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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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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

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited)

See Notes to Consolidated Financial Statements (Unaudited)

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MICHIGAN CONSOLIDATED GAS COMPANY
Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 — GENERAL

The consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements included in the 2001 Annual Report to the Securities and Exchange Commission on Form 10-K.

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. In connection with their preparation, management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The consolidated financial statements are unaudited, but in the opinion of MichCon’s management, 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.

Certain prior year balances have been reclassified to conform to the current year’s presentation.

NOTE 2 — MERGER AND RESTRUCTURING CHARGES

On May 31, 2001, DTE Energy completed the acquisition of MCN Energy, the parent company of MichCon. The acquisition by DTE Energy was accounted for using the purchase method. MichCon’s assets and liabilities included in the accompanying consolidated financial statements have not been adjusted to allocate the purchase price to their fair values. Certain losses reflected in the accompanying consolidated financial statements have been eliminated at DTE Energy as a result of purchase accounting adjustments.

MichCon incurred merger-related charges and restructuring charges associated with the acquisition. The merger-related charges consist primarily of system integration, relocation, legal, accounting and consulting costs that had the effect of decreasing earnings by $23 million ($15 million after tax) for the nine-month period ended September 30, 2001. Restructuring charges of $80 million ($52 million after tax) in the 2001 nine-month period, were primarily associated with a work force reduction plan. The plan included early retirement incentives along with voluntary separation arrangements for 273 employees, primarily in overlapping corporate support functions. The merger and restructuring costs had the effect of decreasing MichCon’s earnings by $103 million ($67 million after tax) for the 2001 nine-month period.

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Notes to the Consolidated Financial Statements (Unaudited)

NOTE 3 — REGULATORY MATTERS

Gas Industry Restructuring

Through December 2001, MichCon was operating under an MPSC-approved Regulatory Reform Plan that included a comprehensive experimental three-year Customer Choice program, a Gas Sales Program and an income sharing mechanism. MichCon returned to the gas cost recovery (GCR) mechanism in January 2002 when the Gas Sales Program expired. Under the GCR mechanism, the gas commodity component of MichCon’s gas sales rates is designed to recover the actual costs of reasonably and prudently incurred gas purchases. 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 will be subject to the 2002 GCR reconciliation process. As of September 30, 2002, MichCon has accrued a $33 million regulatory asset representing the under-recovery of actual gas costs incurred. In July 2002, in response to a petition for rehearing filed by the Michigan Attorney General, the MPSC directed the parties to address MichCon’s implementation of the December 2001 order and the impact of that implementation on rates charged to MichCon’s customers. Also, in July 2002, an MPSC Administrative Law Judge (ALJ) issued a Proposal for Decision on MichCon’s 2002 GCR plan case. In that decision the ALJ recommended adoption of the MPSC Staff’s proposed $26.5 million reduction in gas cost due to MichCon’s decision to utilize storage gas during 2001 that resulted in a gas inventory decrement for the 2001 calendar year. MichCon cannot predict the outcome and has not accrued an amount related to this matter.

On September 27, 2002, MichCon filed for approval of its 2003 GCR Plan. MichCon is requesting a maximum GCR factor of $4.14 per Mcf to be effective in monthly bills beginning with the January 2003 billing month. MichCon’s proposed 2003 rate is $0.24 per Mcf less than the current maximum 2002 GCR factor.

In December 2001, the MPSC also approved MichCon’s application for a voluntary, expanded permanent Customer Choice program, which would replace the experimental program that expired in March 2002. Effective April 2002, up to 40% of MichCon’s customers could elect to purchase gas from suppliers other than MichCon. Effective April 2003, up to 60% of customers would be eligible and by April 2004, all of MichCon’s 1.2 million customers can participate in the program. The MPSC also approved the use of deferred accounting for the recovery of implementation costs of the Customer Choice program. As of September 2002, approximately 187,000 customers are participating in the Customer Choice program.

Through December 2001, MichCon was operating under an MPSC-approved Regulatory Reform Plan that included an income sharing mechanism. The income sharing

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Notes to the Consolidated Financial Statements (Unaudited)

mechanism allowed customers to share in profits when actual returns on equity from utility operations exceed predetermined thresholds. Based on the MPSC approved formula, MichCon believes that no income sharing is required in 2001. In July 2002, the MPSC issued an order regarding MichCon’s 2001 income sharing. The MPSC ordered a hearing be held to determine the issue of the appropriate treatment of $766,000 of pipeline refunds received by MichCon during 2001. MichCon has made a filing regarding this matter and awaits further action by the MPSC.

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

NOTE 4 — UNUSUAL CHARGES

Property Write-down

In June 2002, MichCon recorded a $33.2 million pre-tax ($21.6 million net of taxes) loss from the planned sale of its former headquarters. The carrying value of the property was reduced to fair value based on the estimated selling price less cost to sell.

Contract Loss

In June 2002, MichCon recorded a $14.6 million pre-tax ($9.5 million net of taxes) charge related to the termination of a contract for computer services with an unrelated third party.

Joint Venture Investment Loss

In May 2001, MichCon recorded a $6.7 million pre-tax ($4.4 million net of taxes) loss from its 33% to 50% interests in a series of partnerships that own a residential community on the Detroit riverfront (Harbortown). An additional loss of $2.6 million pre-tax ($1.7 million net of taxes) was recorded in September 2001.

NOTE 5 — CONTINGENCIES

Personal Property Taxes

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 determine the taxable 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 a utility’s personal property. The new tables became effective in 2000 and are currently used to calculate property tax expense. However, several local taxing jurisdictions have taken legal action attempting to prevent the STC from implementing the new

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Notes to the Consolidated Financial Statements (Unaudited)

valuation tables and have continued to prepare assessments based on the superseded tables. The legal actions regarding the appropriateness of the new tables were before the Michigan Tax Tribunal (MTT) which, in April 2002, issued its decision essentially affirming the validity of the STC’s new tables. In June 2002, petitioners in the case filed an appeal of the MTT’s decision with the Michigan Court of Appeals.

Other Contingencies

Gas is purchased and sold to numerous companies, including those operating in the energy, steel and retail industries. A number of customers filed for bankruptcy in 2001, including certain Enron Corporation affiliates. MichCon had open transactions under a variety of agreements with bankrupt Enron affiliates, and had an aggregate net liability of $15 million to Enron. There are various netting agreements with Enron affiliates. Internal and external counsel are working to determine MichCon’s rights within these agreements. MichCon has accrued a reserve for its probable exposure in these bankruptcies. Management cannot predict the ultimate resolution of these matters, but currently does not believe their resolution will have a material impact to MichCon.

NOTE 6 — CROSS DEFAULT PROVISIONS

Substantially all of the net utility property of MichCon is subject to the lien of a Mortgage and Deed of Trust (Mortgage). Should MichCon fail to timely pay its indebtedness under the Mortgage, such failure will create cross defaults in substantially all of MichCon’s indebtedness.

NOTE 7 — SHORT TERM CREDIT ARRANGEMENTS AND BORROWINGS

On October 25, 2002, MichCon entered into a $200 million 364-day revolving credit facility and a $100 million three-year revolving credit facility with a syndicate of banks. These credit facilities may be utilized for general corporate borrowings, but primarily are intended to provide liquidity support for MichCon’s existing commercial paper program. These agreements require MichCon to maintain a debt to total capitalization ratio of no more than .65 to 1 and an “earnings before interest, taxes, depreciation and amortization” (EBITDA) to interest ratio of no less than 2 to 1. MichCon is currently in compliance with these financial covenants.

NOTE 8 — NEW ACCOUNTING PRONOUNCEMENTS

Goodwill and Other Intangible Assets — Effective January 1, 2002, MichCon adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. As of the date of adoption, MichCon had no recorded goodwill.

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Notes to the Consolidated Financial Statements (Unaudited)

In connection with the adoption of SFAS No. 142, MichCon also reassessed the useful lives and the classification of identifiable intangible assets and determined that they continue to be appropriate. MichCon’s intangible assets consist primarily of software and are subject to amortization. Intangible assets amortization expense was approximately $2 million and $7 million in the 2002 third quarter and nine month period, respectively, compared with approximately $2 million and $6 million for the comparable 2001 periods. There were no material acquisitions of intangible assets during the nine month period of 2002. The gross carrying amount of intangible assets and accumulated amortization at September 30, 2002 were $158 million and $43 million, respectively. Amortization expense of intangible assets is estimated to be $9 million annually for 2002 through 2006.

Asset Retirement Obligations — In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred. The associated asset retirement costs would be capitalized as part of the carrying amount of the long-lived asset. It would apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. MichCon will adopt this statement in January 2003 and has not yet determined the impact of this statement on the consolidated financial statements.

Long-Lived Assets — On January 1, 2002, MichCon adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, but retains the fundamental provisions for recognizing and measuring impairment of long-lived assets to be held and used or disposed of by sale. The statement also supersedes the accounting and reporting provisions for the disposal of a segment of a business. SFAS No. 144 eliminates the conflict between accounting models for treating the disposition of long-lived assets that existed between SFAS No. 121 and the guidance for a segment of a business accounted for as a discontinued operation by adopting the methodology established in SFAS No. 121, and also resolves implementation issues related to SFAS No. 121. The adoption of the statement did not have an impact on the consolidated financial statements of MichCon.

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