |           |             |  |            |           |           |  |   |           |          
|                                             

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

22



---



##### Table of Contents








CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)


|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |          |  
|----------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------- | --------- | ----------- | - | ---------- | --------- | ------- | - | - | --------- | -------- | -
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                                                 |         |           |            
|                                                                                                            |                                                                 | June 30 |           | December 31
|                                                                                                            |                                                                 |         |           |            
|                                                                                                            |                                                                 |         |           | 1999        |   | 1999      
|                                                                                                            |                                                                 |         |           | (Restated)  |   | (Restated)
|                                                                                                            |                                                                 | 2000    |           | Note 3      |   | Note 3    
|                                                                                                            |                                                                 |         |           |             |   |           
|(in Thousands)                                                                                              |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                        |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Current Liabilities                                                                                         |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accounts payable                                                |         | $         | 347,345     |   |            | $         | 252,791 |   |   | $         | 296,139  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Notes payable                                                   |         |           | 102,279     |   |            |           | 346,809 |   |   |           | 617,755  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Current portion of long-term debt and capital lease obligations |         |           | 186,176     |   |            |           | 46,351  |   |   |           | 28,102   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas inventory equalization (Note 9)                             |         |           | 43,012      |   |            |           | 22,773  |   |   |           |         |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Federal income, property and other taxes payable                |         |           | 44,726      |   |            |           | 43,201  |   |   |           | 68,500   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas payable                                                     |         |           | 25,264      |   |            |           | 38,108  |   |   |           | 23,422   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Liabilities from trading activities (Note 4)                    |         |           | 22,793      |   |            |           |        |   |   |           |         |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Customer deposits                                               |         |           | 15,613      |   |            |           | 15,856  |   |   |           | 17,707   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                           |         |           | 120,073     |   |            |           | 84,551  |   |   |           | 146,949  |  
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                            |                                                                 |         | 907,281   |             |   |            | 850,440   |         |   |   | 1,198,574 |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Deferred Credits and Other Liabilities                                                                      |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred income taxes                                           |         |           | 36,079      |   |            |           |        |   |   |           |         |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Unamortized investment tax credit                               |         |           | 27,053      |   |            |           | 29,082  |   |   |           | 28,022   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Tax benefits amortizable to customers                           |         |           | 134,996     |   |            |           | 128,869 |   |   |           | 136,236  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred swap gains and payables (Note 13)                      |         |           | 128,311     |   |            |           | 62,617  |   |   |           | 64,962   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accrued environmental costs                                     |         |           | 27,126      |   |            |           | 34,704  |   |   |           | 28,068   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interest                                               |         |           | 1,651       |   |            |           | 10,529  |   |   |           | 11,096   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                           |         |           | 102,181     |   |            |           | 74,857  |   |   |           | 91,613   |  
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                            |                                                                 |         | 457,397   |             |   |            | 340,658   |         |   |   | 359,997   |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Long-Term Debt,including capital lease obligations                                                          |                                                                 |         | 1,223,215 |             |   |            | 1,463,756 |         |   |   | 1,457,617 |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|MCN-Obligated Mandatorily Redeemable Preferred Securities of
	Subsidiaries Holding Solely Debentures of MCN |                                                                 |         | 272,343   |             |   |            | 502,232   |         |   |   | 402,922   |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Commitments and Contingencies (Note 12)                                                                     |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common Shareholders Equity                                                                                 |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock                                                    |         |           | 902         |   |            |           | 855     |   |   |           | 857      |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Additional paid-in capital                                      |         |           | 1,093,570   |   |            |           | 966,956 |   |   |           | 960,176  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Retained earnings (deficit)                                     |         |           | (71,664     | ) |            |           | (45,995 | ) |   |           | (119,677 | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accumulated other comprehensive loss (Note 11)                  |         |           | (188        | ) |            |           | (13,505 | ) |   |           | (156     | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Yield enhancement, contract and issuance costs                  |         |           | (22,416     | ) |            |           | (22,288 | ) |   |           | (22,288  | )
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                            |                                                                 |         | 1,000,204 |             |   |            | 886,023   |         |   |   | 818,912   |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                            |                                                                 | $       | 3,860,440 |             |   | $          | 4,043,109 |         |   | $ | 4,238,022 |         
|                                                                                                            |                                                                 |         |           |             |   |            |           |         |   |   |           |         
|                                                                                                           

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

23



---



##### Table of Contents








CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)


|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |           |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------ | ------- | ---------------- | - | ------------------- | -------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                                                   
|                                                                   
|                                                                    |                                                                           |                    |         |                  |   |                    
|                                                                    |                                                                           | Three Months Ended |         | Six Months Ended |   | Twelve Months Ended
|                                                                    |                                                                           | June 30            |         | June 30          |   | June 30            
|                                                                    |                                                                           |                    |         |                  |   |                    
|                                                                    |                                                                           |                    |         | 1999             |   |                     |          | 1999       |   |      |           | 1999      
|                                                                    |                                                                           |                    |         | (Restated)       |   |                     |          | (Restated) |   |      |           | (Restated)
|                                                                    |                                                                           | 2000               |         | Note 3           |   | 2000                |          | Note 3     |   | 2000 |           | Note 3    
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |           
|(in Thousands, Except Per Share Amounts)                            |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Operating Revenues                                                  |                                                                           | $                  | 494,200 |                  |   | $                   | 500,470  |            |   | $    | 1,413,951 |            |   | $ | 1,302,170 |         |   | $ | 2,611,185 |           |   | $ | 2,215,164 |          
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Expenses                                                  |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cost of sales                                                             |                    |         | 353,236          |   |                     |          | 314,948    |   |      |           | 1,005,305  |   |   |           | 788,833 |   |   |           | 1,831,464 |   |   |           | 1,342,062 |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Operation and maintenance                                                 |                    |         | 95,030           |   |                     |          | 98,477     |   |      |           | 186,422    |   |   |           | 200,427 |   |   |           | 397,217   |   |   |           | 403,339   |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Depreciation, depletion and amortization                                  |                    |         | 34,747           |   |                     |          | 42,162     |   |      |           | 68,966     |   |   |           | 87,337  |   |   |           | 146,267   |   |   |           | 175,580   |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Property and other taxes                                                  |                    |         | 15,940           |   |                     |          | 16,270     |   |      |           | 37,533     |   |   |           | 37,928  |   |   |           | 56,802    |   |   |           | 68,768    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Property write-downs, contract losses and restructuring charges
	(Note 5) |                    |         |                 |   |                     |          | 52,000     |   |      |           |           |   |   |           | 52,000  |   |   |           | 9,782     |   |   |           | 319,796   |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Gains and losses on sale of assets, net (Note 5)                          |                    |         | (70,388          | ) |                     |          | 66,333     |   |      |           | (83,263    | ) |   |           | 63,328  |   |   |           | (75,766   | ) |   |           | 55,930    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Merger costs (Note 2)                                                     |                    |         | 2,459            |   |                     |          |           |   |      |           | 2,821      |   |   |           |        |   |   |           | 37,677    |   |   |           |          |  
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                    |                                                                           |                    | 431,024 |                  |   |                     | 590,190  |            |   |      | 1,217,784 |            |   |   | 1,229,853 |         |   |   | 2,403,443 |           |   |   | 2,365,475 |          
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Income (Loss)                                             |                                                                           |                    | 63,176  |                  |   |                     | (89,720  | )          |   |      | 196,167   |            |   |   | 72,317    |         |   |   | 207,742   |           |   |   | (150,311  | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Equity in Earnings of Joint Ventures                                |                                                                           |                    | 5,158   |                  |   |                     | 12,166   |            |   |      | 15,937    |            |   |   | 24,624    |         |   |   | 43,699    |           |   |   | 58,251    |          
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Other Income and (Deductions)                                       |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest income                                                           |                    |         | 1,706            |   |                     |          | 2,369      |   |      |           | 4,454      |   |   |           | 3,865   |   |   |           | 7,164     |   |   |           | 8,595     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest on long-term debt                                                |                    |         | (23,123          | ) |                     |          | (21,604    | ) |      |           | (46,632    | ) |   |           | (43,506 | ) |   |           | (92,557   | ) |   |           | (92,899   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other interest expense                                                    |                    |         | (4,022           | ) |                     |          | (6,682     | ) |      |           | (11,376    | ) |   |           | (15,317 | ) |   |           | (26,401   | ) |   |           | (28,058   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Dividends on preferred securities of subsidiaries                         |                    |         | (7,437           | ) |                     |          | (10,334    | ) |      |           | (16,059    | ) |   |           | (20,669 | ) |   |           | (35,529   | ) |   |           | (38,055   | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Investment losses (Note 5d)                                               |                    |         |                 |   |                     |          | (7,456     | ) |      |           |           |   |   |           | (7,456  | ) |   |           |          |   |   |           | (7,456    | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Minority interest (Note 5f)                                               |                    |         | (309             | ) |                     |          | (420       | ) |      |           | (794       | ) |   |           | (739    | ) |   |           | (1,667    | ) |   |           | 6,498     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other                                                                     |                    |         | (1,388           | ) |                     |          | 1,254      |   |      |           | (1,383     | ) |   |           | 4,904   |   |   |           | 496       |   |   |           | 3,107     |  
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                    |                                                                           |                    | (34,573 | )                |   |                     | (42,873  | )          |   |      | (71,790   | )          |   |   | (78,918   | )       |   |   | (148,494  | )         |   |   | (148,268  | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Income (Loss) Before Income Taxes                                   |                                                                           |                    | 33,761  |                  |   |                     | (120,427 | )          |   |      | 140,314   |            |   |   | 18,023    |         |   |   | 102,947   |           |   |   | (240,328  | )        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Income Tax Provision (Benefit)                                      |                                                                           |                    | 11,582  |                  |   |                     | (41,783  | )          |   |      | 48,624    |            |   |   | 4,928     |         |   |   | 40,410    |           |   |   | (94,177   | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change         |                                                                           |                    | 22,179  |                  |   |                     | (78,644  | )          |   |      | 91,690    |            |   |   | 13,095    |         |   |   | 62,537    |           |   |   | (146,151  | )        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Cumulative Effect of Accounting Change for Start-up Costs
	(Note 7) |                                                                           |                    |        |                  |   |                     |         |            |   |      |          |            |   |   | (2,872    | )       |   |   |          |           |   |   | (2,872    | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Net Income (Loss)                                                   |                                                                           | $                  | 22,179  |                  |   | $                   | (78,644  | )          |   | $    | 91,690    |            |   | $ | 10,223    |         |   | $ | 62,537    |           |   | $ | (149,023  | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Basic Earnings (Loss) Per Share (Note 10)                           |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Before cumulative effect of accounting change                             |                    | $       | .25              |   |                     | $        | (.94       | ) |      | $         | 1.06       |   |   | $         | .16     |   |   | $         | .73       |   |   | $         | (1.82     | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cumulative effect of accounting change for start-up costs
	(Note 7)       |                    |         |                 |   |                     |          |           |   |      |           |           |   |   |           | (.03    | ) |   |           |          |   |   |           | (.04      | )
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                    |                                                                           | $                  | .25     |                  |   | $                   | (.94     | )          |   | $    | 1.06      |            |   | $ | .13       |         |   | $ | .73       |           |   | $ | (1.86     | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Diluted Earnings (Loss) Per Share (Note 10)                         |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Before cumulative effect of accounting change                             |                    | $       | .25              |   |                     | $        | (.94       | ) |      | $         | 1.03       |   |   | $         | .16     |   |   | $         | .72       |   |   | $         | (1.82     | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cumulative effect of accounting change for start-up costs
	(Note 7)       |                    |         |                 |   |                     |          |           |   |      |           |           |   |   |           | (.04    | ) |   |           |          |   |   |           | (.04      | )
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                    |                                                                           | $                  | .25     |                  |   | $                   | (.94     | )          |   | $    | 1.03      |            |   | $ | .12       |         |   | $ | .72       |           |   | $ | (1.86     | )        
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Average Common Shares Outstanding                                   |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Basic                                                                     |                    |         | 87,840           |   |                     |          | 83,413     |   |      |           | 86,673     |   |   |           | 81,424  |   |   |           | 86,012    |   |   |           | 80,242    |  
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                    | Diluted                                                                   |                    |         | 88,510           |   |                     |          | 83,413     |   |      |           | 90,882     |   |   |           | 82,514  |   |   |           | 86,645    |   |   |           | 80,242    |  
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Dividends Declared Per Share                                        |                                                                           | $                  | .2550   |                  |   | $                   | .2550    |            |   | $    | .5100     |            |   | $ | .5100     |         |   | $ | 1.0200    |           |   | $ | 1.0200    |          
|                                                                    |                                                                           |                    |         |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                                   






CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Unaudited)


|                                                                                       |  |                    |         |                  |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ------------------- | ------- | ---------- |  | ---- | -------- | ---------- |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                                      
|                                                                                      
|                                                                                       |  |                    |         |                  |  |                    
|                                                                                       |  | Three Months Ended |         | Six Months Ended |  | Twelve Months Ended
|                                                                                       |  | June 30            |         | June 30          |  | June 30            
|                                                                                       |  |                    |         |                  |  |                    
|                                                                                       |  |                    |         | 1999             |  |                     |         | 1999       |  |      |          | 1999      
|                                                                                       |  |                    |         | (Restated)       |  |                     |         | (Restated) |  |      |          | (Restated)
|                                                                                       |  | 2000               |         | Note 3           |  | 2000                |         | Note 3     |  | 2000 |          | Note 3    
|                                                                                       |  |                    |         |                  |  |                     |         |            |  |      |          |           
|(in Thousands)                                                                         |  |                    |         |                  |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |         |   |  |   |          |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Balance  Beginning of Period                                                          |  | $                  | (82,858 | )                |  | $                   | 62,775  |            |  | $    | (120,081 | )          |  | $ | (2,977  | ) |  | $ | (45,400 | ) |  | $ | 190,548  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Add  Cumulative effect on prior years of change in
	accounting for inventory (Note 3) |  |                    | 10,973  |                  |  |                     | (8,191  | )          |  |      | 404      |            |  |   | (11,515 | ) |  |   | (595    | ) |  |   | (4,996   | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Add  Net Income (Loss)                                                                |  |                    | 22,179  |                  |  |                     | (78,644 | )          |  |      | 91,690   |            |  |   | 10,223  |   |  |   | 62,537  |   |  |   | (149,023 | )
|                                                                                       |  |                    |         |                  |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |         |   |  |   |          |  
|                                                                                       |  |                    | (49,706 | )                |  |                     | (24,060 | )          |  |      | (27,987  | )          |  |   | (4,269  | ) |  |   | 16,542  |   |  |   | 36,529   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Deduct  Cash Dividends Declared                                                       |  |                    | 21,958  |                  |  |                     | 21,935  |            |  |      | 43,677   |            |  |   | 41,726  |   |  |   | 88,206  |   |  |   | 82,524   |  
|                                                                                       |  |                    |         |                  |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |         |   |  |   |          |  
|Balance  End of Period                                                                |  | $                  | (71,664 | )                |  | $                   | (45,995 | )          |  | $    | (71,664  | )          |  | $ | (45,995 | ) |  | $ | (71,664 | ) |  | $ | (45,995  | )
|                                                                                       |  |                    |         |                  |  |                     |         |            |  |      |          |            |  |   |         |   |  |   |         |   |  |   |          |  
|                                                                                      

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


24



---



##### Table of Contents








CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |          |        |        |          |  
|------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------- | ------------------------------------------------------ | ------- | ------ | -------- | -------- | ------ | ------ | -------- | -
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                            
|                                                                          |                                                                                                                               | Six Months Ended                           
|                                                                          |                                                                                                                               | June 30                                    
|                                                                          |                                                                                                                               |                                            
|                                                                          |                                                                                                                               |                                             |                             | 1999                                                  
|                                                                          |                                                                                                                               |                                             |                             | (Restated)                                            
|                                                                          |                                                                                                                               | 2000                                        |                             | Note 3                                                
|                                                                          |                                                                                                                               |                                             |                             |                                                       
|(in Thousands)                                                            |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash Flow From Operating Activities                                       |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Net income                                                                                                                    |                                             | $                           | 91,690                                                 |         |        | $        | 10,223   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Adjustments to reconcile net income to net cash provided from
	operating activities Depreciation, depletion and amortization: |                                             |                             |                                                        |         |        |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                             | Per statement of operations |                                                        |         | 68,966 |          |          |        | 87,337 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               |                                             | Charged to other accounts   |                                                        |         | 4,687  |          |          |        | 4,423  |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Unusual items, net of taxes (Note 5)                                                                                          |                                             |                             | (50,690                                                | )       |        |          | 83,365   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cumulative effect of accounting change, net of taxes (Note 7)                                                                 |                                             |                             |                                                       |         |        |          | 2,872    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Deferred income taxes  current                                                                                               |                                             |                             | (9,062                                                 | )       |        |          | 3,614    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Deferred income taxes and investment tax credits, net                                                                         |                                             |                             | 21,142                                                 |         |        |          | 65,246   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Equity in earnings of joint ventures, net of distributions                                                                    |                                             |                             | (3,864                                                 | )       |        |          | (8,256   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                             |                             | (10,146                                                | )       |        |          | (1,118   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Changes in assets and liabilities, exclusive of changes shown
	separately                                                     |                                             |                             | 195,521                                                |         |        |          | 43,262   |       
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               |                                             |                             | Net cash provided from operating activities            |         |        | 308,244  |          |        |        | 290,968  |  
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Cash Flow From Financing Activities                                       |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Notes payable, net                                                                                                            |                                             |                             | (515,476                                               | )       |        |          | (272,042 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Dividends paid                                                                                                                |                                             |                             | (43,677                                                | )       |        |          | (41,726  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of common stock                                                                                                      |                                             |                             | 4,642                                                  |         |        |          | 135,120  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Reacquisition of common stock                                                                                                 |                                             |                             | (2,079                                                 | )       |        |          | (783     | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of long-term debt                                                                                                    |                                             |                             |                                                       |         |        |          | 106,535  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Long-term commercial paper and bank borrowings, net (Note 15)                                                                 |                                             |                             | (35,761                                                | )       |        |          | 92,344   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Retirement of long-term debt and preferred securities (Note 15)                                                               |                                             |                             | (40,221                                                | )       |        |          | (268,773 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                             |                             | (128                                                   | )       |        |          |         |       
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               |                                             |                             | Net cash used for financing activities                 |         |        | (632,700 | )        |        |        | (249,325 | )
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Cash Flow From Investing Activities                                       |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Capital expenditures                                                                                                          |                                             |                             | (56,918                                                | )       |        |          | (159,880 | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Acquisitions                                                                                                                  |                                             |                             |                                                       |         |        |          | (31,153  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in debt and equity securities, net                                                                                 |                                             |                             | (6,936                                                 | )       |        |          | (2,597   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in joint ventures                                                                                                  |                                             |                             | (63,812                                                | )       |        |          | (39,991  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Sale of property and joint venture interests (Notes 5 and 6)                                                                  |                                             |                             | 411,736                                                |         |        |          | 200,705  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                         |                                             |                             | 5,221                                                  |         |        |          | (5,690   | )     
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               |                                             |                             | Net cash provided from (used for) investing activities |         |        | 289,291  |          |        |        | (38,606  | )
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Net Increase (Decrease) in Cash and Cash Equivalents                      |                                                                                                                               |                                             | (35,165                     | )                                                      |         |        | 3,037    |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash and Cash Equivalents, January 1                                      |                                                                                                                               |                                             | 59,366                      |                                                        |         |        | 17,039   |         
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Cash and Cash Equivalents, June 30                                        |                                                                                                                               | $                                           | 24,201                      |                                                        |         | $      | 20,076   |         
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                                                                                      |                                             | $                           | 39,155                                                 |         |        | $        | 72,787   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                                                                                     |                                             |                             | 82,004                                                 |         |        |          | 67,372   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                                                                                              |                                             |                             | 14,841                                                 |         |        |          | 8,051    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net                                                                              |                                             |                             |                                                       |         |        |          | (19,795  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid/accrued benefit costs, net                                                                                            |                                             |                             | (27,984                                                | )       |        |          | (20,422  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                                                                              |                                             |                             | 51,206                                                 |         |        |          | (46,758  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                                                                              |                                             |                             | (23,774                                                | )       |        |          | (35,194  | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                                                                                                   |                                             |                             | 1,842                                                  |         |        |          | (3,821   | )     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Asset/ Liability from trading activity                                                                                        |                                             |                             | 16,467                                                 |         |        |          |         |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas inventory equalization                                                                                                    |                                             |                             | 43,012                                                 |         |        |          | 22,967   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                                                                                     |                                             |                             | (10,413                                                | )       |        |          | 7,190    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                                                                                    |                                             |                             | 9,165                                                  |         |        |          | (9,115   | )     
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               | $                                           | 195,521                     |                                                        |         | $      | 43,262   |         
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|Supplemental Disclosures                                                  |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid during the year for:                                                                                                |                                             |                             |                                                        |         |        |          |          |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               | Interest, net of amounts capitalized        |                             | $                                                      | 63,159  |        |          | $        | 71,640 |       
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               | Federal income taxes                        |                             | $                                                      | 4,000   |        |          | $        | 3,550  |       
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                          |                                                                                                                               | Noncash investing and financing activities: |                             |                                                        |         |        |          |          |        |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                               | FELINE PRIDES settlement (Note 16)          |                             | $                                                      | 130,721 |        |          | $        |       |       
|                                                                          |                                                                                                                               |                                             |                             |                                                        |         |        |          |         
|                                                                         

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


25



---



##### Table of Contents








NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.  GENERAL

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

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

2.  MERGER AGREEMENT WITH DTE ENERGY COMPANY

As discussed in MCNs 1999 Annual Report on Form 10-K,
MCN and DTE Energy Company (DTE) signed a definitive merger
agreement, dated October 4, 1999, under which DTE will
acquire all outstanding shares of MCN common stock. The boards of
 directors and the shareholders of both companies have approved
the proposed merger. The transaction is subject to regulatory
approvals and other customary merger conditions. Both companies
continue their discussions with the Federal Trade Commission
(FTC) in connection with its review of the proposed merger.
Because of the length of the FTC review, it appears unlikely that
 the transaction will be completed before the fourth quarter of
2000.

As a result of the pending merger, MCN has incurred
merger-related costs which include legal, accounting, consulting,
 employee benefit and other expenses. These costs had the effect
of decreasing earnings by $2,459,000 pre-tax ($1,598,000 net of
taxes), $2,821,000 pre-tax ($1,834,000 net of taxes) and
$37,677,000 pre-tax ($24,490,000 net of taxes) for the three-,
six- and twelve-month periods ended June 30, 2000,
respectively.

Furthermore, pursuant to the merger agreement, MCN sold its
interest in five power projects, four of which are defined as
Qualifying Facilities (QFs) under the Public Utility
Regulatory Policies Act of 1978, as amended. This act limits the
interest in a project that can be owned by electric utilities
while maintaining the projects status as a QF. In the first
 quarter of 2000, MCN completed the sale of its 23% interest in
the Midland Cogeneration Venture (MCV), a QF located in Michigan,
 and its 33 1/3% interest in the Carson Cogeneration
facility, a QF located in California. In the second quarter of
2000, MCN completed the sale of its 50% interest in the Michigan
Power Project, a QF located in Michigan, its 50% interest in the
Ada Cogeneration facility, a QF located in Michigan, and its 95%
interest in the Cobisa-Person facility, a 140 megawatt
(MW) power plant under construction in New Mexico.

3.  CHANGE IN ACCOUNTING FOR INVENTORY

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

Fair Value accounting for energy trading inventories is
preferable because: (1) it better informs users of the
financial statements of the companys net commodity price
risk with respect to its

26



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


energy trading activities; (2) it better aligns financial
reporting for energy trading inventory with the way in which
price risk is measured and managed as part of trading activities;
 and (3) the company expects to continue its future
involvement with trading activities.

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

|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |       | 
|---------------------------------- | --------------------------- | ------------ | ------ | ---------- |  | ------------- | ------- | ----- |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | -------- | ----- | 
|                                   |                             |              |        |            |  |              
|                                   |                             | Three Months |        | Six Months |  | Twelve Months
|                                   |                             | Ended        |        | Ended      |  | Ended        
|                                   |                             | June 30,     |        | June 30,   |  | June 30,     
|                                   |                             |              |        |            |  |              
|(in Thousands, Except Per          |                             | 2000         |        | 1999       |  | 2000          |         | 1999  |  | 2000 |        | 1999  
|Share Amounts)                     |                             |              |        |            |  |               |         |       |  |      |        |       
|Net Income (Loss)                  |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|                                  
|                                  
|                                  
|                                  
|LIFO method                        |                             | $            | (4,445 | )          |  | $             | (86,240 | )     |  | $    | 54,497 |        |  | $ | (697   | )      |  | $ | 24,345 |        |  | $ | (153,424 | )    
|                                  
|                                  
|                                  
|                                  
|                                   | Effect of accounting change |              |        | 26,624     |  |               |         | 7,596 |  |      |        | 37,193 |  |   |        | 10,920 |  |   |        | 38,192 |  |   |          | 4,401 | 
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|Fair Value method                  |                             | $            | 22,179 |            |  | $             | (78,644 | )     |  | $    | 91,690 |        |  | $ | 10,223 |        |  | $ | 62,537 |        |  | $ | (149,023 | )    
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|Basic Earnings (Loss)
	Per Share   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|                                  
|                                  
|                                  
|                                  
|LIFO method                        |                             | $            | (.05   | )          |  | $             | (1.03   | )     |  | $    | .63    |        |  | $ | (.01   | )      |  | $ | .28    |        |  | $ | (1.91    | )    
|                                  
|                                  
|                                  
|                                  
|                                   | Effect of accounting change |              |        | .30        |  |               |         | .09   |  |      |        | .43    |  |   |        | .14    |  |   |        | .45    |  |   |          | .05   | 
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|Fair Value method                  |                             | $            | .25    |            |  | $             | (0.94   | )     |  | $    | 1.06   |        |  | $ | .13    |        |  | $ | .73    |        |  | $ | (1.86    | )    
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|Diluted Earnings (Loss)
	Per Share |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|                                  
|                                  
|                                  
|                                  
|LIFO method                        |                             | $            | (.05   | )          |  | $             | (1.03   | )     |  | $    | .63    |        |  | $ | (.01   | )      |  | $ | .28    |        |  | $ | (1.91    | )    
|                                  
|                                  
|                                  
|                                  
|                                   | Effect of accounting change |              |        | .30        |  |               |         | .09   |  |      |        | .40    |  |   |        | .13    |  |   |        | .44    |  |   |          | .05   | 
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      
|Fair Value method                  |                             | $            | .25    |            |  | $             | (0.94   | )     |  | $    | 1.03   |        |  | $ | .12    |        |  | $ | .72    |        |  | $ | (1.86    | )    
|                                   |                             |              |        |            |  |               |         |       |  |      |        |        |  |   |        |        |  |   |        |        |  |   |          |      

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

4. TRADING ACTIVITIES

During the second quarter of 2000, MCNs Energy Marketing
segment began trading activities by entering into financial
transactions that better utilize its gas storage capacity and
assets. Energy Marketing utilizes forward contracts, futures
contracts, swap agreements, and natural gas inventories as part
of its trading strategy. Financial instruments and storage
capacity contracts used in connection with trading activities are
 marked-to-market and recorded at their fair value in the
Consolidated Statement of Financial Position and are shown as
Assets and Liabilities from Trading Activities.
Energy Marketings gas inventory is also recorded at its
fair value (Notes 3 and 9). Unrealized gains and losses from
newly originated contracts, financial instruments, storage
contracts and inventories are recognized in revenues in the
Consolidated Statement of Operations. The net unrealized loss
included in revenues from marking-to-market MCNs financial
instruments and storage contracts utilized in trading activities
for the three-, six-and twelve-month periods ended June 30, 2000
was $28,215,000 pre-tax ($18,340,000 net of taxes). The net
unrealized gains included in revenues from marking-to-market
MCNs gas inventory for the three-, six- and twelve-month
periods ended June 30, 2000 was $40,960,000 pre-tax
($26,624,000 net of taxes),

27



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


$57,220,000 pre-tax ($37,193,000 net of taxes) and $58,756,000
pre-tax ($38,192,000 net of taxes), respectively.

5.  UNUSUAL ITEMS

a.  Pipelines &
Processing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gain on Sale of Joint Ventures:In May 2000,
	MCN recognized a $24,138,000 pre-tax ($15,689,000 net of taxes)
	gain from the sale of its interest in the Jonah Gas Gathering
	Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | In March 2000, MCN recognized a $3,419,000 pre-tax
	($2,222,000 net of taxes) gain from the sale of its interest in
	the Cardinal States Gathering Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Property Write-Downs:In the third quarter of 1998,
	MCN recorded a $133,782,000 pre-tax ($86,959,000 net of taxes)
	write-off of its coal fines project equal to the carrying value
	of its six plants, reflecting the likely inability to recover
	such costs. MCN sold four of its coal fines plants to DTE in
	1999. MCN is seeking to maximize the value of its investment in
	the two remaining plants, but is unable to predict the outcome of
	 such efforts. In the third quarter of 1998, MCN also recorded an
	 impairment loss of $3,899,000 pre-tax ($2,534,000 net of taxes)
	relating to an acquired out-of-service pipeline in Michigan. MCN
	reviewed the business alternatives for this asset and determined
	that its development is unlikely. Accordingly, MCN recorded an
	impairment loss equal to the carrying value of this asset.

b.  Electric Power



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gain on Sale of Joint Ventures:In June 2000,
	MCN sold its interest in the Cobisa-Person facility resulting in
	a pre-tax gain of $1,298,000 ($844,000 net of taxes).                                                                                                                                       
|
| | In April 2000, MCN recognized a $41,723,000 pre-tax
	($27,120,000 net of taxes) gain from the sale of its interest in
	the Michigan Power Project and its interest in the Ada
	Cogeneration facility.                                                                                                       
|
| | In March 2000, MCN recognized a $3,672,000 pre-tax
	($2,387,000 net of taxes) gain from the sale of its interest in
	the Carson Cogeneration facility.                                                                                                                                                      
|
| | Property Write-Downs:In the fourth quarter of 1999,
	 MCN exited two power projects under development that were not
	consistent with its new strategic direction. As a result, MCN
	recorded a $4,995,000 pre-tax ($3,247,000 net of taxes) write-off
	 of capitalized costs associated with these projects.
|
| | Restructuring Charge:In the third quarter of 1998,
	MCN recorded a $2,470,000 pre-tax ($1,605,000 net of taxes)
	restructuring charge related to its decision to exit certain
	international power projects.                                                                                                

c.  Energy Marketing



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

28



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


d.  Exploration &
Production



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the second quarter of 1999,
	 MCN recognized a $52,000,000 pre-tax ($33,800,000 net of taxes)
	write-down of its gas and oil properties under the full cost
	method of accounting, due primarily to an unfavorable revision in
	 the timing of the production of proved gas and oil reserves as
	well as reduced expectations of sales proceeds on unproved
	acreage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | In the fourth quarter of 1999, MCN recorded a $2,340,000 pre-tax
	($1,521,000 net of taxes) write-down relating to unproved
	property which is not included in the full cost pool. An
	impairment loss was recorded representing the amount by which the
	 carrying value exceeded the appraised value of the property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | In the third quarter of 1998, MCN recognized a write-down of its
	gas and oil properties totaling $83,955,000 pre-tax ($54,570,000
	net of taxes). The write-down was the result of MCNs
	capitalized exploration and production costs exceeding the full
	cost ceiling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Losses on Sale of Properties:In the second and
	third quarters of 1999, MCN recognized losses from the sale of
	its Western and Midcontinent/ Gulf Coast E&P properties
	totaling $68,798,000 pre-tax ($44,719,000 net of taxes) and
	$5,877,000 pre-tax ($3,820,000 net of taxes), respectively. In
	the fourth quarter of 1999, MCN recognized losses from the sale
	of its Appalachian E&P properties totaling $7,314,000 pre-tax
	 ($4,754,000 net of taxes). In the first quarter of 2000,
	subsequent adjustments related to these prior-period losses
	reduced the losses by $3,735,000 pre-tax ($2,428,000 net of
	taxes).                                                                                                                                                                                                                                                                
|
| | Gain on the Sale of Tax Credits:Gains are recorded
	in each period as the result of the sale of tax credits in the
	third quarter of 1998. The purchaser forwards payments to MCN as
	a result of generating gas production credits, and accordingly,
	MCN records the amount as a gain on the sale of the tax credits.
	Credits will continue to be generated through 2002. For the
	three-, six- and twelve-month periods ended June 30, 2000,
	MCN recognized gains of $3,230,000 pre-tax ($2,100,000 net of
	taxes), $5,278,000 pre-tax ($3,431,000 net of taxes) and
	$10,973,000 pre-tax ($7,132,000 net of taxes), respectively. For
	the three-, six- and twelve-month periods ended June 30,
	1999, MCN recognized gains of $2,465,000 pre-tax ($1,602,000 net
	of taxes), $5,470,000 pre-tax ($3,555,000 net of taxes) and
	$12,868,000 pre-tax ($8,364,000 net of taxes), respectively.
|
| | Loss on Investment:In the second quarter of 1999,
	MCN recognized a $7,456,000 pre-tax ($4,846,000 net of taxes)
	loss from the write-down of an investment in the common stock of
	an E&P company. The loss was due to decline in the fair value
	 of the securities that are not considered temporary. MCN has no
	carrying value in this investment after the write-down.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

e.  Corporate & Other



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restructuring Charge:In the third quarter of 1998,
	MCN recorded a $10,390,000 pre-tax ($6,753,000 net of taxes)
	restructuring charge related to a corporate realignment designed
	to improve operating efficiencies through a more streamlined
	organizational structure. The realignment included cost saving
	initiatives expected to reduce operating expenses. As of
	June 30, 2000, payments of $7,932,000 have been charged
	against the restructuring accruals relating to severance and
	termination benefits and net lease costs. The remaining
	restructuring costs of $2,458,000 are expected to be paid through
	 2006.

29



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


f.  Gas Distribution



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the third quarter of 1998,
	MCN recorded a $24,800,000 pre-tax ($11,200,000 net of taxes and
	minority interest) write-down of certain gas gathering
	properties. An analysis revealed that projected cash flows from
	the gathering system were not sufficient to cover the
	systems carrying value. Therefore, an impairment loss was
	recorded representing the amount by which the carrying value of
	the system exceeded its estimated fair value.
|
| | Loss on Investment:In the third quarter of 1998,
	MCN also recorded an $8,500,000 pre-tax ($5,525,000 net of taxes)
	 loss from the write-down of an investment in a Missouri gas
	distribution company. The write-down represents the amount by
	which the carrying value exceeded the estimated fair value of the
	 investment.                                                                                                                                               

6.  ACQUISITIONS AND DISPOSITIONS

a.  Pipelines &
Processing



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

b.  Electric Power



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

7.  ACCOUNTING FOR START-UP ACTIVITIES

As discussed in MCNs 1999 Annual Report on Form 10-K,
in January 1999 MCN adopted Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-up
Activities, issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public
 Accountants. SOP 98-5 requires start-up and organizational costs
 to be expensed as incurred. This change in accounting principle
resulted in the write-off of start-up and organization costs
capitalized as of December 31, 1998. The cumulative effect
of the change was to decrease earnings by $4,418,000 pre-tax
($2,872,000 net of taxes) for the six- and twelve-month periods
ended June 30, 1999.

30



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


8.  REGULATORY MATTERS

a.  Regulatory Reform Plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	MichCon implemented its Regulatory Reform Plan in
	January 1999. The plan includes a three-year gas sales
	program under which MichCons gas sales rates include a gas
	commodity component that is fixed at $2.95 per thousand cubic
	feet (Mcf). As part of its gas acquisition strategy, MichCon has
	entered into fixed-price contracts at an average cost below $2.95
	 per Mcf for a substantial portion of its expected supply
	requirements in 2000 and approximately 65% of such requirements
	in 2001.
|
| | The plan also includes a comprehensive experimental three-year
	customer choice program, which is subject to annual caps on the
	level of participation. The customer choice program began in
	April 1999, with approximately 70,000 customers choosing to
	purchase natural gas from suppliers other than MichCon. Year two
	of the plan began in April 2000, and the number of customers
	 participating decreased to approximately 55,000. MichCon
	continues to transport and deliver gas to these customers
	premises at prices that generate favorable margins.  
|
| | In addition, the plan encompasses an income sharing mechanism
	that allows customers to share profits when actual returns on
	equity exceed predetermined thresholds. MichCon filed its income
	sharing report with the Michigan Public Service Commission
	(MPSC) on March 31, 2000, using the MPSC approved
	formula, indicating that no income sharing was required for 1999.
	 The MPSC staff has requested a hearing on this matter.
	Management believes that no income sharing is required.                                                                      
|
| | On August 4, 2000, the MPSC issued an order establishing a
	proceeding to obtain information regarding the experience gained
	from the customer choice programs of Michigan utilities. The
	information will be used by the MPSC to determine the future
	regulatory environment following the conclusion of the current
	regulatory reform programs. The MPSC is expected to issue an
	order on its findings during October 2000.                                                                                                                                      

b.  Gas Cost Recovery
Proceedings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Gas Cost Recovery (GCR) process was suspended with the
	implementation of MichCons Regulatory Reform Plan in
	January 1999. In February 1999, MichCon filed its final GCR
	reconciliation case covering gas costs incurred during 1998
	indicating an overrecovery of $18,000,000, including interest.
	During the first quarter of 1999, MichCon refunded the
	overrecovery to customers. In July 2000, the MPSC issued an order
	 on this case indicating that an additional $3,200,000, including
	 $740,000 of interest, had been overrecovered. In July 2000,
	MichCon began refunding the additional overrecovery to customers
	as a reduction in gas sales rates.

c.  Other Rate Matters



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs Annual Report on Form 10-K,
	several shippers on MichCons northern Michigan gathering
	system filed a complaint with the MPSC requesting that the
	commission issue an order reducing the rate charged for Antrim
	gas transportation services from $.09 per Mcf to approximately
	$.039 to $.031 per Mcf. The complaint also included a request for
	 refunds of approximately $21,000,000 for periods during which
	the rate was in effect. The

31



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | presiding MPSC administrative law judge found that no refunds are
	 required. The MPSC staff has proposed a rate of $.049 per Mcf
	which would result in an annual revenue reduction of
	approximately $4,500,000. Management will vigorously defend its
	proposed rate of $.088 per Mcf, however, it is unable to predict
	the eventual outcome of this complaint.

9.  GAS IN INVENTORY

Inventory gas held by MCNs Gas Distribution segment is
priced on a LIFO basis. In anticipation that interim inventory
reductions will be replaced prior to year end, the cost of gas
for net withdrawals from inventory is recorded at the estimated
average purchase rate for the calendar year. The excess of these
charges over the LIFO cost is credited to the gas inventory
equalization account. During interim periods when there are net
injections to inventory, the equalization account is reversed.
Inventory gas held by MCNs Energy Marketing segment is
recorded at fair value (Note 3).

10.  EARNINGS PER SHARE COMPUTATION

MCN reports basic and diluted earnings per share (EPS). Basic EPS
 is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS assumes the issuance
of potential dilutive common shares outstanding during the period
 and adjusts for changes in income and the repurchase of common
shares that would have occurred with proceeds from the assumed
issuance. For the three-and twelve-month periods ended
June 30, 1999, potentially dilutive securities have been

32



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


excluded from the diluted EPS calculation since their inclusion
would have been antidilutive. A reconciliation of both
calculations follows.

|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |       |  
|-------------------------------------------- | ------------------------------ | -------------------- | ------ | -------- |  | --------- | -------- | -------- | - | ---- | ------ | ------ |  |  | ------ | ------ |  | - | ---- | --- |  | - | ----- | ----- | -
|                                            
|                                            
|                                             |                                |                      |        |          |  |          
|                                             |                                | Net Income           |        | Weighted |  |          
|                                             |                                | (Loss) Before        |        | Average  |  | Earnings 
|                                             |                                | Cumulative Effect of |        | Common   |  | (Loss)   
|                                             |                                | Accounting Change    |        | Shares   |  | Per Share
|                                             |                                |                      |        |          |  |          
|                                             |                                | 2000                 |        | 1999     |  | 2000      |          | 1999     |   | 2000 |        | 1999  
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |       
|(in Thousands, Except Per Share Amounts)     |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|Three Months Ended June 30                   |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|Basic EPS                                    |                                | $                    | 22,179 |          |  | $         | (78,644  | )        |   |      | 87,840 |        |  |  | 83,413 |        |  | $ | .25  |     |  | $ | (.94  | )    
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Effect of Dilutive Securities
	FELINE PRIDES |                                |                      |       |          |  |           |         |          |   |      |       |        |  |  |       |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|                                             | Stock-based compensation plans |                      |        |         |  |           |          |         |   |      |        | 670    |  |  |        |       |  |   |      |     |  |   |       |       |  
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Diluted EPS                                  |                                | $                    | 22,179 |          |  | $         | (78,644  | )        |   |      | 88,510 |        |  |  | 83,413 |        |  | $ | .25  |     |  | $ | (.94  | )    
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Six Months Ended June 30                     |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|Basic EPS                                    |                                | $                    | 91,690 |          |  | $         | 13,095   |          |   |      | 86,673 |        |  |  | 81,424 |        |  | $ | 1.06 |     |  | $ | .16   |      
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Effect of Dilutive Securities
	FELINE PRIDES |                                |                      | 2,349  |          |  |           |         |          |   |      | 3,433  |        |  |  |       |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|                                             | Stock-based compensation plans |                      |        |         |  |           |          |         |   |      |        | 776    |  |  |        | 1,090  |  |   |      |     |  |   |       |       |  
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Diluted EPS                                  |                                | $                    | 94,039 |          |  | $         | 13,095   |          |   |      | 90,882 |        |  |  | 82,514 |        |  | $ | 1.03 |     |  | $ | .16   |      
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Twelve Months Ended June 30                  |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|                                             | Basic EPS                      |                      | $      | 62,537   |  |           | $        | (146,151 | ) |      |        | 86,012 |  |  |        | 80,242 |  |   | $    | .73 |  |   | $     | (1.82 | )
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Effect of Dilutive Securities
	FELINE PRIDES |                                |                      |       |          |  |           |         |          |   |      |       |        |  |  |       |        |  |   |      |     |  |   |       |      
|                                            
|                                            
|                                            
|                                            
|                                             | Stock-based compensation plans |                      |        |         |  |           |          |         |   |      |        | 633    |  |  |        |       |  |   |      |     |  |   |       |       |  
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|Diluted EPS                                  |                                | $                    | 62,537 |          |  | $         | (146,151 | )        |   |      | 86,645 |        |  |  | 80,242 |        |  | $ | .72  |     |  | $ | (1.82 | )    
|                                             |                                |                      |        |          |  |           |          |          |   |      |        |        |  |  |        |        |  |   |      |     |  |   |       |      
|                                            

33



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


11.  COMPREHENSIVE INCOME

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

|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |        |        |  
|----------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------------- | ------ | ---------------- | --- | ------------------- | ------- | ---- | ----- | ---- | ------ | ---- | --- | - | ------ | ------ | ----- | - | ------ | - | ------ | - | -------- | ------ | ------ | -
|                                                     
|                                                     
|                                                      |                                                               |                                                            |        |                  |     |                    
|                                                      |                                                               | Three Months Ended                                         |        | Six Months Ended |     | Twelve Months Ended
|                                                      |                                                               | June 30,                                                   |        | June 30,         |     | June 30,           
|                                                      |                                                               |                                                            |        |                  |     |                    
|                                                      |                                                               | 2000                                                       |        | 1999             |     | 2000                |         | 1999 |       | 2000 |        | 1999
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |     
|(in Thousands)                                        |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                     
|                                                     
|                                                     
|                                                     
|Comprehensive Income (Loss)                           |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                     
|                                                     
|                                                     
|                                                     
|Net Income (Loss)                                     |                                                               | $                                                          | 22,179 |                  |     | $                   | (78,644 | )    |       | $    | 91,690 |      |     | $ | 10,223 |        |       | $ | 62,537 |   |        | $ | (149,023 | )     
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|Other Comprehensive Income (Loss),                    |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|Net of Taxes                                          |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                      | Foreign currency translation adjustment                       |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Foreign currency translation adjustment                    |        |                  | (42 | )                   |         |      | (898  | )    |        |      | (32 | ) |        |        | (616  | ) |        |   | 185    |   |          |        | (1,357 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Less: Reclassification for losses Recognized in net income |        |                  |    |                     |         |      |      |      |        |      |    |   |        |        |      |   |        |   | 13,132 |   |          |        |       |  
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                      |                                                               |                                                            |        |                  | (42 | )                   |         |      | (898  | )    |        |      | (32 | ) |        |        | (616  | ) |        |   | 13,317 |   |          |        | (1,357 | )
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                      | Unrealized loss on securities Unrealized losses during period |                                                            |        |                 |     |                     |         | (642 | )     |      |        |     |     |   |        | (1,159 | )     |   |        |  |        |   |          | (4,846 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                               | Less: Reclassification for losses Recognized in net income |        |                  |    |                     |         |      | 4,846 |      |        |      |    |   |        |        | 4,846 |   |        |   |       |   |          |        | 4,846  |  
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                      |                                                               |                                                            |       |                  |     |                     | 4,204   |      |       |      |       |      |     |   | 3,687  |        |       |   |       |   |        |   |         |       
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|Total Other Comprehensive Income (Loss), Net of Taxes |                                                               |                                                            | (42    | )                |     |                     | 3,306   |      |       |      | (32    | )    |     |   | 3,071  |        |       |   | 13,317 |   |        |   | (1,357   | )     
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|Total Comprehensive Income (Loss)                     |                                                               | $                                                          | 22,137 |                  |     | $                   | (75,338 | )    |       | $    | 91,658 |      |     | $ | 13,294 |        |       | $ | 75,854 |   |        | $ | (150,380 | )     
|                                                      |                                                               |                                                            |        |                  |     |                     |         |      |       |      |        |      |     |   |        |        |       |   |        |   |        |   |          |       
|                                                     

12.  CONTINGENCIES

a.  Personal Property Taxes



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1999 Annual Report on Form 10-K,
	in 1998, MichCon began filing its personal property tax
	information with local taxing jurisdictions which reflected a
	change in the calculation of the value of personal property
	subject to taxation. The revised calculation excludes intangible
	costs from the value of personal property. A number of local
	taxing jurisdictions have accepted the revised calculation, and
	MichCon recorded lower property tax expense in 1999 and 1998
	associated with the accepting taxing jurisdictions. MichCon has
	also filed appeals to recover excess payments made in 1996 and
	1997 based on the revised calculation. MichCon has pending tax
	appeals with local taxing jurisdictions that have not accepted
	the revised calculation.
|
| | Additionally, MichCon and other Michigan utilities have asserted
	that Michigans valuation tables result in the substantial
	overvaluation of utility personal property. Valuation tables
	established by the Michigan State Tax Commission (STC) are
	used to estimate the reduction in value of personal property
	based on the propertys age. In November 1999, the STC
	approved new valuation tables that more accurately recognize the
	value of a utilitys personal property. The new tables are
	effective in 2000 and are being used for current year assessments                                                                                                                                                                                                                        

34



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | in most jurisdictions. However, several local taxing
	jurisdictions have taken legal action attempting to prevent the
	STC from implementing the new valuation tables and have continued
	 to prepare assessments based on the superceded tables. The legal
	 actions regarding the appropriateness of the new tables are
	currently before the Michigan Tax Tribunal (MTT) which issued an
	order on June 21 stating that the tables are presumed to be
	correct, thus assigning the burden of proving otherwise to the
	taxing jurisdictions. A trial is scheduled for December 2000. The
	 legal action, along with possible additional appeals by local
	taxing jurisdictions, could delay expected recoveries related to
	the new valuation tables until 2001.
|
| | MichCon will seek to apply the new tables retroactively and to
	ultimately settle the pending tax appeals related to prior
	periods. This is a solution supported by the STC in the past.
	MCNs future results of operations could be significantly
	affected if the valuation tables are not upheld in court or
	MichCon is unsuccessful in its appeals.                                                                                                                                                                                                                                                                                                                                                                                                         

b.  Legal and
Administrative Proceedings



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

13.  COMMODITY SWAP AGREEMENTS

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

|                                     |                        |         |         |             |  |      |        |        |  |   |        |        | 
|------------------------------------ | ---------------------- | ------- | ------- | ----------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                    
|                                    
|                                     |                        |         |         |            
|                                     |                        | June 30 |         | December 31
|                                     |                        |         |         |            
|                                     |                        | 2000    |         | 1999        |  | 1999
|(in Thousands)                       |                        |         |         |             |  |     
|Deferred Swap Losses and Receivables |                        |         |         |             |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized losses      |         | $       | 47,992      |  |      | $      | 42,556 |  |   | $      | 13,884 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables            |         |         | 127,774     |  |      |        | 31,156 |  |   |        | 40,089 | 
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                     |                        |         | 175,766 |             |  |      | 73,712 |        |  |   | 53,973 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  current portion |         |         | 64,946      |  |      |        | 9,145  |  |   |        | 10,066 | 
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                     |                        | $       | 110,820 |             |  | $    | 64,567 |        |  | $ | 43,907 |       
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|Deferred Swap Gains and Payables     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized gains       |         | $       | 61,973      |  |      | $      | 24,822 |  |   | $      | 29,596 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Payables               |         |         | 131,277     |  |      |        | 51,720 |  |   |        | 48,066 | 
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                     |                        |         | 193,250 |             |  |      | 76,542 |        |  |   | 77,662 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  current portion |         |         | 64,939      |  |      |        | 13,925 |  |   |        | 12,700 | 
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                     |                        | $       | 128,311 |             |  | $    | 62,617 |        |  | $ | 64,962 |       
|                                     |                        |         |         |             |  |      |        |        |  |   |        |       
|                                    

35



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


14.  SEGMENT INFORMATION

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

|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |           |  
|------------------------------------- | -------------------------------------- | ------------------ | ------- | ---------------- | - | ------------------- | ------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                     
|                                     
|                                      |                                        |                    |         |                  |   |                    
|                                      |                                        | Three Months Ended |         | Six Months Ended |   | Twelve Months Ended
|                                      |                                        | June 30,           |         | June 30,         |   | June 30,           
|                                      |                                        |                    |         |                  |   |                    
|                                      |                                        | 2000               |         | 1999             |   | 2000                |         | 1999    |   | 2000 |           | 1999   
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |        
|(in Thousands)                        |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|Revenues From Unaffiliated Customers: |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 8,648            |   |                     | $       | 5,426   |   |      | $         | 15,013  |   |   | $         | 11,331  |   |   | $         | 28,474    |   |   | $         | 23,749    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 16,454           |   |                     |         | 12,980  |   |      |           | 30,357  |   |   |           | 25,123  |   |   |           | 57,440    |   |   |           | 50,008    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 274,096          |   |                     |         | 277,263 |   |      |           | 719,175 |   |   |           | 524,989 |   |   |           | 1,411,231 |   |   |           | 874,461   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 3,124            |   |                     |         | 12,961  |   |      |           | 7,740   |   |   |           | 41,875  |   |   |           | 9,236     |   |   |           | 128,928   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 191,878          |   |                     |         | 191,840 |   |      |           | 641,666 |   |   |           | 698,852 |   |   |           | 1,104,804 |   |   |           | 1,138,018 |  
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 494,200 |                  |   |                     | 500,470 |         |   |      | 1,413,951 |         |   |   | 1,302,170 |         |   |   | 2,611,185 |           |   |   | 2,215,164 |          
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Revenues From Affiliated Customers:   |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    |         | 62               |   |                     |         | 928     |   |      |           | 238     |   |   |           | 1,102   |   |   |           | 1,385     |   |   |           | 1,212     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 23,408           |   |                     |         | 13,441  |   |      |           | 47,081  |   |   |           | 31,525  |   |   |           | 84,349    |   |   |           | 104,992   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 13,965           |   |                     |         | 24,958  |   |      |           | 27,110  |   |   |           | 45,544  |   |   |           | 91,285    |   |   |           | 56,879    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 2,618            |   |                     |         | 666     |   |      |           | 6,483   |   |   |           | 3,334   |   |   |           | 11,759    |   |   |           | 5,259     |  
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 40,053  |                  |   |                     | 39,993  |         |   |      | 80,912    |         |   |   | 81,505    |         |   |   | 188,778   |           |   |   | 168,342   |          
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Eliminations                          |                                        |                    | (40,053 | )                |   |                     | (39,993 | )       |   |      | (80,912   | )       |   |   | (81,505   | )       |   |   | (188,778  | )         |   |   | (168,342  | )        
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Consolidated Operating Revenues       |                                        | $                  | 494,200 |                  |   | $                   | 500,470 |         |   | $    | 1,413,951 |         |   | $ | 1,302,170 |         |   | $ | 2,611,185 |           |   | $ | 2,215,164 |          
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Net Income (Loss)                     |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 16,080           |   |                     | $       | 1,782   |   |      | $         | 18,800  |   |   | $         | 3,457   |   |   | $         | 19,866    |   |   | $         | (85,485   | )
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 28,065           |   |                     |         | 2,970   |   |      |           | 32,506  |   |   |           | 7,371   |   |   |           | 36,593    |   |   |           | 14,913    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | (16,776          | ) |                     |         | 4,854   |   |      |           | (15,142 | ) |   |           | 10,533  |   |   |           | (28,387   | ) |   |           | 133       |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 1,055            |   |                     |         | (79,708 | ) |      |           | 4,229   |   |   |           | (79,708 | ) |   |           | (3,226    | ) |   |           | (125,668  | )
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 2,833            |   |                     |         | 6,340   |   |      |           | 69,489  |   |   |           | 90,633  |   |   |           | 82,299    |   |   |           | 96,997    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate & Other                      |                    |         | (9,078           | ) |                     |         | (14,882 | ) |      |           | (18,192 | ) |   |           | (19,191 | ) |   |           | (44,608   | ) |   |           | (47,041   | )
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 22,179  |                  |   |                     | (78,644 | )       |   |      | 91,690    |         |   |   | 13,095    |         |   |   | 62,537    |           |   |   | (146,151  | )        
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of accounting change |                    |         |                 |   |                     |         |        |   |      |           |        |   |   |           | (2,872  | ) |   |           |          |   |   |           | (2,872    | )
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|Consolidated Net Income (Loss)        |                                        | $                  | 22,179  |                  |   | $                   | (78,644 | )       |   | $    | 91,690    |         |   | $ | 10,223    |         |   | $ | 62,537    |           |   | $ | (149,023  | )        
|                                      |                                        |                    |         |                  |   |                     |         |         |   |      |           |         |   |   |           |         |   |   |           |           |   |   |           |          
|                                     

15.  CREDIT FACILITIES AND LONG-TERM BORROWINGS

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

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

36



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


16.  FELINE PRIDES

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

17.  CONSOLIDATING FINANCIAL STATEMENTS

Debt securities issued by MCNEE are subject to a support
agreement between MCN and MCNEE, under which MCN has committed to
 make payments of interest and principal on MCNEEs
securities in the event of failure to pay by MCNEE. Under the
terms of the support agreement, the assets of MCN, other than
MichCon, and any cash dividends paid to MCN by any of its
subsidiaries are available as recourse to holders of MCNEEs
 securities. The carrying value of MCNs assets on an
unconsolidated basis, which primarily consists of investments in
subsidiaries other than MichCon, is $508,959,000 at June 30,
 2000.

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

37



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |           |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | --------- | --- | ------- | --------- | ------------ | ------ | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                               |                                                                 | MCN                                    |           |           |     |         |           | Eliminations |        |             
|                                                               |                                                                 | and Other                              |           |           |     |         |           | and          |        | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNEE     |     | MichCon |           | Reclasses    |        | Total       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | June 30, 2000                         
|                                                               |                                                                 |                                       
|(in Thousands)                                                 |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         |          |     |         | $         | 21,212       |        |              | $         | 3,039     |        |   | $          | (50      | ) |   | $         | 24,201    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 17,371    |     |         |           | 260,476      |        |              |           | 160,716   |        |   |            | (13,899  | ) |   |           | 424,664   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |           | 173 |         |           |              | 17,378 |              |           |           | 19,261 |   |            |          |  |   |           |           | 36,812 | 
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 17,198    |     |         |           | 243,098      |        |              |           | 141,455   |        |   |            | (13,899  | ) |   |           | 387,852   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 191       |     |         |           |             |        |              |           | 18,244    |        |   |            |         |   |   |           | 18,435    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |          |     |         |           | 112,189      |        |              |           | 52,796    |        |   |            |         |   |   |           | 164,985   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 142       |     |         |           | 885          |        |              |           | 38,460    |        |   |            |         |   |   |           | 39,487    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (345      | )   |         |           | 44,310       |        |              |           |          |        |   |            | (2,395   | ) |   |           | 41,570    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Assets from trading activities                                  |                                        |           |          |     |         |           | 6,326        |        |              |           |          |        |   |            |         |   |   |           | 6,326     |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 10,248    |     |         |           | 41,532       |        |              |           | 36,422    |        |   |            | (34,693  | ) |   |           | 53,509    |       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 27,434    |           |     |         | 469,552   |              |        |              | 290,416   |           |        |   | (51,037    | )        |   |   | 736,365   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 95        |     |         |           | 87,347       |        |              |           |          |        |   |            | (87,442  | ) |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |          |     |         |           | 28,026       |        |              |           | 68,162    |        |   |            | 4,609    |   |   |           | 100,797   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |          |     |         |           | 110,820      |        |              |           |          |        |   |            |         |   |   |           | 110,820   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,253     |     |         |           |             |        |              |           | 26,169    |        |   |            |         |   |   |           | 28,422    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           | 4,505     |     |         |           |             |        |              |           | 184,835   |        |   |            | (4,516   | ) |   |           | 184,824   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 3,039     |     |         |           | 28,755       |        |              |           | 63,678    |        |   |            | 7,491    |   |   |           | 102,963   |       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 9,892     |           |     |         | 254,948   |              |        |              | 342,844   |           |        |   | (79,858    | )        |   |   | 527,826   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,232,847 |           |     |         | 591,497   |              |        |              | 19,777    |           |        |   | (1,230,170 | )        |   |   | 613,951   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 44,487    |           |     |         | 673,280   |              |        |              | 3,022,964 |           |        |   |           |          |   |   | 3,740,731 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 19,866    |     |         |           | 229,488      |        |              |           | 1,509,079 |        |   |            |         |   |   |           | 1,758,433 |       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 24,621    |           |     |         | 443,792   |              |        |              | 1,513,885 |           |        |   |           |          |   |   | 1,982,298 |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 | $                                      | 1,294,794 |           |     | $       | 1,759,789 |              |        | $            | 2,166,922 |           |        | $ | (1,361,065 | )        |   | $ | 3,860,440 |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Current Liabilities                                            |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 8,247     |     |         | $         | 260,852      |        |              | $         | 92,391    |        |   | $          | (14,145  | ) |   | $         | 347,345   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           |          |     |         |           | 59,459       |        |              |           | 42,869    |        |   |            | (49      | ) |   |           | 102,279   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |          |     |         |           | 160,099      |        |              |           | 26,077    |        |   |            |         |   |   |           | 186,176   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas inventory equalization                                      |                                        |           |          |     |         |           |             |        |              |           | 43,012    |        |   |            |         |   |   |           | 43,012    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | (9,278    | )   |         |           | 3,353        |        |              |           | 72,464    |        |   |            | (21,813  | ) |   |           | 44,726    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |          |     |         |           | 24,687       |        |              |           | 577       |        |   |            |         |   |   |           | 25,264    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 9         |     |         |           |             |        |              |           | 15,604    |        |   |            |         |   |   |           | 15,613    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Liabilities from trading activities                             |                                        |           |          |     |         |           | 22,793       |        |              |           |          |        |   |            |         |   |   |           | 22,793    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 8,409     |     |         |           | 65,596       |        |              |           | 48,414    |        |   |            | (2,346   | ) |   |           | 120,073   |       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 7,387     |           |     |         | 596,839   |              |        |              | 341,408   |           |        |   | (38,353    | )        |   |   | 907,281   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (2,540    | )   |         |           |             |        |              |           | 125,965   |        |   |            | (87,346  | ) |   |           | 36,079    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 231       |     |         |           |             |        |              |           | 26,822    |        |   |            |         |   |   |           | 27,053    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |          |     |         |           |             |        |              |           | 134,996   |        |   |            |         |   |   |           | 134,996   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |          |     |         |           | 128,311      |        |              |           |          |        |   |            |         |   |   |           | 128,311   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 2,663     |     |         |           |             |        |              |           | 24,463    |        |   |            |         |   |   |           | 27,126    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |          |     |         |           | 616          |        |              |           | 1,035     |        |   |            |         |   |   |           | 1,651     |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 14,318    |     |         |           | 29,169       |        |              |           | 63,210    |        |   |            | (4,516   | ) |   |           | 102,181   |       
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 14,672    |           |     |         | 158,096   |              |        |              | 376,491   |           |        |   | (91,862    | )        |   |   | 457,397   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |           |     |         | 580,621   |              |        |              | 642,594   |           |        |   |           |          |   |   | 1,223,215 |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 272,343   |           |     |         |          |              |        |              |          |           |        |   |           |          |   |   | 272,343   |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 902       |     |         |           | 5            |        |              |           | 10,300    |        |   |            | (10,305  | ) |   |           | 902       |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 1,093,570 |     |         |           | 720,085      |        |              |           | 230,399   |        |   |            | (950,484 | ) |   |           | 1,093,570 |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (71,664   | )   |         |           | (295,669     | )      |              |           | 565,730   |        |   |            | (270,061 | ) |   |           | (71,664   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |          |     |         |           | (188         | )      |              |           |          |        |   |            |         |   |   |           | (188      | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,416   | )   |         |           |             |        |              |           |          |        |   |            |         |   |   |           | (22,416   | )     
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 1,000,392 |           |     |         | 424,233   |              |        |              | 806,429   |           |        |   | (1,230,850 | )        |   |   | 1,000,204 |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 | $                                      | 1,294,794 |           |     | $       | 1,759,789 |              |        |              | 2,166,922 |           |        | $ | (1,361,065 | )        |   | $ | 3,860,440 |          
|                                                               |                                                                 |                                        |           |           |     |         |           |              |        |              |           |           |        |   |            |          |   |   |           |          

38



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |           |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | ----- | ------------ | --------- | --------- | ------ | - | ---------- | ---------- | - | - | --------- | --------- | ------ | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |       |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |       | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNEE   |    | MichCon |           | Reclasses    |       | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | June 30, 1999                         
|                                                               |                                                                 |                                       
|(in Thousands)                                                 |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 434     |    |         | $         | 8,819        |       |              | $         | 10,823    |        |   | $          |           |   |   | $         | 20,076    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 7,065   |    |         |           | 193,029      |       |              |           | 155,509   |        |   |            | (13,611    | ) |   |           | 341,992   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 79 |         |           |              | 1,773 |              |           |           | 13,492 |   |            |            |  |   |           |           | 15,344 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 6,986   |    |         |           | 191,256      |       |              |           | 142,017   |        |   |            | (13,611    | ) |   |           | 326,648   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 214     |    |         |           |             |       |              |           | 20,302    |        |   |            |           |   |   |           | 20,516    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 77,035       |       |              |           | 43,892    |        |   |            |           |   |   |           | 120,927   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 170     |    |         |           | 1,952        |       |              |           | 48,473    |        |   |            |           |   |   |           | 50,595    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           |        |    |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Assets from trading activities                                  |                                        |           |        |    |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 4,555   |    |         |           | 58,345       |       |              |           | 34,512    |        |   |            | (51,234    | ) |   |           | 46,178    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 12,359    |         |    |         | 337,407   |              |       |              | 300,019   |           |        |   | (64,845    | )          |   |   | 584,940   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 10,660  |    |         |           | 121,287      |       |              |           |          |        |   |            | (103,490   | ) |   |           | 28,457    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 3,714        |       |              |           | 66,202    |        |   |            | 600        |   |   |           | 70,516    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 64,567       |       |              |           |          |        |   |            |           |   |   |           | 64,567    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,770   |    |         |           |             |       |              |           | 28,404    |        |   |            |           |   |   |           | 31,174    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           |        |    |         |           |             |       |              |           | 134,590   |        |   |            | (1,785     | ) |   |           | 132,805   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 13,806  |    |         |           | 29,983       |       |              |           | 66,758    |        |   |            | 3,954      |   |   |           | 114,501   |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 27,236    |         |    |         | 219,551   |              |       |              | 295,954   |           |        |   | (100,721   | )          |   |   | 442,020   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,525,781 |         |    |         | 843,517   |              |       |              | 19,853    |           |        |   | (1,523,803 | )          |   |   | 865,348   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 48,752    |         |    |         | 844,272   |              |       |              | 2,942,856 |           |        |   |           |            |   |   | 3,835,880 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 18,684  |    |         |           | 220,428      |       |              |           | 1,445,967 |        |   |            |           |   |   |           | 1,685,079 |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 30,068    |         |    |         | 623,844   |              |       |              | 1,496,889 |           |        |   |           |            |   |   | 2,150,801 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,595,444 |         |    | $       | 2,024,319 |              |       | $            | 2,112,715 |           |        | $ | (1,689,369 | )          |   | $ | 4,043,109 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 6,148   |    |         | $         | 168,281      |       |              | $         | 89,662    |        |   | $          | (11,300    | ) |   | $         | 252,791   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 156,440 |    |         |           | 162,886      |       |              |           | 28,319    |        |   |            | (836       | ) |   |           | 346,809   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 216          |       |              |           | 46,135    |        |   |            |           |   |   |           | 46,351    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas inventory equalization                                      |                                        |           |        |    |         |           |             |       |              |           | 22,773    |        |   |            |           |   |   |           | 22,773    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | (387    | )  |         |           | 2,450        |       |              |           | 86,097    |        |   |            | (44,959    | ) |   |           | 43,201    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 17,263       |       |              |           | 20,845    |        |   |            |           |   |   |           | 38,108    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 26      |    |         |           |             |       |              |           | 15,830    |        |   |            |           |   |   |           | 15,856    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Liabilities from trading activities                             |                                        |           |        |    |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 15,319  |    |         |           | 28,686       |       |              |           | 43,126    |        |   |            | (2,580     | ) |   |           | 84,551    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 177,546   |         |    |         | 379,782   |              |       |              | 352,787   |           |        |   | (59,675    | )          |   |   | 850,440   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           |        |    |         |           |             |       |              |           | 103,198   |        |   |            | (103,198   | ) |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 259     |    |         |           |             |       |              |           | 28,823    |        |   |            |           |   |   |           | 29,082    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |       |              |           | 128,869   |        |   |            |           |   |   |           | 128,869   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 62,617       |       |              |           |          |        |   |            |           |   |   |           | 62,617    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |       |              |           | 31,704    |        |   |            |           |   |   |           | 34,704    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,166        |       |              |           | 8,363     |        |   |            |           |   |   |           | 10,529    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 12,879  |    |         |           | 12,685       |       |              |           | 51,663    |        |   |            | (2,370     | ) |   |           | 74,857    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 16,138    |         |    |         | 77,468    |              |       |              | 352,620   |           |        |   | (105,568   | )          |   |   | 340,658   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |    |         | 777,752   |              |       |              | 686,004   |           |        |   |           |            |   |   | 1,463,756 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 502,232   |         |    |         |          |              |       |              |          |           |        |   |           |            |   |   | 502,232   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 855     |    |         |           | 5            |       |              |           | 10,300    |        |   |            | (10,305    | ) |   |           | 855       |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 966,956 |    |         |           | 1,080,383    |       |              |           | 230,399   |        |   |            | (1,310,782 | ) |   |           | 966,956   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (45,995 | )  |         |           | (277,566     | )     |              |           | 480,605   |        |   |            | (203,039   | ) |   |           | (45,995   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (13,505      | )     |              |           |          |        |   |            |           |   |   |           | (13,505   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |       |              |           |          |        |   |            |           |   |   |           | (22,288   | )     
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 899,528   |         |    |         | 789,317   |              |       |              | 721,304   |           |        |   | (1,524,126 | )          |   |   | 886,023   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,595,444 |         |    | $       | 2,024,319 |              |       | $            | 2,112,715 |           |        | $ | (1,689,369 | )          |   | $ | 4,043,109 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          

39



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATING STATEMENT OF FINANCIAL POSITION


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

40



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |         |  
|----------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------- | ------- | ------ | - | ------- | -------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | -------- | ------- | -
|                                                            |                                                                  | MCN                              |         |        |   |         |          | Eliminations |   |             
|                                                            |                                                                  | and Other                        |         |        |   |         |          | and          |   | Consolidated
|                                                            |                                                                  | Subsidiaries                     |         | MCNEE  |   | MichCon |          | Reclasses    |   | Total       
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |             
|                                                            |                                                                  |                                 
|                                                            |                                                                  | Three Months Ended June 30, 2000
|                                                            |                                                                  |                                 
|(in Thousands)                                              |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                                  | $                                | 7,007   |        |   | $       | 303,226  |              |   | $            | 187,488 |         |   | $ | (3,521  | )       |   | $ | 494,200  |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                          |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                                    |                                  |         | 4,874  |   |         |          | 281,589      |   |              |         | 70,108  |   |   |         | (3,335  | ) |   |          | 353,236 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                        |                                  |         | 1,112  |   |         |          | 35,692       |   |              |         | 58,412  |   |   |         | (186    | ) |   |          | 95,030  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                         |                                  |         | 952    |   |         |          | 7,732        |   |              |         | 26,063  |   |   |         |        |   |   |          | 34,747  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                         |                                  |         | 366    |   |         |          | 1,983        |   |              |         | 13,591  |   |   |         |        |   |   |          | 15,940  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and
	restructuring charges |                                  |         |       |   |         |          |             |   |              |         |        |   |   |         |        |   |   |          |        |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                          |                                  |         |       |   |         |          | (70,388      | ) |              |         |        |   |   |         |        |   |   |          | (70,388 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                     |                                  |         | 463    |   |         |          | 917          |   |              |         | 1,079   |   |   |         |        |   |   |          | 2,459   |  
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                            |                                                                  |                                  | 7,767   |        |   |         | 257,525  |              |   |              | 169,253 |         |   |   | (3,521  | )       |   |   | 431,024  |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Income (Loss)                                     |                                                                  |                                  | (760    | )      |   |         | 45,701   |              |   |              | 18,235  |         |   |   |        |         |   |   | 63,176   |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings of Joint Ventures                        |                                                                  |                                  | 23,247  |        |   |         | 5,026    |              |   |              | 599     |         |   |   | (23,714 | )       |   |   | 5,158    |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                               |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                  |                                  |         | 7,487  |   |         |          | 1,029        |   |              |         | 846     |   |   |         | (7,656  | ) |   |          | 1,706   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                       |                                  |         | (30    | ) |         |          | (10,982      | ) |              |         | (12,111 | ) |   |         |        |   |   |          | (23,123 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                           |                                  |         | (10    | ) |         |          | (9,809       | ) |              |         | (1,860  | ) |   |         | 7,657   |   |   |          | (4,022  | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries                |                                  |         |       |   |         |          |             |   |              |         |        |   |   |         | (7,437  | ) |   |          | (7,437  | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                                |                                  |         |       |   |         |          |             |   |              |         |        |   |   |         |        |   |   |          |        |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                                |                                  |         |       |   |         |          | (182         | ) |              |         | (127    | ) |   |         |        |   |   |          | (309    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                            |                                  |         | (1,133 | ) |         |          | (395         | ) |              |         | 140     |   |   |         |        |   |   |          | (1,388  | )
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                            |                                                                  |                                  | 6,314   |        |   |         | (20,339  | )            |   |              | (13,112 | )       |   |   | (7,436  | )       |   |   | (34,573  | )      
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Income Taxes                           |                                                                  |                                  | 28,801  |        |   |         | 30,388   |              |   |              | 5,722   |         |   |   | (31,150 | )       |   |   | 33,761   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                  |                                  | (815    | )      |   |         | 10,662   |              |   |              | 1,735   |         |   |   |        |         |   |   | 11,582   |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                  |                                  | 29,616  |        |   |         | 19,726   |              |   |              | 3,987   |         |   |   | (31,150 | )       |   |   | 22,179   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                  |                                  |        |        |   |         |         |              |   |              |        |         |   |   |        |         |   |   |         |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss)                                           |                                                                  |                                  | 29,616  |        |   |         | 19,726   |              |   |              | 3,987   |         |   |   | (31,150 | )       |   |   | 22,179   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                  |                                  | 7,437   |        |   |         |         |              |   |              |        |         |   |   | (7,437  | )       |   |   |         |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss) Available for Common Stock                |                                                                  | $                                | 22,179  |        |   | $       | 19,726   |              |   | $            | 3,987   |         |   | $ | (23,713 | )       |   | $ | 22,179   |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                            |                                                                  | Three Months Ended June 30, 1999
|                                                            |                                                                  |                                 
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                                  | $                                | 6,908   |        |   | $       | 309,598  |              |   | $            | 185,555 |         |   | $ | (1,591  | )       |   | $ | 500,470  |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                          |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of gas                                                      |                                  |         | 5,233  |   |         |          | 250,736      |   |              |         | 60,410  |   |   |         | (1,431  | ) |   |          | 314,948 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                        |                                  |         | 591    |   |         |          | 34,130       |   |              |         | 63,942  |   |   |         | (186    | ) |   |          | 98,477  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                         |                                  |         | 973    |   |         |          | 16,431       |   |              |         | 24,758  |   |   |         |        |   |   |          | 42,162  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                         |                                  |         | 389    |   |         |          | 3,187        |   |              |         | 12,700  |   |   |         | (6      | ) |   |          | 16,270  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and
	restructuring charges |                                  |         |       |   |         |          | 52,000       |   |              |         |        |   |   |         |        |   |   |          | 52,000  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                          |                                  |         |       |   |         |          | 66,333       |   |              |         |        |   |   |         |        |   |   |          | 66,333  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                     |                                  |         |       |   |         |          |             |   |              |         |        |   |   |         |        |   |   |          |        |  
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                            |                                                                  |                                  | 7,186   |        |   |         | 422,817  |              |   |              | 161,810 |         |   |   | (1,623  | )       |   |   | 590,190  |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Income (Loss)                                     |                                                                  |                                  | (278    | )      |   |         | (113,219 | )            |   |              | 23,745  |         |   |   | 32      |         |   |   | (89,720  | )      
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings of Joint Ventures                        |                                                                  |                                  | (76,947 | )      |   |         | 11,594   |              |   |              | 572     |         |   |   | 76,947  |         |   |   | 12,166   |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                               |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                  |                                  |         | 10,975 |   |         |          | 1,471        |   |              |         | 946     |   |   |         | (11,023 | ) |   |          | 2,369   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                       |                                  |         | 250    |   |         |          | (10,329      | ) |              |         | (11,525 | ) |   |         |        |   |   |          | (21,604 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                           |                                  |         | (3,150 | ) |         |          | (13,375      | ) |              |         | (1,181  | ) |   |         | 11,024  |   |   |          | (6,682  | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries                |                                  |         |       |   |         |          |             |   |              |         |        |   |   |         | (10,334 | ) |   |          | (10,334 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                                |                                  |         |       |   |         |          | (7,456       | ) |              |         |        |   |   |         |        |   |   |          | (7,456  | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                                |                                  |         |       |   |         |          | (154         | ) |              |         | (266    | ) |   |         |        |   |   |          | (420    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                            |                                  |         | (127   | ) |         |          | 1,593        |   |              |         | (177    | ) |   |         | (35     | ) |   |          | 1,254   |  
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                            |                                                                  |                                  | 7,948   |        |   |         | (28,250  | )            |   |              | (12,203 | )       |   |   | (10,368 | )       |   |   | (42,873  | )      
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Income Taxes                           |                                                                  |                                  | (69,277 | )      |   |         | (129,875 | )            |   |              | 12,114  |         |   |   | 66,611  |         |   |   | (120,427 | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                  |                                  | (967    | )      |   |         | (44,765  | )            |   |              | 3,949   |         |   |   |        |         |   |   | (41,783  | )      
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                  |                                  | (68,310 | )      |   |         | (85,110  | )            |   |              | 8,165   |         |   |   | 66,611  |         |   |   | (78,644  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                  |                                  |        |        |   |         |         |              |   |              |        |         |   |   |        |         |   |   |         |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss)                                           |                                                                  |                                  | (68,310 | )      |   |         | (85,110  | )            |   |              | 8,165   |         |   |   | 66,611  |         |   |   | (78,644  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                  |                                  | 10,334  |        |   |         |         |              |   |              |        |         |   |   | (10,334 | )       |   |   |         |        
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss) Available for Common Stock                |                                                                  | $                                | (78,644 | )      |   | $       | (85,110  | )            |   | $            | 8,165   |         |   | $ | 76,945  |         |   | $ | (78,644  | )      
|                                                            |                                                                  |                                  |         |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        

41



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS

|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |           |  
|----------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------ | ------- | ------ | - | ------- | -------- | ------------ | - | ------------ | ------- | ------- | - | - | -------- | ------- | - | - | --------- | --------- | -
|                                                            |                                                                 | MCN                            |         |        |   |         |          | Eliminations |   |             
|                                                            |                                                                 | and Other                      |         |        |   |         |          | and          |   | Consolidated
|                                                            |                                                                 | Subsidiaries                   |         | MCNEE  |   | MichCon |          | Reclasses    |   | Total       
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |             
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |             
|                                                            |                                                                 |                               
|                                                            |                                                                 | Six Months Ended June 30, 2000
|                                                            |                                                                 |                               
|(in Thousands)                                              |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                                 | $                              | 17,914  |        |   | $       | 775,241  |              |   | $            | 630,235 |         |   | $ | (9,439   | )       |   | $ | 1,413,951 |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Operating Expenses                                          |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                                   |                                |         | 12,583 |   |         |          | 714,589      |   |              |         | 286,628 |   |   |          | (8,495  | ) |   |           | 1,005,305 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                       |                                |         | 2,884  |   |         |          | 62,007       |   |              |         | 122,475 |   |   |          | (944    | ) |   |           | 186,422   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                        |                                |         | 1,884  |   |         |          | 15,075       |   |              |         | 52,007  |   |   |          |        |   |   |           | 68,966    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                        |                                |         | 636    |   |         |          | 4,316        |   |              |         | 32,581  |   |   |          |        |   |   |           | 37,533    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and restructuring charges |                                |         |       |   |         |          |             |   |              |         |        |   |   |          |        |   |   |           |          |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                         |                                |         |       |   |         |          | (83,263      | ) |              |         |        |   |   |          |        |   |   |           | (83,263   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                    |                                |         | 464    |   |         |          | 931          |   |              |         | 1,426   |   |   |          |        |   |   |           | 2,821     |  
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                | 18,451  |        |   |         | 713,655  |              |   |              | 495,117 |         |   |   | (9,439   | )       |   |   | 1,217,784 |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Operating Income (Loss)                                     |                                                                 |                                | (537    | )      |   |         | 61,586   |              |   |              | 135,118 |         |   |   |         |         |   |   | 196,167   |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Equity in Earnings of Joint Ventures                        |                                                                 |                                | 93,938  |        |   |         | 15,271   |              |   |              | 1,186   |         |   |   | (94,458  | )       |   |   | 15,937    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Other Income and (Deductions)                               |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                 |                                |         | 16,174 |   |         |          | 3,207        |   |              |         | 1,572   |   |   |          | (16,499 | ) |   |           | 4,454     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                      |                                |         | (3     | ) |         |          | (22,245      | ) |              |         | (24,384 | ) |   |          |        |   |   |           | (46,632   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                          |                                |         | (1,696 | ) |         |          | (21,310      | ) |              |         | (4,869  | ) |   |          | 16,499  |   |   |           | (11,376   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries               |                                |         |       |   |         |          |             |   |              |         |        |   |   |          | (16,059 | ) |   |           | (16,059   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                               |                                |         |       |   |         |          |             |   |              |         |        |   |   |          |        |   |   |           |          |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                               |                                |         |       |   |         |          | (528         | ) |              |         | (266    | ) |   |          |        |   |   |           | (794      | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                           |                                |         | (1,557 | ) |         |          | (286         | ) |              |         | 460     |   |   |          |        |   |   |           | (1,383    | )
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                | 12,918  |        |   |         | (41,162  | )            |   |              | (27,487 | )       |   |   | (16,059  | )       |   |   | (71,790   | )        
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Income Taxes                           |                                                                 |                                | 106,319 |        |   |         | 35,695   |              |   |              | 108,817 |         |   |   | (110,517 | )       |   |   | 140,314   |          
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                 |                                | (1,430  | )      |   |         | 12,164   |              |   |              | 37,890  |         |   |   |         |         |   |   | 48,624    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                 |                                | 107,749 |        |   |         | 23,531   |              |   |              | 70,927  |         |   |   | (110,517 | )       |   |   | 91,690    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                 |                                |        |        |   |         |         |              |   |              |        |         |   |   |         |         |   |   |          |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Net Income (Loss)                                           |                                                                 |                                | 107,749 |        |   |         | 23,531   |              |   |              | 70,927  |         |   |   | (110,517 | )       |   |   | 91,690    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                 |                                | 16,059  |        |   |         |         |              |   |              |        |         |   |   | (16,059  | )       |   |   |          |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                |                                                                 | $                              | 91,690  |        |   | $       | 23,531   |              |   | $            | 70,927  |         |   | $ | (94,458  | )       |   | $ | 91,690    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 | Six Months Ended June 30, 1999
|                                                            |                                                                 |                               
|Operating Revenues                                          |                                                                 | $                              | 18,572  |        |   | $       | 608,279  |              |   | $            | 683,645 |         |   | $ | (8,326   | )       |   | $ | 1,302,170 |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Operating Expenses                                          |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                                   |                                |         | 12,638 |   |         |          | 473,037      |   |              |         | 308,761 |   |   |          | (5,603  | ) |   |           | 788,833   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                       |                                |         | (834   | ) |         |          | 72,496       |   |              |         | 131,488 |   |   |          | (2,723  | ) |   |           | 200,427   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                        |                                |         | 1,807  |   |         |          | 36,164       |   |              |         | 49,366  |   |   |          |        |   |   |           | 87,337    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                        |                                |         | 777    |   |         |          | 5,989        |   |              |         | 31,162  |   |   |          |        |   |   |           | 37,928    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and restructuring charges |                                |         |       |   |         |          | 52,000       |   |              |         |        |   |   |          |        |   |   |           | 52,000    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                         |                                |         |       |   |         |          | 63,328       |   |              |         |        |   |   |          |        |   |   |           | 63,328    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                    |                                |         |       |   |         |          |             |   |              |         |        |   |   |          |        |   |   |           |          |  
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                | 14,388  |        |   |         | 703,014  |              |   |              | 520,777 |         |   |   | (8,326   | )       |   |   | 1,229,853 |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Operating Income (Loss)                                     |                                                                 |                                | 4,184   |        |   |         | (94,735  | )            |   |              | 162,868 |         |   |   |         |         |   |   | 72,317    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Equity in Earnings of Joint Ventures                        |                                                                 |                                | 11,480  |        |   |         | 23,611   |              |   |              | 1,013   |         |   |   | (11,480  | )       |   |   | 24,624    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Other Income and (Deductions)                               |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                 |                                |         | 21,629 |   |         |          | 1,988        |   |              |         | 1,945   |   |   |          | (21,697 | ) |   |           | 3,865     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                      |                                |         | 461    |   |         |          | (21,476      | ) |              |         | (22,491 | ) |   |          |        |   |   |           | (43,506   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                          |                                |         | (7,312 | ) |         |          | (25,867      | ) |              |         | (3,836  | ) |   |          | 21,698  |   |   |           | (15,317   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries               |                                |         |       |   |         |          |             |   |              |         |        |   |   |          | (20,669 | ) |   |           | (20,669   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                               |                                |         |       |   |         |          | (7,456       | ) |              |         |        |   |   |          |        |   |   |           | (7,456    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                               |                                |         |       |   |         |          | (216         | ) |              |         | (523    | ) |   |          |        |   |   |           | (739      | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                           |                                |         | (258   | ) |         |          | 4,876        |   |              |         | 287     |   |   |          | (1      | ) |   |           | 4,904     |  
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                | 14,520  |        |   |         | (48,151  | )            |   |              | (24,618 | )       |   |   | (20,669  | )       |   |   | (78,918   | )        
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Income Taxes                           |                                                                 |                                | 30,184  |        |   |         | (119,275 | )            |   |              | 139,263 |         |   |   | (32,149  | )       |   |   | 18,023    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                 |                                | (708    | )      |   |         | (41,489  | )            |   |              | 47,125  |         |   |   |         |         |   |   | 4,928     |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                 |                                | 30,892  |        |   |         | (77,786  | )            |   |              | 92,138  |         |   |   | (32,149  | )       |   |   | 13,095    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                 |                                |        |        |   |         | (2,872   | )            |   |              |        |         |   |   |         |         |   |   | (2,872    | )        
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Net Income (Loss)                                           |                                                                 |                                | 30,892  |        |   |         | (80,658  | )            |   |              | 92,138  |         |   |   | (32,149  | )       |   |   | 10,223    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                 |                                | 20,669  |        |   |         |         |              |   |              |        |         |   |   | (20,669  | )       |   |   |          |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                |                                                                 | $                              | 10,223  |        |   | $       | (80,658  | )            |   | $            | 92,138  |         |   | $ | (11,480  | )       |   | $ | 10,223    |          
|                                                            |                                                                 |                                |         |        |   |         |          |              |   |              |         |         |   |   |          |         |   |   |           |          

42



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATING STATEMENTS OF OPERATIONS


|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |           |  
|----------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------- | ------ | ------ | - | ------- | --------- | ------------ | - | ------------ | --------- | ------- | - | - | -------- | ------- | - | - | --------- | --------- | -
|                                                            |                                                                 | MCN                               |        |        |   |         |           | Eliminations |   |             
|                                                            |                                                                 | and Other                         |        |        |   |         |           | and          |   | Consolidated
|                                                            |                                                                 | Subsidiaries                      |        | MCNEE  |   | MichCon |           | Reclasses    |   | Total       
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |             
|                                                            |                                                                 |                                  
|                                                            |                                                                 | Twelve Months Ended June 30, 2000
|                                                            |                                                                 |                                  
|(in Thousands)                                              |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                                 | $                                 | 34,276 |        |   | $       | 1,509,987 |              |   | $            | 1,082,329 |         |   | $ | (15,407  | )       |   | $ | 2,611,185 |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Operating Expenses                                          |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                                   |                                   |        | 23,401 |   |         |           | 1,360,145    |   |              |           | 461,792 |   |   |          | (13,874 | ) |   |           | 1,831,464 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                       |                                   |        | 1,990  |   |         |           | 139,669      |   |              |           | 257,091 |   |   |          | (1,533  | ) |   |           | 397,217   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                        |                                   |        | 3,210  |   |         |           | 41,537       |   |              |           | 101,520 |   |   |          |        |   |   |           | 146,267   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                        |                                   |        | 1,480  |   |         |           | 8,673        |   |              |           | 46,649  |   |   |          |        |   |   |           | 56,802    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and restructuring charges |                                   |        |       |   |         |           | 9,782        |   |              |           |        |   |   |          |        |   |   |           | 9,782     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                         |                                   |        |       |   |         |           | (75,766      | ) |              |           |        |   |   |          |        |   |   |           | (75,766   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                    |                                   |        | 836    |   |         |           | 9,986        |   |              |           | 26,855  |   |   |          |        |   |   |           | 37,677    |  
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                   | 30,917 |        |   |         | 1,494,026 |              |   |              | 893,907   |         |   |   | (15,407  | )       |   |   | 2,403,443 |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Operating Income (Loss)                                     |                                                                 |                                   | 3,359  |        |   |         | 15,961    |              |   |              | 188,422   |         |   |   |         |         |   |   | 207,742   |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Equity in Earnings of Joint Ventures                        |                                                                 |                                   | 66,481 |        |   |         | 42,088    |              |   |              | 2,149     |         |   |   | (67,019  | )       |   |   | 43,699    |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Other Income and (Deductions)                               |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                 |                                   |        | 35,928 |   |         |           | 5,457        |   |              |           | 2,231   |   |   |          | (36,452 | ) |   |           | 7,164     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                      |                                   |        | 344    |   |         |           | (43,743      | ) |              |           | (49,158 | ) |   |          |        |   |   |           | (92,557   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                          |                                   |        | (6,486 | ) |         |           | (46,705      | ) |              |           | (9,659  | ) |   |          | 36,449  |   |   |           | (26,401   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries               |                                   |        |       |   |         |           |             |   |              |           |        |   |   |          | (35,529 | ) |   |           | (35,529   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                               |                                   |        |       |   |         |           |             |   |              |           |        |   |   |          |        |   |   |           |          |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                               |                                   |        |       |   |         |           | (904         | ) |              |           | (763    | ) |   |          |        |   |   |           | (1,667    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                           |                                   |        | (459   | ) |         |           | 1,798        |   |              |           | (843    | ) |   |          |        |   |   |           | 496       |  
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|                                                            |                                                                 |                                   | 29,327 |        |   |         | (84,097   | )            |   |              | (58,192   | )       |   |   | (35,532  | )       |   |   | (148,494  | )        
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Income Taxes                           |                                                                 |                                   | 99,167 |        |   |         | (26,048   | )            |   |              | 132,379   |         |   |   | (102,551 | )       |   |   | 102,947   |          
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                 |                                   | 1,101  |        |   |         | (7,945    | )            |   |              | 47,254    |         |   |   |         |         |   |   | 40,410    |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                 |                                   | 98,066 |        |   |         | (18,103   | )            |   |              | 85,125    |         |   |   | (102,551 | )       |   |   | 62,537    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                 |                                   |       |        |   |         |          |              |   |              |          |         |   |   |         |         |   |   |          |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Net Income (Loss)                                           |                                                                 |                                   | 98,066 |        |   |         | (18,103   | )            |   |              | 85,125    |         |   |   | (102,551 | )       |   |   | 62,537    |          
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                 |                                   | 35,529 |        |   |         |          |              |   |              |          |         |   |   | (35,529  | )       |   |   |          |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                |                                                                 | $                                 | 62,537 |        |   | $       | (18,103   | )            |   | $            | 85,125    |         |   | $ | (67,022  | )       |   | $ | 62,537    |          
|                                                            |                                                                 |                                   |        |        |   |         |           |              |   |              |           |         |   |   |          |         |   |   |           |          

|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |           |  
|----------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------- | -------- | ------- | - | - | --------- | ------- | - | - | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                            |                                                                 |                                  
|                                                            |                                                                 | Twelve Months Ended June 30, 1999
|                                                            |                                                                 |                                  
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                                 | $                                 | 28,165   |         |   | $ | 1,085,995 |         |   | $ | 1,115,289 |         |   | $ | (14,285 | )       |   | $ | 2,215,164 |          
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                          |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                                   |                                   |          | 18,901  |   |   |           | 847,508 |   |   |           | 485,189 |   |   |         | (9,536  | ) |   |           | 1,342,062 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                                       |                                   |          | (11,281 | ) |   |           | 159,574 |   |   |           | 259,795 |   |   |         | (4,749  | ) |   |           | 403,339   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization                        |                                   |          | 3,674   |   |   |           | 75,594  |   |   |           | 96,312  |   |   |         |        |   |   |           | 175,580   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                                        |                                   |          | 1,325   |   |   |           | 12,098  |   |   |           | 55,345  |   |   |         |        |   |   |           | 68,768    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs, contract losses and restructuring charges |                                   |          | 17,169  |   |   |           | 277,827 |   |   |           | 24,800  |   |   |         |        |   |   |           | 319,796   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Gains and losses on sale of assets, net                         |                                   |          |        |   |   |           | 55,930  |   |   |           |        |   |   |         |        |   |   |           | 55,930    |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Merger costs                                                    |                                   |          |        |   |   |           |        |   |   |           |        |   |   |         |        |   |   |           |          |  
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                            |                                                                 |                                   | 29,788   |         |   |   | 1,428,531 |         |   |   | 921,441   |         |   |   | (14,285 | )       |   |   | 2,365,475 |          
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                     |                                                                 |                                   | (1,623   | )       |   |   | (342,536  | )       |   |   | 193,848   |         |   |   |        |         |   |   | (150,311  | )        
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings of Joint Ventures                        |                                                                 |                                   | (142,488 | )       |   |   | 56,687    |         |   |   | 2,009     |         |   |   | 142,043 |         |   |   | 58,251    |          
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                               |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                                 |                                   |          | 39,428  |   |   |           | 4,432   |   |   |           | 5,699   |   |   |         | (40,964 | ) |   |           | 8,595     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                                      |                                   |          | (583    | ) |   |           | (47,660 | ) |   |           | (44,656 | ) |   |         |        |   |   |           | (92,899   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                                          |                                   |          | (9,127  | ) |   |           | (49,094 | ) |   |           | (10,801 | ) |   |         | 40,964  |   |   |           | (28,058   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries               |                                   |          |        |   |   |           |        |   |   |           |        |   |   |         | (38,055 | ) |   |           | (38,055   | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                               |                                   |          |        |   |   |           | (7,456  | ) |   |           |        |   |   |         |        |   |   |           | (7,456    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                               |                                   |          |        |   |   |           | 151     |   |   |           | 6,347   |   |   |         |        |   |   |           | 6,498     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                           |                                   |          | (356    | ) |   |           | 4,064   |   |   |           | (601    | ) |   |         |        |   |   |           | 3,107     |  
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                            |                                                                 |                                   | 29,362   |         |   |   | (95,563   | )       |   |   | (44,012   | )       |   |   | (38,055 | )       |   |   | (148,268  | )        
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                           |                                                                 |                                   | (114,749 | )       |   |   | (381,412  | )       |   |   | 151,845   |         |   |   | 103,988 |         |   |   | (240,328  | )        
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                                 |                                   | (3,781   | )       |   |   | (137,805  | )       |   |   | 47,409    |         |   |   |        |         |   |   | (94,177   | )        
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                                 |                                   | (110,968 | )       |   |   | (243,607  | )       |   |   | 104,436   |         |   |   | 103,988 |         |   |   | (146,151  | )        
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change for Start-up Costs   |                                                                 |                                   |         |         |   |   | (2,872    | )       |   |   |          |         |   |   |        |         |   |   | (2,872    | )        
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                           |                                                                 |                                   | (110,968 | )       |   |   | (246,479  | )       |   |   | 104,436   |         |   |   | 103,988 |         |   |   | (149,023  | )        
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                                 |                                   | 38,055   |         |   |   |          |         |   |   |          |         |   |   | (38,055 | )       |   |   |          |          
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                |                                                                 | $                                 | (149,023 | )       |   | $ | (246,479  | )       |   | $ | 104,436   |         |   | $ | 142,043 |         |   | $ | (149,023  | )        
|                                                            |                                                                 |                                   |          |         |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          

43



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ----- | -------- | -------- | ------- | ------- | ------------ | -------- | ------------ | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                              | MCN                                                    |       |          |          |         |         | Eliminations |          |             
|                                                     |                                                                              | and Other                                              |       |          |          |         |         | and          |          | Consolidated
|                                                     |                                                                              | Subsidiaries                                           |       | MCNEE    |          | MichCon |         | Reclasses    |          | Total       
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |             
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |             
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Six Months Ended June 30, 2000                        
|                                                     |                                                                              |                                                       
|(in Thousands)                                       |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 8,545 |          |          | $       | 41,689  |              |          | $            | 275,020 |          |          | $ | (17,010 | )        |          | $ | 308,244 |         
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |       | (200,721 | )        |         |         | (119,790     | )        |              |         | (194,916 | )        |   |         | (49      | )        |   |         | (515,476 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |       |         |          |         |         | (249,648     | )        |              |         |         |          |   |         | 249,648  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |       | (43,677  | )        |         |         |             |          |              |         |         |          |   |         |         |          |   |         | (43,677  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |       | (16,059  | )        |         |         |             |          |              |         |         |          |   |         | 16,059   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |       | 4,642    |          |         |         |             |          |              |         |         |          |   |         |         |          |   |         | 4,642    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |       | (2,079   | )        |         |         |             |          |              |         |         |          |   |         |         |          |   |         | (2,079   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |       |         |          |         |         | (35,761      | )        |              |         |         |          |   |         |         |          |   |         | (35,761  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |       |         |          |         |         | (65          | )        |              |         | (40,156  | )        |   |         |         |          |   |         | (40,221  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |       | (128     | )        |         |         |             |          |              |         |         |          |   |         |         |          |   |         | (128     | )       
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |       |          | (258,022 | )       |         |              | (405,264 | )            |         |          | (235,072 | ) |         |          | 265,658  |   |         |          | (632,700 | )
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |       | (583     | )        |         |         | (6,889       | )        |              |         | (49,446  | )        |   |         |         |          |   |         | (56,918  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |       |         |          |         |         | (2,000       | )        |              |         | (4,936   | )        |   |         |         |          |   |         | (6,936   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |       | 249,348  |          |         |         | (63,512      | )        |              |         |         |          |   |         | (249,648 | )        |   |         | (63,812  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |       |         |          |         |         | 408,119      |          |              |         |         |          |   |         | 3,617    |          |   |         | 411,736  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |       | 242      |          |         |         | (122         | )        |              |         | 7,768    |          |   |         | (2,667   | )        |   |         | 5,221    |         
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |       |          | 249,007  |         |         |              | 335,596  |              |         |          | (46,614  | ) |         |          | (248,698 | ) |         |          | 289,291  |  
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (470  | )        |          |         | (27,979 | )            |          |              | (6,666  | )        |          |   | (50     | )        |          |   | (35,165 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 470   |          |          |         | 49,191  |              |          |              | 9,705   |          |          |   |        |          |          |   | 59,366  |         
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         
|Cash and Cash Equivalents, June 30                   |                                                                              | $                                                      |      |          |          | $       | 21,212  |              |          | $            | 3,039   |          |          | $ | (50     | )        |          | $ | 24,201  |         
|                                                     |                                                                              |                                                        |       |          |          |         |         |              |          |              |         |          |          |   |         |          |          |   |         |         

|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | ------- | - | ------ | -------- | ------- | - | ------- | -------- | -------- | - | ------- | ------ | ------ | - | ------- | -------- | -------- | -
|                                                     |                                                                              |                                                       
|                                                     |                                                                              | Six Months Ended June 30, 1999                        
|                                                     |                                                                              |                                                       
|Net Cash Flow From Operating Activities              |                                                                              | $                                                      | 41,353 |          |         | $ | 65,837 |          |         | $ | 222,622 |          |          | $ | (38,844 | )      |        | $ | 290,968 |         
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|Cash Flow From Financing Activities                  |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                                           |                                                        |        | (104,331 | )       |   |        | 25,124   |         |   |         | (192,850 | )        |   |         | 15     |        |   |         | (272,042 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions received from (distributions paid to)
	affiliates, net |                                                        |        |         |         |   |        | 8,993    |         |   |         |         |          |   |         | (8,993 | )      |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                                               |                                                        |        | (41,726  | )       |   |        |         |         |   |         | (17,500  | )        |   |         | 17,500 |        |   |         | (41,726  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                                          |                                                        |        | (20,669  | )       |   |        |         |         |   |         |         |          |   |         | 20,669 |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                     |                                                        |        | 135,120  |         |   |        |         |         |   |         |         |          |   |         |       |        |   |         | 135,120  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                                                |                                                        |        | (783     | )       |   |        |         |         |   |         |         |          |   |         |       |        |   |         | (783     | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                                                   |                                                        |        |         |         |   |        |         |         |   |         | 106,535  |          |   |         |       |        |   |         | 106,535  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net                          |                                                        |        |         |         |   |        | 92,344   |         |   |         |         |          |   |         |       |        |   |         | 92,344   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities                        |                                                        |        |         |         |   |        | (212,855 | )       |   |         | (55,918  | )        |   |         |       |        |   |         | (268,773 | )       
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) financing activities |        |          | (32,389 | ) |        |          | (86,394 | ) |         |          | (159,733 | ) |         |        | 29,191 |   |         |          | (249,325 | )
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|Cash Flow From Investing Activities                  |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                         |                                                        |        | (637     | )       |   |        | (101,146 | )       |   |         | (58,097  | )        |   |         |       |        |   |         | (159,880 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                 |                                                        |        |         |         |   |        | (31,153  | )       |   |         |         |          |   |         |       |        |   |         | (31,153  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities, net                                |                                                        |        |         |         |   |        | (1,952   | )       |   |         |         |          |   |         | (645   | )      |   |         | (2,597   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries                                |                                                        |        | (9,493   | )       |   |        | (39,477  | )       |   |         | (14      | )        |   |         | 8,993  |        |   |         | (39,991  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests                                 |                                                        |        |         |         |   |        | 200,387  |         |   |         |         |          |   |         | 318    |        |   |         | 200,705  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                        |                                                        |        | 200      |         |   |        | (6,319   | )       |   |         | (558     | )        |   |         | 987    |        |   |         | (5,690   | )       
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|                                                     |                                                                              | Net cash provided from (used for) investing activities |        |          | (9,930  | ) |        |          | 20,340  |   |         |          | (58,669  | ) |         |        | 9,653  |   |         |          | (38,606  | )
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                              |                                                        | (966   | )        |         |   | (217   | )        |         |   | 4,220   |          |          |   |        |        |        |   | 3,037   |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                                              |                                                        | 1,400  |          |         |   | 9,036  |          |         |   | 6,603   |          |          |   |        |        |        |   | 17,039  |         
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         
|Cash and Cash Equivalents, June 30                   |                                                                              | $                                                      | 434    |          |         | $ | 8,819  |          |         | $ | 10,823  |          |          | $ |        |        |        | $ | 20,076  |         
|                                                     |                                                                              |                                                        |        |          |         |   |        |          |         |   |         |          |          |   |         |        |        |   |         |         

44



---



##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors of



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

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

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

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

DELOITTE & TOUCHE LLP

Detroit, Michigan



45



---



##### Table of Contents








OTHER INFORMATION


EXHIBITS AND REPORTS ON FORM 8-K

(a)  Other Information

The amount reported for Mr. Glancy in the All Other
Compensation column of the Summary Compensation Table, as
contained in MCNs 1999 Form 10-K and its 2000 Proxy
Statement, should be $4,091,947 for 1999. The previously reported
 amount inadvertently failed to include $445,000 of previous
accruals under a non-qualified retirement plan that were paid to
Mr. Glancy per his change of control employment agreement.

(b)  Exhibits

|        |      |             |  |                                                  
|------- | ---- | ----------- |  | -------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 15-1 |             |  | Letter re Unaudited Interim Financial Information
|        | 18-1 |             |  | Letter re Change in Accounting Principles        
|        | 27-1 |             |  | Financial Data Schedule                          

(c)  Reports on Form 8-K

MCN filed a report on Form 8-K dated June 14, 2000,
under item 5, with respect to the issuance of a press
release. The press release, which was included in Form 8-K,
noted that MCN and DTE continue their discussions with the
Federal Trade Commission (FTC) in connection with its review of
the proposed merger. Because of the length of the FTC review, it
appears unlikely that the transaction can be completed before the
 fourth quarter of 2000.

46



---



##### Table of Contents








SIGNATURE


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



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

Date: August 14, 2000

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

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

47



---



##### Table of Contents








EXHIBIT INDEX


| |  |         |      |             |  |                                                  
| |  | ------- | ---- | ----------- |  | -------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 15-1 |             |  | Letter re unaudited interim Financial information
| |  |         | 18-1 |             |  | Letter re Change in Accounting Principles        
| |  |         | 27-1 |             |  | Financial Data Schedule