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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2002

Commission file number 1-7310

The registrant meets the conditions set forth in General Instructions H (1) (a) and (b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.

MICHIGAN CONSOLIDATED GAS COMPANY
(Exact name of registrant as specified in its charter)

313-965-2430
Registrant’s telephone number, including area code

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                     No

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MICHIGAN CONSOLIDATED GAS COMPANY

QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2002

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DEFINITIONS

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DEFINITIONS

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MICHIGAN CONSOLIDATED GAS COMPANY

FORWARD-LOOKING STATEMENTS

Certain information presented herein includes forward-looking statements. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the following: the effects of weather; the effects of competition, including the gas Customer Choice Program; the capital intensive nature of MichCon’s business; the economic climate and growth in the geographic areas in which MichCon does business; the uncertainty of gas reserve estimates; the timing and extent of changes in commodity prices for natural gas, electricity and crude oil; access to capital and equity markets; the effects of changes in governmental policies and regulatory actions, including income taxes, environmental compliance and authorized rates; and the timing of the accretive effects of DTE Energy’s merger with MCN Energy.

MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

The Results of Operations discussion for MichCon is presented in accordance with General Instruction H(2)(a) of Form 10-Q.

MichCon reported losses of $33.6 million and earnings of $20.5 million for the 2002 second quarter and six-month period, respectively, compared with losses of $120.1 million and $22.8 million for the comparable 2001 periods. Earnings comparability is affected by $100.9 million ($65.6 million net of taxes) of merger and restructuring charges that were recorded in the second quarter of 2001. The earnings comparison also reflects negative margins in the 2001 second quarter and six-month period from selling gas under MichCon’s Gas Sales Program, which ended in December 2001. In 2002, MichCon had no profit or loss on the sale of gas to customers compared to $74 million ($48 million net of tax) and $29 million ($19 million net of tax) in margin losses in the 2001 second quarter and six-month period, respectively.

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MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

Operating revenues increased $53 million and $166.6 million in the 2002 second quarter and six-month period, respectively. As subsequently discussed, the variance is due to higher revenues from gas sales customers reflecting an increase in the gas commodity component of sales rates. During 2001, MichCon operated under the Gas Sales Program in which the gas commodity component of its sales rates was fixed at $2.95 per thousand cubic feet (Mcf). In January 2002, the Gas Sales Program ended and MichCon returned to a gas cost recovery mechanism (GCR) that allows for the recovery of reasonably and prudently incurred gas costs. MichCon’s sales rates included a gas commodity component of $3.62 per Mcf for January 2002 and $4.38 per Mcf for the remainder of the 2002 six-month period compared to $2.95 per Mcf in 2001. Operating revenues were also impacted by weather which was 22.6% colder in the 2002 second quarter and .8% warmer in the 2002 six-month period as compared to the same 2001 periods.

Gas sales and end user transportation revenues in total increased $54.4 million and $166.7 million in the 2002 second quarter and six-month period, respectively, due primarily to an increase in the gas commodity component of sales rates. Gas sales and end user transportation revenues also reflect sales associated with a varying number of customers participating in the gas Customer Choice program. Customers participating in this program purchase gas from suppliers other than MichCon, while MichCon continues to deliver the gas to their premises. Customer Choice participants are

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MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

classified as end user transportation customers rather than gas sales customers. The impact of weather also affected sales and transportation revenues and related volumes.

Intermediate transportation revenues increased $0.4 million in the 2002 second quarter and intermediate transportation deliveries decreased 37.5 billion cubic feet (Bcf) for the same period. Intermediate transportation revenues remained unchanged in the 2002 six-month period and intermediate transportation deliveries decreased 72.1 Bcf. A significant portion of the volume decrease was due to lower storage requirements offset by a volume increase attributable to customers who pay a fixed fee for intermediate transportation capacity regardless of actual usage. Although volumes associated with these fixed-fee customers may vary, the related revenues are not affected.

Cost of gas is affected by variations in sales volumes, cost of purchased gas and related transportation costs, and the effects of any permanent liquidation of inventory gas. Cost of gas sold decreased by $28.4 million and increased $147.4 million in the 2002 second quarter and six-month period, respectively, primarily due to prices paid for fixed-price supply and the impact in 2001 of a reduction in inventory gas. The average cost of gas sold decreased $2.29 per Mcf (38%) and increased $1.43 per Mcf (44%) for the 2002 second quarter and six month period, respectively, from the comparable 2001 periods. MichCon recorded the benefits of a 25 Bcf inventory liquidation in the 2001 first quarter which was subsequently adjusted to 17.5 Bcf in the 2001 second quarter due to warmer than normal weather. The inventory liquidation was priced at $.38 per Mcf compared to an average gas purchase rate in 2001 of $3.64 per Mcf. Cost of gas was also affected by variations in sales volumes due to weather and the number of customers who have chosen to purchase gas from MichCon rather than other suppliers under the gas Customer Choice program.

Operation and maintenance expenses increased $7.4 million and $9.1 million for the 2002 second quarter and six-month period, respectively, primarily due to allocated expenses from DTE Energy. Additionally, the second quarter comparison was affected by abnormally higher levels of lost gas from storage fields resulting in a $5 million charge in the 2002 second quarter.

Merger and restructuring costs were not incurred in the 2002 second quarter and six- month period compared to $100.9 million and $102 million incurred in the comparable 2001 periods. Merger costs associated with the DTE Energy acquisition of MCN Energy consist primarily of system integration, relocation, legal, accounting and consulting costs. Restructuring charges were primarily associated with a work force reduction plan.

Property write-down and contract loss were $47.8 million for the 2002 second quarter and six-month period, respectively, due to a $33.2 million loss from the expected sale of MichCon’s former headquarters and a $14.6 million charge related to termination of a contract for computer services with an unrelated third party.

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MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

Other income and deductions decreased $6.1 million and $4.2 million for the 2002 second quarter and six-month period, respectively, primarily due to a $6.7 million loss in the 2001 second quarter from the expected sale of 33% to 50% interests in a series of partnerships that own a residential community on the Detroit riverfront (Harbortown). Partially offsetting the decreases for the 2002 six-month period were higher interest costs.

Income taxes increased $46.4 million and $24.4 million for the 2002 second quarter and six-month period, respectively, due to an increase in pre-tax earnings.

CAPITAL RESOURCES AND LIQUIDITY

Operating Activities

Net cash from operating activities decreased $72 million due to higher working capital requirements offset by higher net income, after adjusting for noncash items (depreciation, amortization, property write-down and contract losses and deferred taxes). The working capital requirements reflect an overall decrease in accounts payable. Lower accounts payable levels represent the internal focus on managing external payments. The decline in cash flow is also due to the under-recovery of gas costs incurred totaling $38 million. With the implementation of the gas cost recovery mechanism in January 2002, MichCon is allowed to recover its actual gas costs from gas customers. Over the balance of 2002 this amount is expected to reverse with a small remaining under-recovery balance by year-end that will be trued-up as part of 2002’s GCR reconciliation process.

Investing Activities

Net cash used for investing activities declined $4 million reflecting declines in plant and equipment expenditures, partially offset by proceeds received in 2001 associated with MichCon’s Grantor Trust.

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MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

Financing Activities

Net cash used for financing activities declined $73 million during the 2002 six-month period reflecting the payment of $75 million in dividends in 2001.

NEW ACCOUNTING PRONOUNCEMENTS

During 2001, the Financial Accounting Standards Board (FASB) issued new accounting pronouncements concerning goodwill and other intangible assets, asset retirement obligations and impairment or disposal of long-lived assets. See Note 8 for a discussion of MichCon’s evaluation of the adoption of these new accounting pronouncements.

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MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION