Operating Activities
Cash flow provided from operating activities increased $52.4 million during the 2000 six-month period compared to the same 1999 period. The increase was due primarily to lower working capital requirements, partially offset by a decrease in earnings, after adjusting for non-cash items (depreciation and deferred taxes).

Financing Activities
Cash flow used for financing activities increased $75.4 million during the 2000 six-month period compared to the same 1999 period. The increase is due to the repayment of more short- and long-term debt, net of new debt issuances. This increase was partially offset by a reduction in dividends paid to MCN. A summary of MichCon’s financing strategies, as well as its significant financing activities follows.

MichCon maintains a relatively consistent amount of cash and cash equivalents through the use of short-term borrowings. Short-term borrowings are normally reduced in the first part of each year as gas inventories are depleted and funds are received from winter heating sales. During the latter part of the year, MichCon’s short-term borrowings normally increase as funds are used to finance increases in gas inventories and customer accounts receivable. To meet its seasonal short-term borrowing needs, MichCon normally issues commercial paper that is backed by credit lines with

6

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

several banks. MichCon has established credit lines to allow for borrowings under a 364-day revolving credit facility and a three-year revolving credit facility. The 364-day facility was renewed in July 2000 and was increased from $150 million to $200 million. The three-year facility totals $150 million and expires in July 2001. During the first six months of 2000, MichCon repaid $194.1 million of commercial paper, leaving borrowings of $41.8 million outstanding under this program at June 30, 2000.

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.

In July 2000, MichCon paid a $25 million dividend to MCN.

Investing Activities
MichCon’s cash used for investing activities decreased $12.1 million in the 2000 six-month period compared to the same 1999 period. The decrease was due primarily to lower capital expenditures. Capital expenditures primarily represent the construction of distribution lines to attach new customers, new computer systems and improvements to existing storage, distribution, and transmission systems.

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

MARKET RISK INFORMATION
MichCon has market risk arising from fluctuations in natural gas prices. MichCon manages natural gas price risk by entering into fixed-price contracts for a large portion of its expected supply requirements. If MichCon did not enter into these fixed-price supply contracts, its exposure to such risk would be substantially higher. See the “Outlook” section for a further discussion of MichCon’s market risks.

As discussed in MichCon’s 1999 Annual Report on Form 10-K, MichCon also has market risk arising from fluctuations in interest rates. MichCon is subject to interest rate risk in connection with the issuance of variable and fixed-rate debt. MichCon manages interest rate risk through the use of various derivative instruments and limits the use of such instruments to hedging activities. MichCon uses interest rate swap agreements to exchange fixed and variable-rate interest payment obligations over the life of the agreements without exchange of the underlying principal amounts. During the 2000 six-month period, there were no material changes to MichCon’s interest rate risk.

NEW ACCOUNTING PRONOUNCEMENTS
Derivative and Hedging Activities - In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133.” SFAS No. 137 changes the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.

7

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONCLUDED)

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.

MichCon manages interest rate risk through the use of various derivative instruments and limits the use of such instruments to hedging activities. The effects of SFAS No. 133 on MichCon’s financial statements are subject to fluctuations in the market value of hedging contracts, which are, in turn, affected by variations in interest rates. Accordingly, management cannot quantify the effects of adopting SFAS No. 133 at this time.

MichCon 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. MichCon 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 MichCon in the fourth quarter of 2000. Management does not expect SAB No. 101 to have a material effect on MichCon’s financial statements.

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties as set forth in MichCon’s 1999 Annual Report on Form 10-K.

8

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

				Three Months Ended								Six Months Ended
				June 30								June 30
				2000				1999				2000				1999
(in Thousands)
Operating Revenues				$	187,488			$	185,555			$	630,235			$	683,645
Operating Expenses
	Cost of gas				70,108				60,410				286,628				308,761
	Operation and maintenance				58,412				63,942				122,475				131,488
	Depreciation and depletion				26,063				24,758				52,007				49,366
	Property and other taxes				13,591				12,700				32,581				31,162
	Merger costs (Note 2)				1,079				—				1,426				—
	Property write-down (Note 3)				—				—				—				—
		Total operating expenses			169,253				161,810				495,117				520,777
Operating Income					18,235				23,745				135,118				162,868
Other Income and (Deductions)
	Interest income				846				946				1,572				1,945
	Interest on long-term debt				(12,111	)			(11,525	)			(24,384	)			(22,491	)
	Other interest expense				(1,860	)			(1,181	)			(4,869	)			(3,836	)
	Minority interest (Note 3)				(127	)			(266	)			(266	)			(523	)
	Equity in earnings of joint ventures				599				572				1,186				1,013
	Other				140				(177	)			460				287
		Total other income and (deductions)			(12,513	)			(11,631	)			(26,301	)			(23,605	)
Income Before Income Taxes					5,722				12,114				108,817				139,263
Income Tax Provision					1,735				3,949				37,890				47,125
Net Income				$	3,987			$	8,165			$	70,927			$	92,138

[Additional columns below]

[Continued from above table, first column(s) repeated]

				Twelve Months Ended
				2000				1999
(in Thousands)
Operating Revenues				$	1,082,329			$	1,115,289
Operating Expenses
	Cost of gas				461,792				485,189
	Operation and maintenance				257,091				259,795
	Depreciation and depletion				101,520				96,312
	Property and other taxes				46,649				55,345
	Merger costs (Note 2)				26,855				—
	Property write-down (Note 3)				—				24,800
		Total operating expenses			893,907				921,441
Operating Income					188,422				193,848
Other Income and (Deductions)
	Interest income				2,231				5,699
	Interest on long-term debt				(49,158	)			(44,656	)
	Other interest expense				(9,659	)			(10,801	)
	Minority interest (Note 3)				(763	)			6,347
	Equity in earnings of joint ventures				2,149				2,009
	Other				(843	)			(601	)
		Total other income and (deductions)			(56,043	)			(42,003	)
Income Before Income Taxes					132,379				151,845
Income Tax Provision					47,254				47,409
Net Income				$	85,125			$	104,436

CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited)

			Three Months Ended								Six Months Ended
			June 30								June 30
(in Thousands)			2000				1999				2000				1999
Balance — Beginning of Period			$	561,743			$	472,440			$	494,803			$	406,144
	Add — Net income			3,987				8,165				70,927				92,138
				565,730				480,605				565,730				498,282
	Deduct — Common stock dividends declared			—				—				—				17,677
Balance — End of Period			$	565,730			$	480,605			$	565,730			$	480,605

[Additional columns below]

[Continued from above table, first column(s) repeated]

			Twelve Months Ended
			June 30
(in Thousands)			2000				1999
Balance — Beginning of Period			$	480,605			$	440,003
	Add — Net income			85,125				104,436
				565,730				544,439
	Deduct — Common stock dividends declared			—				63,834
Balance — End of Period			$	565,730			$	480,605

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

9

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

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

10

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

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

11

Notes to the Consolidated Financial Statements

1. GENERAL

The accompanying consolidated financial statements should be read in conjunction with MichCon’s 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 and net income for the interim periods should not be construed as representative of revenues, expenses and net income for all or any part of the balance of the current year or succeeding periods.

2. MCN MERGER AGREEMENT WITH DTE ENERGY COMPANY

As discussed in MichCon’s 1999 Annual Report on Form 10-K, MCN Energy Group Inc. (MCN), parent company of MichCon, 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 incurred merger-related costs, a portion of which were allocated to MichCon. Additionally, MichCon incurred merger-related costs. The merger-related costs include legal, accounting, consulting, employee benefit and other expenses that had the effect of decreasing earnings by $1,079,000 pre-tax ($701,000 net of taxes), $1,426,000 pre-tax ($927,000 net of taxes) and $26,855,000 pre-tax ($17,456,000 net of taxes) for the three-, six- and twelve-month periods ended June 30, 2000, respectively.

3. PROPERTY WRITE-DOWN

As discussed in MichCon’s 1999 Annual Report on Form 10-K, MichCon recorded a $24,800,000 pre-tax ($11,200,000 net of taxes and minority interest) write-down of certain gas gathering properties in the third quarter of 1998. An analysis revealed that projected cash flows from the gathering system were not sufficient to cover the system’s carrying value. Therefore, an impairment loss was recorded representing the amount by which the carrying value of the system exceeded its estimated fair value.

4. REGULATORY MATTERS

a. Regulatory Reform Plan
As discussed in MichCon’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).

12

Notes to the Consolidated Financial Statements (Continued)

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 MichCon’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 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.

13

Notes to the Consolidated Financial Statements (concluded)

5. GAS IN INVENTORY

Inventory gas is priced on a last-in, first-out (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.

6. CONTINGENCIES

a. Personal Property Taxes
As discussed in MichCon’s 1999 Annual Report on Form 10-K, in 1998, MichCon began filing its personal property tax information with local taxing jurisdictions that 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 utilities’ personal property. The new tables are effective in 2000 and are being used for current year assessments in most jurisdictions. However, several local taxing jurisdictions have taken legal action attempting to prevent the STC from implementing the new valuation tables and have continued to prepare assessments based on the superceded tables. The legal actions regarding the appropriateness of the new tables are currently before the Michigan Tax Tribunal (MTT), which issued an order 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. MichCon’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
MichCon 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 MichCon’s financial statements.

14

Notes to the Consolidated Financial Statements (concluded)

7. LINES OF CREDIT AND LONG-TERM DEBT

MichCon has established credit lines to allow for borrowings under a 364-day revolving credit facility and a three-year revolving credit facility. The 364-day facility was renewed in July 2000 and was increased from $150,000,000 to $200,000,000. The three-year facility totals $150,000,000 and expires in July 2001.

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

15

INDEPENDENT ACCOUNTANTS’ REPORT

To the Board of Directors of
Michigan Consolidated Gas Company:

We have reviewed the accompanying condensed consolidated statements of financial position of Michigan Consolidated Gas Company and subsidiaries (the “Company”) as of June 30, 2000 and 1999, the related condensed consolidated statements of income and retained earnings 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 income, capitalization, and cash flows for the year then ended (not presented herein); and in our report dated March 21, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, 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 consolidated statement of financial position from which it has been derived.

DELOITTE & TOUCHE LLP

Detroit, Michigan
August 14, 2000

16

OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K

	(a) Exhibits

	(b) Reports on Form 8-K

			None.

17

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.

MICHIGAN CONSOLIDATED GAS COMPANY

18

Exhibit Index