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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 September 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     x                     No     o

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MICHIGAN CONSOLIDATED GAS COMPANY

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

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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 and other natural phenomena on operations; 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 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 a net loss of $19.9 million and net income of $.6 million for the 2002 third quarter and nine-month period, respectively, compared with net losses of $43.3 million and $66.0 million for the comparable 2001 periods. MichCon typically records third quarter losses due to seasonally lower demand for natural gas during the summer months. The earnings comparability is affected by $103.4 million ($67.2 million net of taxes) of merger and restructuring charges that were recorded in the nine-month period of 2001. The earnings comparison also reflects negative margins in the 2001 third quarter and nine-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 $20 million ($13 million net of tax) and $49 million ($32 million net of tax) in margin losses in the 2001 third quarter and nine-month period, respectively.

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Management’s Narrative Analysis of the Results of Operations

Operating revenues decreased $4.4 million and increased $162.2 million in the 2002 third quarter and nine-month period, respectively, reflecting varying contributions from selling gas, providing end user and intermediate transportation services and other services.

Gas sales and end user transportation revenues in total decreased $5.6 million and increased $161.1 million in the 2002 third quarter and nine-month period, respectively. Revenues in the 2002 nine-month period reflect 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 nine-month period compared to $2.95 per Mcf in 2001. End user transportation volumes and revenues also reflect deliveries associated with a varying number of customers participating in the 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. Upon returning to the GCR mechanism in January 2002, MichCon has no commodity price risk associated with its prudently incurred gas costs. Accordingly, margins earned

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Management’s Narrative Analysis of the Results of Operations

from selling gas and margins generated from providing end user transportation services are the same. Revenues were also negatively impacted by weather that was 69.6% warmer in the 2002 third quarter and 3% warmer in the 2002 nine-month period as compared to the same 2001 periods.

Intermediate transportation revenues increased $1.9 million in the 2002 third quarter and intermediate transportation deliveries decreased 53.0 billion cubic feet (Bcf) for the same period. Intermediate transportation revenues increased $1.9 million in the 2002 nine-month period and intermediate transportation deliveries decreased 125.1 Bcf. A significant portion of the volume decrease was due to lower storage requirements slightly 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 $25.7 million and increased $121.7 million in the 2002 third quarter and nine-month period, respectively, primarily due to prices paid for gas supply and the impact in 2001 of a reduction in inventory gas. The average cost of gas sold decreased $2.38 per Mcf (52%) and increased $1.10 per Mcf (33%) for the 2002 third quarter and nine month period, respectively, from the comparable 2001 periods. MichCon recorded the benefits of a 17.5 Bcf inventory liquidation in the first half of 2001. 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 a decline in sales volumes due to warmer weather and the number of customers who have chosen to purchase gas from suppliers other than MichCon under the Customer Choice program.

Operation and maintenance expenses decreased $.4 million and increased $8.7 million for the 2002 third quarter and nine-month period. The nine-month period variance is primarily due to allocated expenses from DTE Energy, partially offset by lower accruals for injuries and damages. The allocation of expenses from DTE Energy is based upon an estimate of the costs incurred to support MichCon and is periodically reviewed and adjusted. Additionally, the comparison was affected by lost gas from storage fields resulting in a $5 million charge in the 2002 second quarter.

Taxes other than income decreased $7.8 million and $7.2 million for the 2002 third quarter and nine-month period, respectively, primarily due to a charge in the 2001 third quarter for the probable unfavorable resolution of pending tax appeals filed with various governments in 1996 and 1997.

Merger and restructuring costs were not incurred in the 2002 third quarter and nine-month period compared to $1.4 million and $103.4 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

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consulting costs. Restructuring charges were primarily associated with a work force reduction plan.

Property write-down and contract loss totaled $47.8 million for the 2002 nine-month period, due to a $33.2 million loss from the planned sale of MichCon’s former headquarters and a $14.6 million charge related to the termination of a contract for computer services.

Other income and deductions decreased $3.9 million and $8.1 million for the 2002 third quarter and nine-month period, respectively. The variance is primarily due to a $2.6 million loss and $9.3 million loss in the 2001 quarter and nine-month period, respectively, from its 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 nine-month period were higher interest costs.

Income taxes increased $11.0 million and $35.4 million for the 2002 third quarter and nine-month period, respectively, due to an increase in pre-tax earnings.

CAPITAL RESOURCES AND LIQUIDITY

Operating Activities

Net cash from operating activities decreased $51 million due to higher working capital requirements partially offset by higher net income, after adjusting for noncash items (depreciation, amortization, property write-down and contract losses and deferred taxes). The higher working capital requirements primarily reflect a significant increase in gas inventories due to management’s decision to utilize storage gas during 2001 that resulted in a gas inventory decrement during the 2001 calendar year. The decline in cash flow is also due to the under-recovery of gas costs incurred totaling $19 million. With the implementation of the GCR mechanism in January 2002, MichCon is allowed to recover its actual gas costs from gas customers. Any remaining under-recovery at year-end will be trued-up as part of 2002’s GCR reconciliation process.

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Investing Activities

Net cash used for investing activities declined $14 million reflecting declines in plant and equipment expenditures.

Financing Activities

Net cash related to financing activities increased $62 million reflecting the payment of $75 million in dividends in the 2001 nine-month period. Partially offsetting this increase was the issuance of less long- and short-term debt during the 2002 period, net of debt repayments.

PENSION AND POSTRETIREMENT COSTS

MichCon’s costs of providing pension and postretirement benefits are dependent upon a number of factors, such as the rates of return on plan assets, the discount rate and the rate of increase in health care costs. The market value of plan assets has been affected by sharp declines in the equity market since 2000. As a result, pension and postretirement costs could increase in future years without a substantial recovery in the equity markets. It is estimated that the increase in 2003 pension and postretirement costs could range from $20 million-$40 million, pre-tax, depending on actual plan asset returns, the discount rate and other actuarial assumptions that will not be determined until December 31, 2002. MichCon will initiate cost saving strategies to significantly offset the earnings impact of higher pension and postretirement costs.

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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CONTROLS AND PROCEDURES

(a)		Evaluation of disclosure controls and procedures
		MichCon’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of MichCon’s disclosure controls and procedures (as defined in Exchange Act Rules 13a — 14(c) and 15d — 14(d)) as of a date within 90 days before the filing of this quarterly report, and have concluded that, as of the evaluation date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in reports filed under the Exchange Act.
(b)		Changes in internal controls
		There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in MichCon’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date referenced in paragraph (a) above.

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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