UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the Quarterly Period ended March 31, 2005

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

313-235-4000
(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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No þ

Michigan Consolidated Gas Company

Quarterly Report on Form 10-Q
Quarter Ended March 31, 2005

Table of Contents

Definitions

1

Forward-Looking Statements

Certain information presented herein includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. There are many factors that may impact forward-looking statements including, but not limited to, the following:

•	the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
•	economic climate and growth or decline in the geographic areas where we do business;
•	environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith;
•	implementation of the gas Customer Choice program;
•	impact of gas utility restructuring in Michigan, including legislative amendments;
•	employee relations and the impact of collective bargaining agreements;
•	access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;
•	the timing and extent of changes in interest rates;
•	the level of borrowings;
•	changes in the cost and availability of natural gas;
•	effects of competition;
•	impact of regulation by the MPSC and other applicable governmental proceedings and regulations;
•	changes in federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;
•	the ability to recover costs through rate increases;
•	the availability, cost, coverage and terms of insurance;
•	the cost of protecting assets against or damage due to terrorism;
•	changes in accounting standards and financial reporting regulations;
•	changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues;
•	uncollectible accounts receivable; and
•	changes in the economic and financial viability of our suppliers and customers, and the continued ability of such parties to perform their obligations to the Company.

New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

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MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

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

MichCon reported a loss of $13 million for the first quarter of 2005 compared to earnings of $70 million for the 2004 first quarter. Results for the first quarter of 2005 were impacted by the April 2005 MPSC gas cost recovery and final rate orders. Results for the first quarter of 2005 were also impacted by increases in operation and maintenance expenses due to higher uncollectible accounts expense.

Gas cost recovery order - In December 2001, the MPSC issued an order that permitted MichCon to implement gas cost recovery (GCR) factors up to $3.62 per thousand cubic feet (Mcf) for January 2002 billings and up to $4.38 per Mcf for the remainder of 2002. The order also allowed MichCon to recognize a regulatory asset representing the difference between the $4.38 factor and the $3.62 factor for volumes that were unbilled at December 31, 2001. MichCon’s 2002 GCR reconciliation case was filed with the MPSC in February 2003. The Staff and various intervening parties in this proceeding sought to have the MPSC disallow $26 million representing unbilled revenues at December 2001. On April 28, 2005, the MPSC issued an order in the 2002 GCR reconciliation case that disallowed $26 million plus accrued interest of $3 million. We recorded the impact of the disallowance in the first quarter of 2005.

Gas final rate order - On April 28, 2005, the MPSC issued an order for final rate relief. The MPSC granted a base rate increase to MichCon of $61 million annually, effective April 29, 2005. This amount is an increase of $26 million over the $35 million in interim rate relief approved in September 2004. The rate increase was based on a 50% debt and 50% equity capital structure and an 11% rate of return on common equity.

The MPSC adopted MichCon’s proposed tracking mechanism for uncollectible accounts receivable. Each year, MichCon will file an application comparing its actual uncollectible expense to its designated revenue recovery of approximately $37 million. Ninety percent of the difference will be refunded or surcharged after an annual reconciliation proceeding before the MPSC. The MPSC also approved the deferral of the non–capitalized portion of the negative pension expense. MichCon will record a regulatory liability in its financial statements for any negative pension costs as determined under generally accepted accounting principles. In addition, the MPSC approved a one-way tracker which provided for $25 million which is refundable in the event that the funds are not expended by safety and training operation and maintenance expenses.

The MPSC order reduces MichCon’s depreciation rates, and the related revenue requirement associated with depreciation expense by $14.5 million with no impact on net income.

The MPSC did not allow the recovery of approximately $25 million of costs allocated to MichCon that were incurred by DTE Energy as a result of the acquisition of MCN Energy.

The MPSC order also resulted in the disallowance of computer system and equipment costs and adjustments to environmental regulatory assets and liabilities. The MPSC disallowed recovery of 90% of the costs of a computer billing system that was in place prior to DTE Energy’s acquisition of MCN Energy in 2001. We impaired this asset by approximately $42 million. The MPSC disallowed approximately $6 million of certain computer equipment and related depreciation. The MPSC order also disallowed recovery of certain internal labor and legal costs related to remediation of manufactured gas plants of approximately $6 million.

3

Operating revenues increased $119 million in the first quarter of 2005. Gas sales revenues increased $116 million in the first quarter of 2005 due primarily to an increase in the gas commodity component of sales rates reflecting higher natural gas prices and higher base rates due to the interim rate increase in 2004. The gas commodity component portion of revenues is offset by a similar increase in gas costs, which is collectible through the GCR mechanism. The comparison was also affected by the impact of the April 2005 MPSC GCR order that disallowed $26 million representing unbilled revenues at December 2001. Additionally, gas sales revenues and volumes in both periods reflect the impact of weather, which was 2% colder in the first quarter of 2005 from the comparable 2004 period. End user transportation revenues increased $3 million in the first quarter of 2005 due to contractually driven adjustments to end user transportation contracts.

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 increased $139 million in the first quarter of 2005, primarily due to prices paid for gas supply. The average cost of gas sold increased $1.65 per Mcf (28%) in the first quarter of 2005 from the comparable 2004 period.

4

Operation and maintenance expense increased $22 million in the first quarter of 2005, reflecting higher reserves for uncollectible accounts receivable, increased postretirement benefit costs and the impact of the April 2005 MPSC final rate order which increased our environmental costs, as previously discussed. The increase in uncollectible accounts expense reflects higher past due amounts attributable to an increase in gas prices, continued weak economic conditions and a lack of adequate public assistance for low-income customers.

Asset gains and losses, net decreased $50 million due to the disallowances of approximately $42 million of costs related to a computer billing system and $6 million of certain computer equipment and related depreciation, as previously discussed. In March 2004, we recorded a $2 million gain from the sale of a gas storage facility.

Income taxes decreased $9 million in the first quarter of 2005. Income tax comparisons were affected by variations in pre-tax earnings. The decrease in income taxes is due primarily to a lower effective tax rate in 2005 compared to 2004 based on estimated lower pretax income in 2005.

SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

We currently have an $81.25 million, three-year unsecured credit agreement originally entered into in October 2003, and a $243.75 million, five-year unsecured revolving credit facility entered into in October 2004. These credit facilities are with a syndicate of banks and may be utilized for general corporate borrowings, but primarily are intended to provide liquidity support for our commercial paper program. This credit facility facilitates short-term borrowing primarily for seasonal needs to buy gas in the summer for use in the winter heating season. In the last twelve months, the peak borrowing for this facility was $324.8 million. Borrowings under the facilities are available at prevailing short-term interest rates. Among other things, the agreements require us to maintain an “earnings before interest, taxes, depreciation and amortization” (EBITDA) to interest ratio of no less than 2 to 1 for each twelve-month period ending on the last day of March, June, September and December of each year.

As a result of the non-recurring accounting adjustments that were required due to the MPSC gas rate orders issued on April 28, 2005, we did not meet the EBITDA to interest ratio at March 31, 2005. The lenders have agreed to amend the credit facilities to exclude the EBITDA to interest ratio for the first quarter of 2005. If lenders had not amended the credit facility, our access to the commercial paper markets would be limited. At March 31, 2005 and the date of the amendments, we did not have any indebtedness under the credit facilities or any commercial paper outstanding.

We plan to seek rehearing of the MPSC orders to improve our resulting underlying cash flows. If unsuccessful in rehearing, we may file a follow on rate case in 2005. In addition, we may seek further amendments to the EBITDA to interest ratio for future periods. If we experience diminished ability to access the short-term and /or long-term capital markets, we would have to seek additional sources of liquidity. This may have a material negative impact on our financial position and significantly harm the operation of the business. We believe that we will have sufficient internal and external capital resources to manage liquidity and to fund anticipated capital requirements.

5

CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Management of the Company carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2005, which is the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effectively designed and operating to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the first quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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MICHIGAN CONSOLIDATED GAS COMPANY

See Notes to Consolidated Financial Statements (Unaudited)

7

MICHIGAN CONSOLIDATED GAS COMPANY

See Notes to Consolidated Financial Statements (Unaudited)

8

MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

See Notes to Consolidated Financial Statements (Unaudited)

9

MICHIGAN CONSOLIDATED GAS COMPANY

See Notes to Consolidated Financial Statements (Unaudited)

10

MICHIGAN CONSOLIDATED GAS COMPANY

The following table displays other comprehensive income (loss) for the three-month periods ended March 31:

See Notes to Consolidated Financial Statements (Unaudited)

11

Michigan Consolidated Gas Company

NOTE 1– SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements included in our 2004 Annual Report on Form 10-K.

The accompanying consolidated financial statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from those estimates.

The consolidated financial statements are unaudited, but in our opinion, include all adjustments necessary for a fair statement of the results for the interim periods. Financial results for this interim period are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year.

We reclassified certain prior year balances to match the current year’s financial statement presentation.

Asset Retirement Obligations

SFAS No. 143, “Accounting for Asset Retirement Obligations,” requires that fair value of an asset retirement obligation be recognized in the period in which it is incurred. We believe that adoption of SFAS No. 143 results primarily in timing differences in the recognition of legal asset retirement costs that we are currently recovering in rates and will be deferring such differences under SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.”

A reconciliation of the asset retirement obligation for the 2005 three-month period follows:

Retirement Benefits and Trusteed Assets

MichCon sponsors a defined benefit retirement plan for eligible MichCon represented employees. MichCon also participates in a defined benefit retirement plan sponsored by Detroit Edison for its other nonrepresented employees, which is treated as a plan covering employees of various affiliates of DTE Energy from the affiliates’ perspective. We are allocated income or an expense each year as a result of our participation in the DTE Energy Company Retirement Plan. Income was approximately $7 million for the three months ended March 31, 2005 and for the three months ended March 31, 2004 and is not reflected in following table.

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The components of net periodic benefit cost (credit) for pension benefits and other postretirement benefits follow: