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 September 30, 2004

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 (Exchange Act) 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 [   ]

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

Yes [   ]          No [X]

Michigan Consolidated Gas Company

Quarterly Report on Form 10-Q
Quarter Ended September 30, 2004

Table of Contents

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Definitions

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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:

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the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;

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economic climate and growth or decline in the geographic areas where we do business;

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environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith;

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implementation of gas Customer Choice programs;

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impact of gas utility restructuring in Michigan, including legislative amendments;

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employee relations and the impact of collective bargaining agreements;

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access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;

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the timing and extent of changes in interest rates;

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the level of borrowings;

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changes in the cost and availability of natural gas;

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effects of competition;

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impacts of regulations by the MPSC and other applicable governmental proceedings and regulations;

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changes in federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;

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the ability to recover costs through rate increases;

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the availability, cost, coverage and terms of insurance;

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the cost of protecting assets against, or damage due to, terrorism;

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changes in accounting standards and financial reporting regulations;

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changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; and

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changes in the economic and financial viability of our suppliers and customers, and the continued ability of such parties to perform their obligations to MichCon.

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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Michigan Consolidated Gas Company

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 $53 million and $20 million for the third quarter and nine-month period of 2004, respectively, compared with losses of $37 million and earnings of $27 million for comparable 2003 periods. Results for the third quarter and nine-month period of 2004 were adversely impacted by a negative effective income tax rate. Results for the nine-month period of 2004 were primarily impacted by increases in operation and maintenance expenses due to higher uncollectable accounts expense, increased employee benefit costs and higher injuries and damages accruals. Additionally, results for the nine-month period of 2004 were impacted by lower gross margins.

Operating revenues increased $13 million in the third quarter of 2004, reflecting increased gas sales and end user transportation revenues. Operating revenues increased $63 million in the nine-month period of 2004, reflecting increased gas sales and reduced end user transportation revenues.

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Gas sales and end user transportation revenues in total increased $11 million and increased $62 million in the third quarter and nine-month period of 2004, respectively. The increase in the third quarter of 2004 is primarily attributed to a $10 million increase in Gas Cost Recovery (GCR) revenue due to higher average gas purchase rates and a $1 million increase in end-user transportation due to higher average rates. The increase for the nine-month period of 2004 is due primarily to an increase in GCR revenues of $78 million, partially offset by $18 million in weather related demand. End user transportation revenues for the nine-month period of 2004 reflect lower volumes for 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. Accordingly, margins earned from selling gas and margins generated from providing end-user transportation services to Customer Choice participants are the same. There were approximately 111,000 customers participating in the Customer Choice program at September 30, 2004, compared with approximately 129,000 customers at December 31, 2003.

Cost of gas is affected by variations in sales volumes, cost of purchased gas and related transportation costs. Cost of gas sold increased by $8 million and $76 million in the third quarter and nine-month period of 2004, respectively. The average cost of gas sold increased $1.04 per Mcf (25%) and $.97 per Mcf (19%) for the third quarter and nine-month period, respectively, from the comparable 2003 periods.

Operation and maintenance expense was unchanged and increased $42 million for the third quarter and nine-month period of 2004, respectively, from the comparable 2003 period primarily due to higher uncollectable accounts expense, reflecting higher past due amounts attributable to an increase in gas prices, continued weak economic conditions and a lack of adequate assistance for low-income customers. Higher employee benefit costs and accruals for injuries and damages also contributed to the increase.

Property write-down declined $5 million for the nine-month period of 2004 due to a charge in 2003 for the planned sale of our former headquarters.

Income taxes increased $16 million and decreased $5 million for the 2004 third quarter and nine-month period, respectively, attributed to a negative effective income tax rate in 2004 driven by lower estimated annual earnings.

ENVIRONMENTAL MATTERS

See Note 7 – Contingencies for discussion of environmental matters.

REPRESENTED EMPLOYEES

Approximately 1,100 of the company’s employees were under a contract that expired in October 2004. A new three-year contract was ratified in August 2004.

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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 September 30, 2004, 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 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 timely reported in accordance with Commission’s rules and forms.

(b) Changes in internal control over financial reporting

The Company has established a formal assessment process and related procedures to evaluate the effectiveness of internal control over financial reporting using criteria specified by Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. The assessment process is comprehensive in scope, utilizes internal and external resources and involves many individuals at various levels of the Company in the design, testing and evaluation of internal control.

As part of the evaluation and assessment process, the Company has been improving the design and operating effectiveness of many entity-level and process-level controls. Control testing and remediation activities provide reasonable, but not absolute, assurance that a material weakness in internal control over financial reporting will be avoided. The inherent limitations of our current internal controls, a portion of which are manual by their nature, contribute to the potential for control deficiencies. Although management has not yet completed its assessment and continues to implement control improvements, management does not believe any areas requiring further improvement will constitute a material weakness in internal control over financial reporting as of December 31, 2004.

There has been no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2004 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)

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MICHIGAN CONSOLIDATED GAS COMPANY

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY

The following table displays other comprehensive loss for the nine-month periods ended September 30:

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY

NOTE 1 - GENERAL

These consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements included in our 2003 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 could 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 some prior year balances to match the current year’s presentation.

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 and $8 million for the three months ended September 30, 2004 and 2003, respectively, and was approximately $21 million and $23 million for the nine months ended September 30, 2004 and 2003, respectively, and is not reflected in the table below.

The components of net periodic benefit costs for qualified and non-qualified pension benefits and other postretirement benefits follow:

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In June 2004, we retroactively adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 106-2. This FSP provides guidance on the accounting for the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act). As a result of the retroactive adoption, our other postretirement benefit costs were reduced by $1 million and $2 million for the quarter and nine-months ended September 30, 2004, respectively. See Note 2.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

Medicare Act Accounting

In December 2003, the Medicare Act was signed into law. This Act provides for a non-taxable federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at “least actuarially” equivalent to the benefit established by law. We elected at that time to defer the provisions of the Medicare Act, and its impact on our accumulated postretirement benefit obligation and net periodic postretirement benefit cost pending the issuance of specific authoritative accounting guidance by the FASB.

In May 2004, FSP No. 106-2 was issued on accounting for the effects of the Medicare Act. The FSP is effective for the first interim period beginning after June 15, 2004, with earlier application encouraged. The guidance in this FSP is applicable to sponsors of single-employer defined benefit postretirement health care plans for which (a) the employer has concluded the prescription drug benefits available under the plan to some or all participants are “actuarially equivalent” to Medicare Part D and thus qualify for the subsidy under the Medicare Act and (b) the expected subsidy will offset or reduce the employer’s share of the cost of the underlying postretirement prescription drug coverage on which the subsidy is based. We believe we qualify for the subsidy under the Medicare Act and the expected subsidy will partially offset our share of the cost of the postretirement prescription drug coverage.

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The reduction in the accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service is approximately $24 million and is accounted for as an actuarial gain as required under the FSP. The effects of the subsidy on the measurement of net periodic postretirement benefit costs is expected to reduce cost by $3 million in 2004. The impact of the Medicare Act on the components of other postretirement benefit costs is as follows:

NOTE 3 - REGULATORY MATTERS

Gas Rate Case

Rate Request - In September 2003, MichCon filed an application with the MPSC for an increase in service and distribution charges (base rates) for its gas sales and transportation customers. The filing requests an overall increase in base rates of $194 million per year (approximately 7% increase, inclusive of gas costs), beginning January 1, 2005. MichCon requested that the MPSC increase base rates by $154 million per year on an interim basis by April 1, 2004. The interim request was based on a projected revenue deficiency for the test year 2004.

MPSC Interim Rate Order – In September 2004, the MPSC issued an order granting interim rate relief to MichCon in the amount of $35 million. The interim rate order was based on a 50% debt and 50% equity capital structure, and an 11.5% rate of return. Amounts collected are subject to a potential refund pending a final order in this rate case.

MPSC Staff Recommendation on Final Rate Relief – The Staff has recommended a $76 million increase in base rates compared to MichCon’s requested base rate relief of $194 million. The Staff also supports a provision, proposed by MichCon, that would allow MichCon to recover or refund 90% of uncollectable accounts receivables expense above or below the amount that is reflected in base rates. In addition, the Staff proposed a 50% debt and 50% equity capital structure utilizing a reduced rate of return of 11%. MichCon’s current allowed rate of return is 11.5%. MichCon expects a final order in the first quarter of 2005.

Gas Cost Recovery Proceedings

2002 Plan Year - In December 2001, the MPSC issued an order that permitted MichCon to implement GCR factors up to $3.62 per 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 of approximately $14 million representing the difference between the $4.38 factor and the $3.62 factor for volumes that were unbilled at December 31, 2001. The regulatory asset is subject to the 2002 GCR reconciliation process. In March 2003, the MPSC issued an order in MichCon’s 2002 GCR plan case. The MPSC ordered MichCon to reduce its gas cost recovery expenses by $26.5

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million for purposes of calculating the 2002 GCR factor due to MichCon’s decision to utilize storage gas during 2001 that resulted in a gas inventory decrement for the 2001 calendar year.

Although we recorded a $26.5 million reserve in 2002 to reflect the impact of this order, a final determination of actual 2002 revenue and expenses including any disallowances or adjustment, will be decided in MichCon’s 2002 GCR reconciliation case that was filed with the MPSC in February 2003. The Staff and various intervening parties in this proceeding are seeking to have the MPSC disallow an additional $26 million, representing unbilled revenues at December 2001. One party has proposed that half of the $8 million related to the settlement of the Enron bankruptcy also be disallowed. The other parties to the case have recommended that the Enron bankruptcy settlement be addressed in the 2003 GCR reconciliation case. An MPSC Administrative Law Judge has recommended disallowances of $26.5 million related to the use of storage gas in 2001 and $26 million related to the December 2001 unbilled issue, and recommended that the $8 million related to the Enron issue be addressed in the 2003 GCR reconciliation case. We have included this item in our testimony in the 2003 GCR reconciliation filed in February 2004. The Staff has recommended that MichCon be allowed to recover the entire $8 million related to the Enron issue. A final order in this proceeding is expected in 2004. In addition, we filed an appeal of the March 2003 MPSC order with the Michigan Court of Appeals.

2003 Plan Year - In July 2003, the MPSC approved an increase in MichCon’s 2003 GCR rate to a maximum of $5.75 per Mcf for the billing months of August 2003 through December 2003. As of December 31, 2003, MichCon has accrued a $19 million regulatory asset representing the under-recovery of actual gas costs incurred in 2003 and the 2002 GCR under-recovery.

2004 Plan Year - In September 2003, MichCon filed its 2004 GCR plan case proposing a maximum GCR factor of $5.36 per Mcf. MichCon agreed to switch from a calendar year to an operational year as a condition of its settlement in the 2003 GCR plan case. The operational GCR year would run from April to March of the following year. To accomplish the switch, the 2004 GCR plan case reflects a 15-month transitional period, January 2004 through March 2005. Under the transition proposal, MichCon would file two reconciliations pertaining to the transition period; one addressing the January 2004 to March 2004 period, the other addressing the remaining April 2004 to March 2005 period. The plan also proposes a quarterly GCR ceiling price adjustment mechanism. This mechanism allows MichCon to increase the maximum GCR factor to compensate for increases in market prices, thereby reducing the possibility of a GCR under recovery. Due to sustained increase in market prices for natural gas, in June 2004, the MPSC approved a temporary increase in the maximum GCR factor and a contingent factor which resulted in a new temporary maximum factor of $6.62 per Mcf, effective from July 1, 2004 until the MPSC issues its final order in this case.

We are unable to predict the outcome of the regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders, which may materially impact the financial position, results of operations and cash flows of the company.

NOTE 4 - UNUSUAL CHARGES

Property Write-down

In June 2003, we recorded an additional $5 million pre-tax ($4 million net of taxes) charge from the planned sale of our former headquarters to further reduce the carrying value of the property to fair value based on the estimated selling price less cost to sell. The sale was completed in the fourth quarter of 2003.

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NOTE 5 – LONG -TERM DEBT

In October 2004, we issued $120 million of 5.0% senior notes due in 2019. The proceeds will be principally used to redeem the following two issues: $52 million of 6.85% senior notes due 2038 and $55 million of 6.85% senior notes due 2039. These securities are expected to be called for redemption in November 2004 at a price of 100 percent of the principal amount plus accrued and unpaid interest from September 1, 2004.

NOTE 6 – SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

On October 15, 2004, we entered into a $243.75 million, five-year unsecured revolving credit facility and lowered our existing three-year revolving credit facility from $162.5 million to $81.25 million. The five-year facility replaces the October 2003 364-day facility, which expired. The three-year revolving credit facility expires in October 2006. The five- and three-year 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. Borrowings under the facilities will be available at prevailing short-term interest rates. The agreements require us to maintain a debt to total capitalization ratio of no more than .65 to l and an “earnings before interest, taxes, depreciation and amortization” (EBITDA) to interest ratio of no less than 2 to 1. We currently are in compliance with these financial covenants.

NOTE 7 – CONTINGENCIES

Environmental

Prior to the construction of major natural gas pipelines, gas for heating and other uses was manufactured from processes involving coal, coke or oil. We own, or previously owned, 17 such former manufactured gas plant (MGP) sites. During the mid-1980’s, we conducted preliminary environmental investigations at former MGP sites, and some contamination related to the by-products of gas manufacturing was discovered at each site. We employed outside consultants to evaluate remediation alternatives for these sites, to assist in estimating its potential liabilities and to review its archived insurance policies. The findings of these investigations indicated that the estimated total expenditures for investigation and remediation activities for these sites could range from $30 million to $170 million based on undiscounted 1995 costs. As a result of these studies, we accrued a liability and a corresponding regulatory asset of $32 million during 1995. At December 31, 2003, the reserve balance was $21.5 million of which $ 4.7 million was classified as current. Our current estimates indicate that the previously accrued amounts are adequate to cover the costs of required remedial actions, and therefore no additional accrual will be required.

Other

We are involved in certain legal, regulatory and administrative proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our financial statements in the period they are resolved.

See Note 3 for a discussion of contingencies related to Regulatory Matters.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Michigan Consolidated Gas Company

We have reviewed the accompanying condensed consolidated statement of financial position of Michigan Consolidated Gas Company and subsidiaries as of September 30, 2004, and the related condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2004 and 2003, and the condensed consolidated statements of cash flows and retained earnings and comprehensive income for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of Michigan Consolidated Gas Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), 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 reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim 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 standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of Michigan Consolidated Gas Company and subsidiaries as of December 31, 2003, and the related consolidated statements of operations, cash flows and retained earnings for the year then ended (not presented herein); and in our report dated March 1, 2004 (which report includes an explanatory paragraph relating to the change in the method of accounting for asset retirement obligations in 2003), 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, 2003 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

/S/ DELOITTE & TOUCHE LLP

Detroit, Michigan
November 4, 2004

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OTHER INFORMATION

LEGAL PROCEEDINGS

We are involved in certain legal, regulatory and administrative proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our financial statements in the period they are resolved.

EXHIBITS

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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.

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EXHIBIT INDEX

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