MCN Energy 10-Q 2000 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2000, or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 1-10070

MCN ENERGY GROUP INC.

(Exact name of registrant as specified in its charter)

Michigan

(State or other jurisdiction of

incorporation or organization)

500 Griswold Street, Detroit, Michigan

(Address of principal executive offices)

38-2820658

(I.R.S. Employer

Identification No.)

48226

(Zip Code)

Registrant’s telephone number, including area code 313-256-5500

No Changes

(Former name, former address and former fiscal year, if changed since last report.)

     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  [   ]

     Number of shares outstanding of each of the registrant’s classes of common stock, as of May 12, 2000:

Common Stock, par value $.01 per share: 85,655,381

TABLE OF CONTENTS

INDEX TO FORM 10-Q

For Quarter Ended March 31, 2000

	Page
	Number
COVER		i
INDEX		ii
PART I  — FINANCIAL INFORMATION
Item 1. Financial Statements		18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
PART II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K		38
SIGNATURE		39

ii

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Results for quarter reflect warmer weather, reduced contributions from MichCon’s gas sales program and Energy Marketing losses — MCN’s earnings for the 2000 first quarter were $58.9 million or $.67 per diluted share compared with earnings of $85.5 million or $1.02 per diluted share in the 1999 first quarter. MCN experienced a loss in the 2000 twelve-month period of $57.4 million or $.68 per share compared with a loss of $279.8 million or $3.54 per share in the same 1999 period. As subsequently discussed, the comparability of earnings was affected by the impact of several unusual items, merger costs and an accounting change.

		Quarter						12 Months
		2000			1999			2000			1999
(in Millions)
Net Income (Loss)
Diversified Energy:
	Before unusual items and merger costs	$	(16.1	)	$	2.1		$	(52.7	)	$	(4.2	)
	Unusual items (Note 3)		8.4			2.0			(84.6	)		(366.1	)
	Merger costs (Note 2)		—			—			(5.9	)		—
			(7.7	)		4.1			(143.2	)		(370.3	)
Gas Distribution:
	Before unusual items and merger costs		66.8			84.3			102.8			110.1
	Unusual items (Note 3f)		—			—			—			(16.7	)
	Merger costs (Note 2)		(.2	)		—			(17.0	)		—
			66.6			84.3			85.8			93.4
Total Before Accounting Change:
	Before unusual items and merger costs		50.7			86.4			50.1			105.9
	Unusual items (Note 3)		8.4			2.0			(84.6	)		(382.8	)
	Merger costs (Note 2)		(.2	)		—			(22.9	)		—
			58.9			88.4			(57.4	)		(276.9	)
Cumulative Effect of Accounting Change (Note 5)			—			(2.9	)		—			(2.9	)
		$	58.9		$	85.5		$	(57.4	)	$	(279.8	)
Diluted Earnings (Loss) Per Share
Diversified Energy:
	Before unusual items and merger costs	$	(.16	)	$	.05		$	(.62	)	$	(.05	)
	Unusual items (Note 3)		.09			.02			(1.00	)		(4.63	)
	Merger costs (Note 2)		—			—			(.07	)		—
			(.07	)		.07			(1.69	)		(4.68	)
Gas Distribution:
	Before unusual items and merger costs		.74			.99			1.21			1.39
	Unusual items (Note 3f)		—			—			—			(.21	)
	Merger costs (Note 2)		—			—			(.20	)		—
			.74			.99			1.01			1.18
Total Before Accounting Change:
	Before unusual items and merger costs		.58			1.04			.59			1.34
	Unusual items (Note 3)		.09			.02			(1.00	)		(4.84	)
	Merger costs (Note 2)		—			—			(.27	)		—
			.67			1.06			(.68	)		(3.50	)
Cumulative Effect of Accounting Change (Note 5)			—			(.04	)		—			(.04	)
		$	.67		$	1.02		$	(.68	)	$	(3.54	)

1

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Excluding the unusual items, merger costs and accounting change, MCN’s earnings decreased $35.7 million or $.46 per diluted share in the 2000 first quarter and $55.8 million or $.75 per share in the 2000 twelve-month period, as compared to the corresponding 1999 periods. The earnings comparisons reflect losses within the Diversified Energy group, largely due to Energy Marketing’s operations, and reduced contributions from the Gas Distribution segment primarily resulting from warmer weather.

Strategic direction — MCN’s objective is to achieve competitive long-term returns for its shareholders. In 1999, MCN significantly revised its strategic direction that now includes: focusing on the Midwest-to-Northeast region; emphasizing operational efficiencies and growth through the integration of existing businesses; and reducing capital investment levels to approximately $150 million to $350 million annually.

To achieve the operating efficiencies expected from the new strategic direction, MCN is reorganizing into the following business segments: Gas Distribution; Midstream & Supply; Energy Marketing; Power; and Energy Holdings. MCN expects to begin reporting its operating results based on the new segments in 2000.

Gas Distribution is responsible for MCN’s regulated operations that serve more than 1.2 million customers in Michigan.

Midstream & Supply develops and manages MCN’s gas producing, gathering, processing, storage and transmission facilities within the Midwest-to-Northeast target region. It also integrates all of MCN’s gas-supply functions, including purchasing the commodity itself and aggregating the transportation and storage capacity required to deliver gas to the Gas Distribution, Energy Marketing and Power segments.

Energy Marketing consists of MCN’s non-regulated marketing activities primarily to industrial and commercial customers, both inside and outside the Gas Distribution segment’s service areas. The segment also provides full-service energy solutions to business customers.

Power develops and manages independent electric power projects that produce electricity and other useful forms of thermal energy, such as steam.

Energy Holdings manages and seeks to maximize the value of existing ventures outside MCN’s target region. It consists of gas gathering and processing investments in major U.S. producing basins, as well as non-regional electric power ventures.

Pending merger — MCN and DTE Energy Company (DTE) have signed a definitive merger agreement dated October 4, 1999 under which DTE will acquire all outstanding shares of MCN common stock. The boards of directors and shareholders of both companies have approved the proposed merger. The transaction is subject to regulatory approvals and other customary merger conditions. While it still is possible for the merger to close in mid- to late 2000, discussions continue with the Federal Trade Commission and a final closing date cannot be determined with certainty. MCN recorded legal, accounting, employee benefit and other expenses associated with the merger which had the effect of reducing earnings by $.2 million for the 2000 first quarter and $22.9 million or $.27 per share for the 2000 twelve-month period. MCN will incur additional merger-related costs during 2000.

Unusual items — As discussed in MCN’s 1999 Annual Report on Form 10-K and Note 3 to the Consolidated Financial Statements included herein, MCN recorded several unusual items in the 2000 and 1999 periods, consisting of gains and losses on asset sales, property write-downs,

2

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

investment and contract losses, and restructuring charges. The unusual items increased earnings in the 2000 and 1999 first quarters, and reduced earnings for the 2000 and 1999 twelve-month periods.

		Quarter				12 Months
		2000		1999		2000			1999
(in Millions, except Per Share Amounts)
Unusual Items (Net of Taxes)
Diversified Energy
	Pipelines & Processing (Note 3a)	$	2.2	$	—	$	2.2		$	(89.5	)
	Electric Power (Note 3b)		2.4		—		(.8	)		(1.6	)
	Energy Marketing (Note 3c)		—		—		(1.6	)		—
	Exploration & Production (Note 3d)		3.8		2.0		(84.4	)		(268.2	)
	Corporate & Other (Note 3e)		—		—		—			(6.8	)
			8.4		2.0		(84.6	)		(366.1	)
Gas Distribution (Note 3f)			—		—		—			(16.7	)
		$	8.4	$	2.0	$	(84.6	)	$	(382.8	)
Earnings (Loss) Per Share		$	.09	$	.02	$	(1.00	)	$	(4.84	)

Diversified Energy

Results reflect Energy Marketing losses and asset sales — The Diversified Energy group’s losses were $7.7 million for the 2000 first quarter compared to earnings of $4.1 million for the same 1999 period. Diversified Energy had losses of $143.2 million in the 2000 twelve-month period compared to losses of $370.3 million in the corresponding 1999 period. The comparability of results was impacted by several unusual items and merger costs, as previously discussed. Excluding the unusual items and merger costs, Diversified Energy’s earnings declined by $18.2 million in the current quarter and $48.5 million in the current 2000 twelve-month period. The results for both 2000 periods

3

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

reflect losses of the Energy Marketing segment and reduced earnings attributable to the sale of Exploration & Production (E&P) properties and joint venture interest in power projects.

		Quarter						12 Months
		2000			1999			2000			1999
(in Millions)
Diversified Energy Operations
Operating Revenues*		$	455.8		$	293.5		$	1,487.0		$	1,014.4
Operating Expenses*
	Unusual items (Note 3)		(12.9	)		(3.0	)		122.7			557.1
	Merger costs (Note 2)		—			—			9.1			—
	Other operating expenses		468.8			279.5			1,519.8			1,002.3
			455.9			276.5			1,651.6			1,559.4
Operating Income (Loss)			(.1	)		17.0			(164.6	)		(545.0	)
Equity in Earnings of Joint Ventures			10.2			12.0			48.6			56.8
Other Income & (Deductions)*
	Interest income		—			.5			3.7			2.4
	Interest expense		(13.3	)		(16.8	)		(59.9	)		(61.2	)
	Dividends on preferred securities of subsidiaries		(8.6	)		(10.3	)		(38.4	)		(36.9	)
	Investment losses (Note 3d)		—			—			(7.4	)		(6.1	)
	Other		(.7	)		3.2			3.7			3.3
			(22.6	)		(23.4	)		(98.3	)		(98.5	)
Income (Loss) Before Income Taxes			(12.5	)		5.6			(214.3	)		(586.7	)
Income Tax Provision (Benefit)			(4.8	)		1.5			(71.1	)		(216.4	)
Net Income (Loss)
	Before unusual items		(16.1	)		2.1			(52.7	)		(4.2	)
	Unusual items and merger costs (Notes 2 and 3)		8.4			2.0			(90.5	)		(366.1	)
		$	(7.7	)	$	4.1		$	(143.2	)	$	(370.3	)

*  Includes intercompany transactions

Operating and Joint Venture Income

Operating and joint venture results, excluding unusual items, for the 2000 first quarter decreased $28.8 million and for the 2000 twelve-month period declined by $53.1 million. Results for both 2000 periods reflect reduced contributions from the Electric Power, Energy Marketing and E&P

4

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

segments, as well as higher Corporate & Other expenses. Additionally, the 2000 periods were impacted by an increase in Pipelines & Processing earnings.

		Quarter					12 Months
		2000			1999		2000			1999
(in Millions)
Operating and Joint Venture Income (Loss)
Before Unusual Items:
	Pipelines & Processing	$	5.8		$	4.9	$	20.1		$	16.9
	Electric Power		1.8			7.5		17.2			27.9
	Energy Marketing		(11.9	)		5.2		(28.5	)		1.0
	Exploration & Production		2.7			8.1		9.3			28.4
	Corporate & Other		(1.2	)		.3		(2.3	)		(5.3	)
			(2.8	)		26.0		15.8			68.9
Unusual Items and Merger Costs (Notes 2 & 3)			12.9			3.0		(131.8	)		(557.1	)
		$	10.1		$	29.0	$	(116.0	)	$	(488.2	)

Pipelines & Processing operating and joint venture results, excluding unusual items, increased by $.9 million and $3.2 million for the 2000 first quarter and twelve-month period, respectively. The 2000 periods reflect increased earnings from MCN’s 25%-owned methanol production business resulting from higher methanol prices and margins as well as an increase in methanol volumes produced. Pipelines & Processing’s average methanol sales prices increased 24% for the 2000 first quarter and 11% for the 2000 twelve-month period. Methanol production rose 9.0 and 13.4 million gallons for the current quarter and twelve-month period, respectively, primarily due to the shut-down of the methanol plant for scheduled maintenance in March 1999. Additionally, Pipelines & Processing results for the 1999 twelve-month period were impacted by operating losses related to the start-up of its coal fines plants.

Pipelines & Processing operating and joint venture income also reflects contributions from new and expanded gas pipeline, gathering and processing ventures. Gas processed to remove natural gas liquids (NGLs) increased 8.6 Bcf and 38.0 Bcf in the 2000 first quarter and twelve-month period, respectively. In addition to higher volumes associated with new ventures, the increase was attributable to natural gas producers bypassing processing plants in the 1999 periods as a result of weaker NGL prices and associated processing margins. NGL prices have strengthened in the 2000 periods.

			Quarter				12 Months
			2000		1999		2000		1999
Pipelines & Processing Statistics*
	Methanol Produced (Million Gallons)			17.1		8.1		66.4		53.0
	Transportation (Bcf)			41.3		48.1		201.8		181.7
	Gas Processed (Bcf):
		Carbon dioxide treatment		12.8		12.8		51.8		49.4
		Natural gas liquids removal		17.5		8.9		81.6		43.6
				30.3		21.7		133.4		93.0

*  Includes MCN’s share of joint ventures

Electric Power operating and joint venture results, excluding unusual items, decreased $5.7 million and $10.7 million for the 2000 first quarter and twelve-month period, respectively. The decline in

5

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

earnings for both periods reflects the January 2000 sale of MCN’s 23% interest in the 1,370 megawatt (MW) Midland Cogeneration Venture facility (Note 4b). Also contributing to the decrease in the 2000 twelve-month period was the sale of MCN’s interest in certain international power investments, specifically its interest in the Torrent Power Limited (TPL) venture. MCN had a 40% interest in TPL, an Indian joint venture that holds minority interests in electric distribution companies and power generation facilities in the state of Gujarat, India.

		Quarter				12 Months
		2000		1999		2000		1999
(Thousands of MWh)*
Electric Power
	Electricity Sales — Domestic		185.2		700.8		2,240.2		2,594.5
	Electricity Sales — International		—		—		—		1,049.5
			185.2		700.8		2,240.2		3,644.0

*  Includes MCN’s share of joint ventures

Energy Marketing operating and joint venture results, excluding unusual items, decreased $17.1 million for the 2000 first quarter and $29.5 million for the 2000 twelve-month period. The declines are due primarily to lower margins resulting from an increase in the cost of gas sold per thousand cubic feet (Mcf). Cost of gas sold includes the effect of the expected future cost of replacing gas withdrawn from storage inventory. The expected future cost of such gas is based on current forward-prices. As a result of rising gas prices, the estimated average purchase rate for 2000 rose significantly during the first quarter. Additionally, the impact of anticipated higher average gas prices during 2000 was magnified as a result of Energy Marketing temporarily withdrawing 8.5 Bcf more of gas from storage in the 2000 first quarter compared to the 1999 first quarter. In the 1999 first quarter, Energy Marketing met its sales commitments with spot market gas purchases, rather than storage volumes, at prices significantly lower than the estimated average purchase rate for 1999.

The decline in Energy Marketing operating and joint venture results for both 2000 periods is also attributable to higher costs associated with long-term transportation contracts. Additionally, the 2000 twelve-month period reflects higher storage costs, uncollectible expenses and costs associated with the June 1999 dissolution of the DTE-CoEnergy joint venture. Storage capacity, coupled with firm transportation capacity on interstate pipelines, enhances Energy Marketing’s ability to offer reliable gas supply during peak winter months.

Partially offsetting the decline in results for both 2000 periods were higher gas sales and exchange gas delivery volumes, which increased 45.8 Bcf in the current quarter and 155.8 Bcf in the current twelve-month period. These increases were due in part to the April 1999 acquisitions of two companies’ marketing operations that serve large commercial and industrial customers in the Midwest.

Energy Marketing’s future gas sales volumes will be impacted as a result of its exit from two marketing joint ventures during 2000. However, operating results are not expected to be significantly affected. Additionally, the higher 2000 gas prices previously discussed may result in liquidity concerns for natural gas brokers and marketers, including some of Energy Marketing’s customers.

6

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Energy Marketing has experienced delays in the receipt of cash from gas sales, resulting in higher accounts receivable balances.

		Quarter				12 Months
		2000		1999		2000		1999
(Bcf)*
Energy Marketing
	Gas Sales		174.5		138.1		622.1		477.5
	Exchange Gas Deliveries		14.9		5.5		21.3		10.1
			189.4		143.6		643.4		487.6

*  Includes MCN’s share of joint ventures

Exploration & Production operating and joint venture income, excluding unusual items, decreased $5.4 million in the 2000 first quarter and $19.1 million in the 2000 twelve-month period. The decline reflects a reduction in overall gas and oil production of 15.9 Bcf equivalent in the current quarter and 41.7 Bcf equivalent in the current twelve-month period. The lower production levels are due primarily to the sale of MCN’s Western and Midcontinent/ Gulf Coast E&P properties in early and mid-1999, as well as the sale of its Appalachian properties in December 1999.

E&P results for 2000 were also impacted by an increase in production-related expenses and an increase in the overall average gas and oil sales prices. The increased production expenses reflect the higher costs of operating the E&P properties retained in Michigan. The increased average sales prices are due to higher industry prices for both natural gas and oil. The impact of higher natural gas and oil sales prices on E&P operating and joint venture income was mitigated by hedging with swap and futures agreements, as discussed in the “Risk Management Strategy” section that follows.

		Quarter				12 Months
		2000		1999		2000		1999
Exploration & Production Statistics
Gas and Oil Production (Bcf equivalent):
	Michigan		6.2		6.9		26.6		29.2
	Western, Midcontinent/ Gulf Coast and Appalachia		.4		15.6		26.4		65.5
			6.6		22.5		53.0		94.7
Production Costs (per Mcf equivalent)		$	1.03	$	.80	$	1.02	$	.80
Average Selling Price (per Mcf equivalent)*		$	2.68	$	2.20	$	2.29	$	2.11

*  The average selling prices have been adjusted for amounts received or paid under hedging contracts

Risk management strategy — MCN manages commodity price risk primarily by utilizing futures, options and swap contracts to more fully balance its portfolio of gas and oil supply and sales agreements. MCN’s Energy Marketing business coordinates all of MCN’s hedging activities to ensure compliance with risk management policies that are periodically reviewed by MCN’s Board of Directors. Certain hedging gains or losses related to gas and oil production are recorded by MCN’s E&P operations. Gains and losses on gas and oil production-related hedging transactions that are not recorded by MCN’s E&P segment are recorded by Energy Marketing.

Corporate & Other operating and joint venture results, excluding unusual items, declined $1.5 million for the 2000 first quarter and improved $3.0 million for the 2000 twelve-month period. The current quarter decline primarily reflects adjustments recorded in the 1999 periods that reduced

7

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

or eliminated accruals for employee incentive awards that are based on MCN’s operating or stock-price performance. The current twelve-month period results is attributable to a decrease in the proportion of administrative expenses associated with corporate management activities charged to Diversified Energy reflecting its declining percentage of MCN’s business.

Other Income and Deductions

Other income and deductions decreased $.8 million in the 2000 first quarter and $.2 million in the 2000 twelve-month period. The results reflect variations in interest expense and preferred dividend costs, as well as in interest income.

Income Taxes

The variations in income taxes for both 2000 periods reflect fluctuations in pre-tax results. Income tax comparisons were also affected by tax credits and stock-related tax benefits recorded in the 1999 periods, as well as taxes recorded in 1999 from the generation of approximately $3.6 million of undistributed foreign income in 1998.

Outlook

MCN’s new strategic direction emphasizes achieving operational efficiencies and growth through integration of existing businesses. MCN will continue pursuing new pipeline, electric power and energy marketing ventures, with an emphasis on operating projects that enhance MCN businesses within the Midwest-to-Northeast corridor.

Gas Distribution

Results reflect warmer weather and reduced contributions from gas sales program — Gas Distribution’s earnings were $66.6 million for the 2000 first quarter, a decrease of $17.7 million from the comparable 1999 period of $84.3 million. Earnings for the 2000 twelve-month period were $85.8 million, a decrease of $7.6 million from earnings for the 1999 twelve-month period of $93.4 million. The twelve-month comparison was impacted by merger costs and unusual items, as previously discussed. Excluding the merger costs and unusual items, earnings for the 2000 twelve-month period decreased $7.3 million over the corresponding 1999 period. The earnings decline for the 2000 first quarter reflects the impact of warmer weather and reduced contributions from the gas

8

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

sales program. The decrease in earnings for the 2000 twelve-month period reflects warmer weather and higher financing costs, partially offset by increased contributions from the gas sales program.

		Quarter						12 Months
		2000			1999			2000			1999
(in Millions)
Gas Distribution Operations
Operating Revenues*
	Gas sales	$	378.7		$	443.0		$	860.3		$	909.0
	End user transportation		38.9			26.9			115.9			84.1
	Intermediate transportation		14.5			14.7			57.6			60.0
	Other		21.6			25.1			80.8			73.0
			453.7			509.7			1,114.6			1,126.1
Cost of Sales			224.2			255.7			475.8			497.1
Gross Margin			229.5			254.0			638.8			629.0
Other Operating Expenses*
	Operation and maintenance		66.6			70.5			274.5			264.0
	Depreciation, depletion and amortization		26.4			24.9			101.6			96.0
	Property and other taxes		19.2			18.6			46.5			57.1
	Unusual items (Note 3f)		—			—			—			33.3
	Merger costs (Note 2)		.4			—			26.2			—
			112.6			114.0			448.8			450.4
Operating Income			116.9			140.0			190.0			178.6
Equity in Earnings of Joint Ventures			.6			.4			2.2			.9
Other Income and (Deductions)*
	Interest income		.6			1.0			1.9			5.7
	Interest expense		(15.5	)		(13.8	)		(58.2	)		(55.9	)
	Minority interest		(.1	)		(.3	)		(.8	)		6.1
	Other		.3			.4			(1.5	)		.2
			(14.7	)		(12.7	)		(58.6	)		(43.9	)
Income Before Income Taxes			102.8			127.7			133.6			135.6
Income Taxes			36.2			43.4			47.8			42.2
Net Income
	Before unusual items and merger costs		66.8			84.3			102.8			110.1
	Unusual items and merger costs (Notes 2 and 3f)		(.2	)		—			(17.0	)		(16.7	)
		$	66.6		$	84.3		$	85.8		$	93.4

*  Includes intercompany transactions

Gross Margin

Gross margin (operating revenues less cost of gas) decreased $24.5 million in the 2000 first quarter and increased $9.8 million in the 2000 twelve-month period. Gross margins for the 2000 quarter reflect lower gas sales due to weather, which was 9.9% warmer in the current quarter compared to the same 1999 period. Additionally, the decline in the 2000 first quarter is due to lower margins generated under MichCon’s three-year gas sales program that began in January 1999 (Note 6a). Under the gas sales program, MichCon’s gas sales rates include a gas commodity component that is fixed at $2.95 per Mcf. As part of its gas acquisition strategy, MichCon entered into fixed-price contracts at costs below $2.95 per Mcf for a substantial portion of its expected gas supply requirements through 2001. However, gas sales margins in the 2000 first quarter were lower than the

9

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

same 1999 period as a result of higher fixed-price supplies and the loss of approximately 70,000 customers who chose to purchase their gas from other suppliers under MichCon’s customer choice program that began in April 1999. Although MichCon has lost gas sales margins from these customers, distribution margins are retained as MichCon continues to transport and deliver the gas to the customers’ premises. MichCon’s fixed-price supplies for the remainder of 2000 as well as 2001 are at prices higher than those paid in 1999. Accordingly, margins in future periods are expected to be lower than those generated in 1999.

The increase in gross margins for the 2000 twelve-month period reflects higher margins generated under the gas sales program. As a result of the gas sales program beginning in January 1999, the 2000 twelve-month period includes a full year’s contribution, whereas the 1999 twelve-month period includes only three months of contributions. Gross margins for both the 2000 first quarter and the twelve-month period were also impacted by a decline in intermediate transportation revenues and revenues from other gas-related services.

			Quarter						12 Months
			2000			1999			2000			1999
Effect of Weather on Gas Markets and Earnings
	Percent Colder (Warmer) Than Normal			(14.2	)%		(4.3	)%		(13.9	)%		(12.0	)%
	Increase (Decrease) From Normal in:
		Gas markets (Bcf)		(16.1	)		(5.1	)		(29.7	)		(26.2	)
		Net income (in Millions)	$	(15.0	)	$	(5.1	)	$	(28.5	)	$	(23.7	)
		Diluted earnings per share	$	(.16	)	$	(.06	)	$	(.34	)	$	(.30	)

Gas sales and end user transportation revenues in total decreased $52.3 million for the 2000 first quarter and $16.9 million for the 2000 twelve-month period. Revenues reflect a decline in gas sales volumes, partially offset by higher end user transportation deliveries. Gas sales volumes decreased 14.4 billion cubic feet (Bcf) in the 2000 first quarter and 17.3 Bcf in the 2000 twelve-month period due primarily to the warmer weather and customers who chose to purchase their gas from other suppliers under MichCon’s customer choice program. End user transportation deliveries increased 9.2 Bcf in the 2000 first quarter and 20.8 Bcf in the 2000 twelve-month period. The improvement includes volumes associated with customers participating in the customer choice program who are reflected as end user transportation customers rather than gas sales customers. Accordingly, gas sales revenues have decreased, partially offset by an increase in end user transportation revenues, resulting in a net decrease in total operating revenues due to the gas commodity component included in gas sales rates. Partially offsetting the increase in end user transportation volumes attributable to the customer choice program was the impact of warmer weather.

The revenue comparison for the twelve-month period was also impacted by the cost of the gas commodity component of gas sales rates. As previously discussed, this gas commodity component was fixed under MichCon’s gas sales program at $2.95 per Mcf beginning in January 1999. Prior to 1999, MichCon’s sales rates were set to recover all of its reasonably and prudently incurred gas

10

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

costs. The gas commodity component of MichCon’s sales increased $.27 per Mcf (10%) for the 2000 twelve-month period.

		Quarter				12 Months
		2000		1999		2000		1999
(Bcf)
Gas Distribution
	Gas Sales		78.2		92.6		167.4		184.7
	End User Transportation		51.7		42.5		161.2		140.4
			129.9		135.1		328.6		325.1
	Intermediate Transportation*		182.8		127.4		587.4		516.5
			312.7		262.5		916.0		841.6

*  Includes intercompany volumes

Intermediate transportation revenues decreased $.2 million in the 2000 first quarter and $2.4 million in the 2000 twelve-month period, whereas intermediate transportation deliveries increased 55.4 Bcf and 70.9 Bcf, respectively. A significant portion of the volume increase was for 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. The decrease in intermediate transportation revenues is due to non-fixed fee customers shifting volumes from a higher rate to a lower rate transportation route.

Other operating revenues decreased $3.5 million in the 2000 first quarter and increased $7.8 million in the 2000 twelve-month period. The current quarter reflects a decline in storage revenues, partially offset by an increase in late payment fees and revenues from providing appliance maintenance services. The increase in the current twelve-month period is attributable to revenues from the acquisition of three heating and cooling firms in October 1998, as well as higher late payment fees and appliance maintenance revenues.

Cost of Sales

Cost of sales is affected by variations in sales volumes and cost of purchased gas as well as related transportation costs. Under the Gas Cost Recovery (GCR) mechanism that was in effect through December 1998, MichCon’s sales rates were set to recover all of its reasonably and prudently incurred gas costs. Therefore, fluctuations in cost of gas sold had little effect on gross margins. Under MichCon’s gas sales program, the gas commodity component of its sales rates is fixed. Accordingly, beginning in January 1999, changes in cost of gas sold directly impact gross margins and earnings.

Cost of sales decreased $31.5 million in the 2000 first quarter and $21.3 million in the 2000 twelve-month period, primarily due to a decline in gas sales volumes. As previously discussed, the decrease in sales volumes reflects the warmer weather and customers who have chosen to purchase gas from other suppliers under MichCon’s customer choice program. Partially offsetting the impact of lower sales volumes was an increase in the price paid for gas purchased of $.11 per Mcf (4%) in the 2000 first quarter and $.10 per Mcf (4%) in the 2000 twelve-month period. Additionally, the comparison was impacted by the cost of sales associated with the operations of the three heating and cooling companies acquired in October 1998.

11

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Other Operating Expenses

Operation and maintenance expenses decreased $3.9 million in the 2000 first quarter and increased $10.5 million in the 2000 twelve-month period. The decrease in the current quarter is attributable to lower employee benefit costs, primarily pension and retiree healthcare costs, and the receipt of insurance proceeds resulting from the settlement of environmental claims with certain insurance carriers. As discussed in MCN’s 1999 Annual Report on Form 10-K, the settlement has allowed MichCon to recover previously incurred costs and resolved the carriers’ liability for future costs of environmental investigation and remediation costs at former manufactured gas plant sites.

The increase in operation and maintenance expenses in the 2000 twelve-month period is due to additional computer system support costs associated with MichCon’s new customer information system and higher injuries and damages costs. Additionally, the increase reflects higher incentive payments to MichCon employees. The higher costs of these items more than offset the benefits from lower pension and retiree healthcare costs and environmental insurance proceeds.

Depreciation and depletion increased $1.5 million in the 2000 first quarter and $5.6 million in the 2000 twelve-month period reflecting depreciation on higher plant balances.

Property and other taxes increased $.6 million in the 2000 first quarter and decreased $10.6 million in the 2000 twelve-month period. The current twelve-month period reflects a change in the calculation of the value of personal property subject to taxation by local governments (Note 12a).

Unusual items of $33.3 million in the 1999 twelve-month period reflects a $24.8 million impairment of certain gas gathering properties in northern Michigan as well as an $8.5 million write-down of an investment in a small Missouri natural-gas distribution company (Note 3f).

Merger costs of $26.2 million in the 2000 twelve-month period include legal, consulting, accounting, employee benefit and other expenses associated with the pending merger between MCN and DTE Energy Company (Note 2).

Equity in Earnings of Joint Ventures

Equity in earnings of joint ventures increased $1.3 million in the 2000 twelve-month period due to reduced losses from Gas Distribution’s 47.5% interest in a Missouri gas distribution company.

Other Income and Deductions

Other income and deductions increased $2.0 million in the 2000 first quarter and $14.7 million in the 2000 twelve-month period. Both 2000 periods were impacted by higher interest costs primarily due to an increase in long-term debt outstanding as well as a decline in interest capitalized relating to construction activities. Additionally, the other income and deductions increase in the 2000 twelve-month period is attributable to lower interest income resulting from the repayment of funds loaned to MCN. The other income and deductions comparison for the twelve-month period was affected by a change in minority interest due to the joint venture partners’ share of the write-down of certain gas gathering properties (Note 3f).

Income Taxes

Income taxes for both 2000 periods were impacted by a decrease in pre-tax earnings. Income tax comparisons were also affected by the favorable resolution of prior years’ tax issues in the 1999 periods.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Outlook

Gas Distribution’s strategy is to expand its role as the preferred provider of natural gas and high-value energy services within Michigan. Accordingly, Gas Distribution’s objectives are to increase revenues and control costs in order to deliver strong shareholder returns and provide customers with high-quality service at competitive prices.

MichCon has begun and plans to continue capitalizing on opportunities resulting from the gas industry restructuring. MichCon is currently operating under its Regulatory Reform Plan, which includes a comprehensive experimental three-year customer choice program that is designed to offer all sales customers added choices and greater price certainty. Year two of the customer choice program began April 1, 2000, and approximately 55,000 customers have chosen to purchase natural gas from suppliers other than MichCon. There are approximately 15,000 fewer customers participating in year two of the plan than in year one.

As discussed in MCN’s 1999 Annual Report on Form 10-K, the Regulatory Reform Plan also suspended the GCR mechanism for customers who continue to purchase gas from MichCon, and fixed the gas commodity component of MichCon’s sales rates at $2.95 per Mcf. The suspension of the GCR mechanism allows MichCon to profit from its ability to purchase gas at less than $2.95 per Mcf. As part of its gas acquisition strategy, MichCon entered into fixed-price contracts at costs below $2.95 per Mcf for a substantial portion of its expected gas supply requirements through 2001. However, margins are expected to be lower in future periods as MichCon’s fixed-price supplies in 2000 and 2001 are at prices higher than those paid in 1999.

The plan increases MichCon’s risk associated with generating margins that cover its gas costs. The level of margins generated from selling gas will also be affected by differences between actual gas sales volumes and the volume of fixed-price gas supplies. Actual gas sales volumes will fluctuate as a result of changes in weather and the number of customers who ultimately choose to purchase gas from suppliers other than MichCon.

Change in Accounting for Start-up Costs

In the 1999 first quarter, MCN adopted Statement of Position (SOP) 98-5, “Reporting on the Costs of Start-up Activities,” issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. SOP 98-5 requires start-up and organizational costs to be expensed as incurred. This change in accounting principle resulted in the write-off of start-up and organization costs capitalized as of December 31, 1998. The cumulative effect of the change was to decrease earnings by $2.9 million for the 1999 first quarter and twelve-month period.

CAPITAL RESOURCES AND LIQUIDITY

		Quarter
		2000			1999
(in Millions)
Cash and Cash Equivalents
Cash Flow Provided From (Used For):
	Operating activities	$	245.4		$	202.9
	Financing activities		(521.3	)		(100.2	)
	Investing activities		240.5			(84.9	)
Net Decrease in Cash and Cash Equivalents		$	(35.4	)	$	17.8

13

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Operating Activities

MCN’s cash flow from operating activities increased $42.5 million during the 2000 first quarter as compared to the same 1999 period. The increase was due primarily to lower working capital requirements, partially offset by lower earnings, after adjusting for non-cash items (depreciation, change in accounting and deferred taxes).

Financing Activities

MCN’s cash flow used for financing activities increased $421.1 million during the 2000 first quarter. The change primarily reflects greater debt repayments in the 2000 first quarter, compared to the same 1999 period, due to proceeds from the sale of assets. A summary of MCN’s significant financing activities and financing plans follows.

MCN’s FELINE PRIDES securities mature on May 16, 2000. Each security initially represents a stock purchase contract and a preferred security. Under each stock purchase contract, MCN is obligated to sell, and the FELINE PRIDES holder is obligated to purchase between 1.4132 and 1.7241 shares of MCN common stock for $50. The exact number of MCN common shares to be sold is dependent on the market value of a share for the twenty days ending on May 12, 2000 and is expected to approximate 4,560,000 shares. Each FELINE PRIDES holder has the option to use the preferred securities, treasury securities or cash to satisfy the $50 purchase commitment. Accordingly, MCN cannot predict the amount of cash, if any, it will received upon issuing MCN common stock on May 16, 2000.

Diversified Energy

The Diversified Energy group maintains credit lines that allow for borrowings of up to $200 million under a 364-day revolving credit facility and up to $200 million under a three-year revolving credit facility. These facilities support Diversified Energy’s commercial paper program, which is used to finance capital investments and to finance Energy Marketing’s working capital requirements. The 364-day facility expires in July 2000, and the three-year facility expires in July 2001. During the first three months of 2000, Diversified Energy’s commercial paper and bank borrowings outstanding decreased by $100.5 million, leaving borrowings of $251.9 million outstanding under this program at March 31, 2000.

MCN received approximately $295.5 million during the 2000 first quarter from the sale of assets and joint venture interests which was used to repay outstanding debt. Proceeds from additional sales are expected in 2000 and will be used to repay outstanding borrowings and for general corporate purposes.

Gas Distribution

Gas Distribution maintains a relatively consistent amount of cash and cash equivalents through the use of short-term borrowings. Short-term borrowings are normally reduced in the first part of each year as gas inventories are depleted and funds are received from winter heating sales. During the latter part of the year, Gas Distribution’s short-term borrowings normally increase as funds are used to finance increases in gas inventories and customer accounts receivable. To meet its seasonal short-term borrowing needs, Gas Distribution normally issues commercial paper that is backed by credit lines with several banks. MichCon has established credit lines to allow for borrowings of up to $150 million under a 364-day revolving credit facility, and up to $150 million under a three-year revolving credit facility. The 364-day facility expires in July 2000, and the three-year facility expires

14

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

in July 2001. During the first three months of 2000, MichCon repaid $158.4 million of commercial paper, leaving borrowings of $78.2 million outstanding under this program at March 31, 2000.

In March 2000, MichCon repaid $12.3 million of term debt of a non-utility subsidiary that was scheduled to mature in 2006. Additionally, MichCon repaid $20 million of first mortgage bonds that matured in May 2000.

Investing Activities

MCN’s cash flow relating to investing activities changed $325.4 million in the 2000 first quarter as compared to the same 1999 period. The change was due primarily to proceeds from the sale of assets and joint venture interests and lower capital investments.

Capital investments equaled $54.5 million in the 2000 first quarter compared to $132.9 million for the same period in 1999. The 2000 investments include significantly lower levels of investments within the Diversified Energy Group.

		Quarter
		2000		1999
(in Millions)
Capital Investments
Consolidated Capital Expenditures:
	Electric Power	$	—	$	16.5
	Exploration & Production		1.6		39.2
	Gas Distribution		21.3		24.4
	Other		.8		1.2
			23.7		81.3
MCN’s Share of Joint Venture Capital Expenditures:*
	Pipelines & Processing		18.4		39.8
	Electric Power		12.4		11.8
			30.8		51.6
Total Capital Investments		$	54.5	$	132.9

*  A portion of joint venture capital expenditures is financed with joint venture debt

Outlook

2000 capital investments to $325 million — MCN’s revised strategic direction will result in capital investments in future years of approximately $150 million to $350 million annually — significantly lower than in the past several years.

The proposed level of investments in future years is expected to be financed with internally generated funds, including proceeds received from the sale of non-strategic assets. MCN’s actual capital requirements will depend on proceeds received from the sale of assets. It is management’s opinion that MCN and its subsidiaries will have sufficient capital resources, both internal and external, to meet anticipated capital requirements.

MARKET RISK INFORMATION

As discussed in MCN’s 1999 Annual Report on Form 10-K, MCN manages commodity price and interest rate risk through the use of various derivative instruments and limits the use of such instruments to hedging activities. A discussion and analysis of the events and factors that have changed MCN’s risk management activities follows.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

Commodity Price Risk

Natural gas and oil futures, options and swap agreements are used to manage Diversified Energy’s exposure to the risk of market price fluctuations on gas sale and purchase contracts, gas and oil production and gas inventories. There has been a significant increase in gas and oil prices since December 1999. As a result of the increases, there have been material changes in the outcome of the sensitivity analysis performed for commodity price risk at March 31, 2000 as compared to December 31, 1999.

As discussed in MCN’s 1999 Annual Report on Form 10-K, a sensitivity analysis calculates the fair values of MCN’s natural gas and oil futures and swap agreements given a hypothetical 10% increase or decrease in commodity prices utilizing applicable forward commodity rates in effect at the end of the reporting period.

The results of the sensitivity analysis calculations follow:

	March 31, 2000						December 31, 1999
	Assuming			Assuming			Assuming			Assuming
	a 10%			a 10%			a 10%			a 10%
	Increase in			Decrease in			Increase in			Decrease in
	Commodity			Commodity			Commodity			Commodity
	Prices			Prices			Prices			Prices
(in Millions)
Commodity Price Sensitive:*
Swaps: Pay fixed/receive variable	$	92.1		$	(92.1	)	$	89.8		$	(89.8	)
Pay variable/receive fixed	$	(84.1	)	$	84.1		$	(81.1	)	$	81.1
Futures: Longs	$	2.9		$	(2.9	)	$	5.0		$	(5.0	)
Shorts	$	(2.7	)	$	2.7		$	(2.1	)	$	2.1

*  Includes only the risk related to the derivative instruments that serve as hedges and does not include the related underlying hedged item

Interest Rate Risk

MCN is subject to interest rate risk in connection with the issuance of variable- and fixed-rate debt and preferred securities. In order to manage interest costs, MCN uses interest rate swap agreements to exchange fixed- and variable-rate interest payment obligations over the life of the agreements without exchange of the underlying principal amounts. During the 1999 first quarter, there have not been any events or factors that have caused any material changes to MCN’s interest rate risk.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133.” SFAS No. 137 changes the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.

SFAS No. 133 requires all derivatives to be recognized in the balance sheet as either assets or liabilities measured at their fair value, and sets forth conditions in which a derivative instrument may be designated as a hedge. The Statement requires that changes in the fair value of derivatives be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to be recorded to other comprehensive income or to offset related results on the hedged item in earnings.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS (Concluded)

MCN manages commodity price risk and interest rate risk through the use of various derivative instruments and predominantly limits the use of such instruments to hedging activities. The effects of SFAS No. 133 on MCN’s financial statements are subject to fluctuations in the market value of hedging contracts which are, in turn, affected by variations in gas and oil prices and in interest rates. Accordingly, management cannot quantify the effects of adopting SFAS No. 133 at this time.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties as set forth in MCN’s 1999 Annual Report on Form 10-K.

AVAILABLE INFORMATION

The following information is available without charge to shareholders and other interested parties: the Form 10-K Annual Report and the Form 10-Q Quarterly Reports. To request these publications, shareholders and other interested parties are instructed to contact: MCN Investor Relations, 500 Griswold Street, Detroit, Michigan 48226, (800) 548-4655. Information is also available on MCN’s website at http://www.mcnenergy.com.

17

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

		March 31				December 31
		2000		1999		1999
(in Thousands)
ASSETS
Current Assets
	Cash and cash equivalents, at cost (which approximates market value)	$	23,996	$	34,833	$	59,366
	Accounts receivable, less allowance for doubtful accounts of $21,339, $13,411 and $20,720, respectively		491,534		431,783		546,689
	Accrued unbilled revenues		68,710		77,335		100,439
	Gas in inventory (Note 7)		52,295		90,122		180,372
	Property taxes assessed applicable to future periods		51,018		63,064		62,651
	Deferred income taxes		44,485		—		32,508
	Other		51,344		50,062		51,313
			783,382		747,199		1,033,338
Deferred Charges and Other Assets
	Deferred income taxes		—		29,054		14,765
	Investments in debt and equity securities		96,754		68,920		72,077
	Deferred swap losses and receivables (Note 11)		48,360		48,510		43,907
	Deferred environmental costs		28,602		31,056		31,173
	Prepaid benefit costs		170,600		122,061		156,276
	Other		95,743		107,511		108,288
			440,059		407,112		426,486
Investments in and Advances to Joint Ventures
	Pipelines & Processing		527,236		543,709		575,684
	Electric Power		45,986		242,491		145,684
	Energy Marketing		22,077		29,888		21,512
	Gas Distribution		2,844		1,628		2,898
	Other		18,061		18,632		18,194
			616,204		836,348		763,972
Property, Plant and Equipment
	Pipelines & Processing		46,325		45,771		46,480
	Exploration & Production (Note 3d)		569,448		1,051,512		573,514
	Gas Distribution		3,032,993		2,938,831		3,016,231
	Other		76,243		49,446		76,245
			3,725,009		4,085,560		3,712,470
	Less — Accumulated depreciation and depletion		1,727,727		1,688,538		1,697,212
			1,997,282		2,397,022		2,015,258
		$	3,836,927	$	4,387,681	$	4,239,054

The notes to the consolidated financial statements are an integral part of this statement

18

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

		March 31						December 31
		2000			1999			1999
(in Thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable	$	299,645		$	258,366		$	296,139
	Notes payable		169,016			534,639			617,755
	Current portion of long-term debt and capital lease obligations		86,250			188,427			28,102
	Gas inventory equalization (Note 7)		90,511			79,559			—
	Federal income, property and other taxes payable		45,659			89,734			68,500
	Gas payable		7,745			37,515			24,858
	Customer deposits		16,960			17,476			17,707
	Other		124,064			98,450			146,949
			839,850			1,304,166			1,200,010
Deferred Credits and Other Liabilities
	Deferred income taxes		22,465			—			—
	Unamortized investment tax credits		27,537			29,569			28,022
	Tax benefits amortizable to customers		135,616			129,494			136,236
	Deferred swap gains and payables (Note 11)		65,874			51,605			64,962
	Accrued environmental costs		27,711			34,888			28,068
	Minority interest		7,116			10,405			11,096
	Other		103,413			77,623			91,613
			389,732			333,584			359,997
Long-Term Debt, including capital lease obligations			1,347,195			1,392,850			1,457,617
MCN-Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding Solely Debentures of MCN			402,994			502,157			402,922
Commitments and Contingencies (Note 10)
Common Shareholders’ Equity
	Common stock		857			798			857
	Additional paid-in capital		961,591			830,450			960,176
	Retained earnings (deficit)		(82,858	)		62,775			(120,081	)
	Accumulated other comprehensive loss (Note 9)		(146	)		(16,811	)		(156	)
	Yield enhancement, contract and issuance costs		(22,288	)		(22,288	)		(22,288	)
			857,156			854,924			818,508
		$	3,836,927		$	4,387,681		$	4,239,054

The notes to the consolidated financial statements are an integral part of this statement

19

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

		Three Months Ended						Twelve Months Ended
		March 31						March 31
		2000			1999			2000			1999
(in Thousands, Except Per Share Amounts)
Operating Revenues		$	903,491		$	796,586		$	2,587,973		$	2,125,824
Operating Expenses
	Cost of sales		652,069			473,885			1,793,176			1,255,363
	Operation and maintenance		91,392			101,950			400,663			396,491
	Depreciation, depletion and amortization		34,219			45,175			153,682			179,876
	Property and other taxes		21,593			21,658			57,132			70,336
	Property write-downs, contract losses and restructuring charges (Note 3)		—			—			61,782			600,818
	Gains and losses on sale of assets, net (Note 3)		(12,874	)		(3,005	)		60,956			(10,403	)
	Merger costs (Note 2)		362			—			35,218			—
			786,761			639,663			2,562,609			2,492,481
Operating Income (Loss)			116,730			156,923			25,364			(366,657	)
Equity in Earnings of Joint Ventures			10,779			12,458			50,707			57,922
Other Income and (Deductions)
	Interest income		2,748			1,496			7,827			8,041
	Interest on long-term debt		(23,509	)		(21,902	)		(91,038	)		(90,719	)
	Other interest expense		(7,354	)		(8,635	)		(29,061	)		(26,198	)
	Dividends on preferred securities of subsidiaries		(8,622	)		(10,335	)		(38,426	)		(36,951	)
	Investment losses (Note 3d)		—			—			(7,456	)		(6,135	)
	Minority interest (Note 3f)		(485	)		(319	)		(1,778	)		6,283
	Other		6			3,650			3,139			3,124
			(37,216	)		(36,045	)		(156,793	)		(142,555	)
Income (Loss) Before Income Taxes			90,293			133,336			(80,722	)		(451,290	)
Income Tax Provision (Benefit)			31,351			44,921			(23,273	)		(174,355	)
Income (Loss) Before Cumulative Effect of Accounting Change			58,942			88,415			(57,449	)		(276,935	)
Cumulative Effect of Accounting Change, Net of Taxes (Note 5)			—			(2,872	)		—			(2,872	)
Net Income (Loss)		$	58,942		$	85,543		$	(57,449	)	$	(279,807	)
Basic Earnings (Loss) Per Share (Note 8)
	Before cumulative effect of accounting change	$	.69		$	1.11		$	(.68	)	$	(3.50	)
	Cumulative effect of accounting change (Note 5)		—			(.04	)		—			(.04	)
		$	.69		$	1.07		$	(.68	)	$	(3.54	)
Diluted Earnings (Loss) Per Share (Note 8)
	Before cumulative effect of accounting change	$	.67		$	1.06		$	(.68	)	$	(3.50	)
	Cumulative effect of accounting change (Note 5)		—			(.04	)		—			(.04	)
		$	.67		$	1.02		$	(.68	)	$	(3.54	)
Average Common Shares Outstanding
	Basic		85,506			79,413			84,911			79,081
	Diluted		90,948			85,064			84,911			79,081
Dividends Declared Per Share		$	.2550		$	.2550		$	1.0200		$	1.0200

CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT) (Unaudited)

	Three Months Ended						Twelve Months Ended
	March 31						March 31
	2000			1999			2000			1999
(in Thousands)
Balance — Beginning of Period	$	(120,081	)	$	(2,977	)	$	62,775		$	424,157
Add — Net Income (Loss)		58,942			85,543			(57,449	)		(279,807	)
		(61,139	)		82,566			5,326			144,350
Deduct — Cash Dividends Declared		21,719			19,791			88,184			81,575
Balance — End of Period	$	(82,858	)	$	62,775		$	(82,858	)	$	62,775

The notes to the consolidated financial statements are an integral part of these statements

20

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

					Three Months Ended
					March 31
					2000			1999
(in Thousands)
Cash Flow From Operating Activities
	Net income				$	58,942		$	85,543
	Adjustments to reconcile net income (loss) to net cash provided from operating activities
		Depreciation, depletion and amortization:
			Per statement of operations			34,219			45,175
			Charged to other accounts			2,483			2,179
		Unusual items, net of taxes (Note 3)				(7,037	)		—
		Cumulative effect of accounting change, net of taxes (Note 5)				—			2,872
		Deferred income taxes — current				(11,977	)		(5,489	)
		Deferred income taxes and investment tax credits, net				32,585			22,495
		Equity in earnings of joint ventures, net of distributions				(6,931	)		(3,390	)
		Other				(3,837	)		(1,138	)
		Changes in assets and liabilities, exclusive of changes shown separately				146,988			54,622
			Net cash provided from operating activities			245,435			202,869
Cash Flow From Financing Activities
	Notes payable, net					(448,739	)		(84,212	)
	Dividends paid					(21,719	)		(19,791	)
	Issuance of common stock					2,897			226
	Reacquisition of common stock					(1,655	)		(977	)
	Long-term commercial paper and bank borrowings, net (Note 9)					(34,138	)		92,344
	Retirement of long-term debt and preferred securities (Note 9)					(17,963	)		(87,781	)
				Net cash used for financing activities		(521,317	)		(100,191	)
Cash Flow From Investing Activities
	Capital expenditures					(23,671	)		(81,320	)
	Acquisitions					—			(1,602	)
	Investment in debt and equity securities, net					(2,893	)		(12	)
	Investment in joint ventures					(28,641	)		(27,648	)
	Sale of property and joint venture interests (Note 4)					295,476			28,986
	Other					241			(3,288	)
			Net cash provided from (used for) investing activities			240,512			(84,884	)
Net Increase (Decrease) in Cash and Cash Equivalents						(35,370	)		17,794
Cash and Cash Equivalents, January 1						59,366			17,039
Cash and Cash Equivalents, March 31					$	23,996		$	34,833
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
	Accounts receivable, net				$	(59,713	)	$	(32,348	)
	Accrued unbilled revenues					31,729			10,553
	Gas in inventory					128,077			57,265
	Accrued/deferred gas cost recovery revenues, net					—			(14,980	)
	Prepaid/accrued benefit costs, net					(13,760	)		(9,678	)
	Accounts payable					3,506			(41,183	)
	Federal income, property and other taxes payable					(22,841	)		20,269
	Gas payable					(17,113	)		(5,154	)
	Gas inventory equalization					90,511			79,559
	Other current assets and liabilities, net					(14,153	)		(5,402	)
	Other deferred assets and liabilities, net					20,745			(4,279	)
					$	146,988		$	54,622
Supplemental Disclosures
	Cash paid during the year for:
		Interest, net of amounts capitalized			$	32,495		$	34,673
		Federal income taxes			$	—		$	—

The notes to the consolidated financial statements are an integral part of this statement

21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  GENERAL

The accompanying consolidated financial statements should be read in conjunction with the MCN Energy Group Inc. (MCN) 1999 Annual Report on Form 10-K. Certain reclassifications have been made to the prior year’s financial statements to conform to the 2000 presentation. In the opinion of management, the unaudited information furnished herein reflects all adjustments necessary for a fair presentation of the financial statements for the periods presented.

Because of seasonal and other factors, revenues, expenses, net income and earnings per share for the interim periods should not be construed as representative of revenues, expenses, net income and earnings per share for all or any part of the balance of the current year or succeeding periods.

2.  MERGER AGREEMENT WITH DTE ENERGY COMPANY

As discussed in MCN’s 1999 Annual Report on Form 10-K, MCN and DTE Energy Company (DTE) have signed a definitive merger agreement, dated October 4, 1999, under which DTE will acquire all outstanding shares of MCN common stock. The boards of directors and the shareholders of both companies have approved the proposed merger. The transaction is subject to regulatory approvals and other customary merger conditions. While it still is possible for the merger to close in mid- to late 2000, discussions continue with the Federal Trade Commission and a final closing date cannot be determined with certainty.

As a result of the pending merger, MCN has incurred merger-related costs which include legal, accounting, consulting, employee benefit and other expenses. These costs had the effect of decreasing earnings by $362,000 pre-tax ($235,000 net of taxes) and $35,217,000 pre-tax ($22,891,000 net of taxes) for the three-and twelve-month periods ended March 31, 2000, respectively.

Furthermore, as part of the merger agreement, MCN agreed to sell its interest in five power projects, four of which are defined as “Qualifying Facilities” (QFs) under the Public Utility Regulatory Policies Act of 1978, as amended. This act limits the interest in a project that can be owned by electric utilities while maintaining the project’s status as a QF. In the first quarter of 2000, MCN completed the sale of its 23% interest in the Midland Cogeneration Venture (MCV), a QF located in Michigan, and its 33 1/3% interest in the Carson Cogeneration facility, a QF located in California. In the second quarter of 2000, MCN completed the sale of its 50% interest in the Michigan Power Project, a QF located in Michigan, and its 50% interest in the Ada Cogeneration facility, a QF located in Michigan. Additionally, MCN has reached an agreement to sell its 95% interest in the Cobisa-Person facility, a 140 megawatt (MW) power plant in New Mexico that is currently under construction.

3.  UNUSUAL ITEMS

     a.  Pipelines & Processing

Gain on Sale of Joint Venture: In March 2000, MCN recognized a $3,419,000 pre-tax ($2,222,000 net of taxes) gain from the sale of its 50% interest in the Cardinal States Gathering Company.

Property Write-Downs: In the third quarter of 1998, MCN recorded a $133,782,000 pre-tax ($86,959,000 net of taxes) write-off of its coal fines project equal to the carrying value of its six plants, reflecting the likely inability to recover such costs. MCN sold four of its coal fines plants

22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to DTE in 1999. MCN is seeking to maximize the value of its investment in the two remaining plants, but is unable to predict the outcome of such efforts. In the third quarter of 1998, MCN also recorded an impairment loss of $3,899,000 pre-tax ($2,534,000 net of taxes) relating to an acquired out-of-service pipeline in Michigan. MCN reviewed the business alternatives for this asset and determined that its development is unlikely. Accordingly, MCN recorded an impairment loss equal to the carrying value of this asset.

     b.  Electric Power

Gain on Sale of Joint Venture: In March 2000, MCN recognized a $3,672,000 pre-tax ($2,387,000 net of taxes) gain from the sale of its 33 1/3% interest in the Carson Cogeneration facility, a 42 MW cogeneration plant located in Carson, California.

Property Write-Downs: In the fourth quarter of 1999, MCN exited two power projects under development which were not consistent with its new strategic direction. As a result of exiting these projects, MCN recorded a $4,995,000 pre-tax ($3,247,000 net of taxes) write-off of capitalized costs associated with these projects.

Restructuring Charge: In the third quarter of 1998, MCN recorded a $2,470,000 pre-tax ($1,605,000 net of taxes) restructuring charge related to its decision to exit certain international power projects.

     c.  Energy Marketing

Loss on Contracts: In the fourth quarter of 1999, MCN recognized a $2,447,000 pre-tax ($1,591,000 net of taxes) loss resulting from the termination of gas sales contracts with a joint venture. These contracts were terminated in conjunction with MCN’s sale of its 49% interest in the joint venture.

     d.  Exploration & Production

Property Write-Downs: In the second quarter of 1999, MCN recognized a $52,000,000 pre-tax ($33,800,000 net of taxes) write-down of its gas and oil properties under the full cost method of accounting, due primarily to an unfavorable revision in the timing of the production of proved gas and oil reserves as well as reduced expectations of sales proceeds on unproved acreage.

In the fourth quarter of 1999, MCN recorded a $2,340,000 pre-tax ($1,521,000 net of taxes) write-down relating to unproved property which is not included in the full cost pool. An impairment loss was recorded representing the amount by which the carrying value exceeded the appraised value of the property.

In the second and third quarters of 1998, MCN recognized write-downs of its gas and oil properties totaling $333,022,000 pre-tax ($216,465,000 net of taxes) and $83,955,000 pre-tax ($54,570,000 net of taxes), respectively. The write-downs were also the result of MCN’s capitalized exploration and production costs exceeding the full cost ceiling.

Losses on Sale of Properties: In the second and third quarters of 1999, MCN recognized losses from the sale of its Western and Midcontinent/ Gulf Coast E&P properties totaling $68,798,000 pre-tax ($44,719,000 net of taxes) and $5,877,000 pre-tax ($3,820,000 net of taxes), respectively. In the fourth quarter of 1999, MCN recognized losses from the sale of its Appalachian E&P properties totaling $7,314,000 pre-tax ($4,754,000 net of taxes). In the first quarter of

23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2000, subsequent adjustments related to these prior-period losses reduced the losses by $3,735,000 pre-tax ($2,428,000 net of taxes).

Gain on the Sale of Tax Credits: Gains are recorded in each period as the result of the sale of tax credits in the third quarter of 1998. The purchaser forwards payments to MCN as a result of generating gas production credits, and accordingly, MCN records the amount as a gain on the sale of the tax credits. Credits will continue to be generated through 2002. For the three- and twelve-month periods ended March 31, 2000, MCN recognized gains of $2,048,000 pre-tax ($1,331,000 net of taxes) and $10,207,000 pre-tax ($6,635,000 net of taxes), respectively. For the three- and twelve-month periods ended March 31, 1999, MCN recognized gains of $3,005,000 pre-tax ($1,953,000 net of taxes) and $10,403,000 pre-tax ($6,762,000 net of taxes), respectively.

Loss on Investment: In the second quarter of 1999, MCN recognized a $7,456,000 pre-tax ($4,846,000 net of taxes) loss from the write-down of an investment in the common stock of an E&P company. MCN had also recognized a $6,135,000 pre-tax ($3,987,000 net of taxes) loss from the write-down of this investment during the second quarter of 1998. The losses were due to declines in the fair value of the securities that are not considered temporary. MCN has no carrying value in this investment after the write-downs.

     e.  Corporate & Other

Restructuring Charge: In the third quarter of 1998, MCN recorded a $10,390,000 pre-tax ($6,753,000 net of taxes) restructuring charge related to a corporate realignment designed to improve operating efficiencies through a more streamlined organizational structure. The realignment included cost saving initiatives expected to reduce operating expenses. As of March 31, 2000, payments of $7,228,000 have been charged against the restructuring accruals relating to severance and termination benefits and net lease costs. The remaining restructuring costs of $3,162,000 are expected to be paid through 2006.

     f.  Gas Distribution

Property Write-Downs: In the third quarter of 1998, MCN recorded a $24,800,000 pre-tax ($11,200,000 net of taxes and minority interest) write-down of certain gas gathering properties. An analysis revealed that projected cash flows from the gathering system were not sufficient to cover the system’s carrying value. Therefore, an impairment loss was recorded representing the amount by which the carrying value of the system exceeded its estimated fair value.

Loss on Investment: In the third quarter of 1998, MCN also recorded an $8,500,000 pre-tax ($5,525,000 net of taxes) loss from the write-down of an investment in a Missouri gas distribution company. The write-down represents the amount by which the carrying value exceeded the estimated fair value of the investment.

4.  ACQUISITIONS AND DISPOSITIONS

     a.  Pipelines & Processing

In March 2000, MCN sold its 50% interest in the Cardinal States Gathering Company for approximately $60,000,000.

24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In April 2000, MCN reached an agreement to sell its 35% interest in the Jonah Gas Gathering Company for $45,000,000 resulting in a pre-tax gain of approximately $25,000,000. The sale is subject to regulatory approval and is expected to be completed in the second quarter of 2000.

     b.  Electric Power

Qualifying and Other Facilities: As discussed in MCN’s 1999 Annual Report on Form 10-K, MCN agreed to sell its interest in five power projects, four of which are “Qualifying Facilities” as defined by the Public Utility Regulatory Policies Act of 1978, as amended (Note 2).

In January 2000, MCN sold its 23% ownership in MCV, a 1,370 MW cogeneration facility located in Michigan, for approximately $105,000,000, resulting in an immaterial gain. Under the terms of the sales agreement, if MCN does not merge with DTE, MCN may reacquire its 23% interest in MCV.

In March 2000, MCN sold its 33 1/3% interest in the Carson Cogeneration facility, a 42 MW cogeneration plant located in California, for $3,000,000, resulting in a pre-tax gain of $3,672,000 ($2,387,000 net of taxes).

In April 2000, MCN completed the sale of its 50% interest in the Michigan Power Project, a 123 MW cogeneration plant located in Ludington, Michigan and its 50% interest in the Ada Cogeneration facility, a 30 MW cogeneration plant located in Ada, Michigan, resulting in a pre-tax gain totaling approximately $40,000,000 ($26,000,000 net of taxes).

In May 2000, MCN reached an agreement to sell its 95% interest in the Cobisa-Person facility, a 140 MW power plant that is currently under construction in New Mexico, resulting in a pre-tax gain that is expected to exceed $1,500,000. The sale has received Federal Energy Regulatory Commission approval and is expected to be completed in the second quarter of 2000.

5.  ACCOUNTING FOR START-UP ACTIVITIES

As discussed in MCN’s 1999 Annual Report on Form 10-K, in January 1999 MCN adopted Statement of Position (SOP) 98-5, “Reporting on the Costs of Start-up Activities,” issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. SOP 98-5 requires start-up and organizational costs to be expensed as incurred. This change in accounting principle resulted in the write-off of start-up and organization costs capitalized as of December 31, 1998. The cumulative effect of the change was to decrease earnings by $4,418,000 pre-tax ($2,872,000 net of taxes) for the three-and twelve-month periods ended March 31, 1999.

6.  REGULATORY MATTERS

     a.  Regulatory Reform Plan

As discussed in MCN’s 1999 Annual Report on Form 10-K, MichCon implemented its Regulatory Reform Plan in January 1999. The plan includes a three-year gas sales program under which MichCon’s gas sales rates include a gas commodity component that is fixed at $2.95 per thousand cubic feet (Mcf). As part of its gas acquisition strategy, MichCon has entered into fixed-price contracts at costs below $2.95 per Mcf for a substantial portion of its expected gas supply requirements through 2001.

25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The plan also includes a comprehensive experimental three-year customer choice program, which is subject to annual caps on the level of participation. The customer choice program began in April 1999, with approximately 70,000 customers choosing to purchase natural gas from suppliers other than MichCon. Year two of the plan began in April 2000, and the number of customers participating decreased to approximately 55,000. MichCon will continue to transport and deliver the gas to the customers’ premises at prices that generate favorable margins.

In addition, the plan encompasses an income sharing mechanism that allows customers to share profits when actual returns on equity exceed predetermined thresholds. MichCon filed its income sharing report with the Michigan Public Service Commission (MPSC) on March 31, 2000, using the MPSC approved formula, indicating that no income sharing was required for 1999. The MPSC staff has requested a hearing on this matter. Management believes that no income sharing is required.

     b.  Gas Cost Recovery Proceedings

The Gas Cost Recovery (GCR) process was suspended with the implementation of MichCon’s Regulatory Reform Plan in January 1999. In February 1999, MichCon filed its final GCR reconciliation case covering gas costs incurred during 1998 which indicates an overrecovery of $18,000,000, including interest. Management believes that 1998 gas costs were reasonable and prudent and that the MPSC will approve the gas costs incurred. However, management cannot predict the outcome of this proceeding. During the first quarter of 1999, MichCon refunded the overrecovery to customers as a reduction in gas sales rates.

7.  GAS IN INVENTORY

Inventory gas is priced on a last-in, first-out (LIFO) basis. In anticipation that interim inventory reductions will be replaced prior to year end, the cost of gas for net withdrawals from inventory is recorded at the estimated average purchase rate for the calendar year. The excess of these charges over the LIFO cost is credited to the gas inventory equalization account. During interim periods when there are net injections to inventory, the equalization account is reversed.

8.  EARNINGS PER SHARE COMPUTATION

MCN reports both basic and diluted earnings per share (EPS). Basic EPS is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for changes in income and the repurchase of common shares that would have occurred with proceeds from the assumed issuance. For the twelve-month periods, potentially dilutive securities have been excluded from the diluted EPS

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

calculation since their inclusion would have been antidilutive. A reconciliation of both calculations is shown below.

		Net Income						Weighted
		(Loss) Before						Average				Earnings
		Cumulative Effect of						Common				(Loss)
		Accounting Change						Shares				Per Share
		2000			1999			2000		1999		2000			1999
(in Thousands, except Per Share Amounts)
Three Months Ended March 31
Basic EPS		$	58,942		$	88,415			85,506		79,413	$	.69		$	1.11
Effect of Dilutive Securities FELINE  PRIDES			1,561			1,571			4,560		4,560
	Stock-based compensation plans		—			—			882		1,091
Diluted EPS		$	60,503		$	89,986			90,948		85,064	$	.67		$	1.06
Twelve Months Ended March 31
Basic EPS		$	(57,449	)	$	(276,935	)		84,911		79,081	$	(.68	)	$	(3.50	)
Effect of Dilutive Securities FELINE  PRIDES			—			—			—		—
	Stock-based compensation plans		—			—			—		—
Diluted EPS		$	(57,449	)	$	(276,935	)		84,911		79,081	$	(.68	)	$	(3.50	)

9.  COMPREHENSIVE INCOME

MCN reports comprehensive income, which is defined as the change in common shareholder’s equity during a period from transactions and events from non-owner sources, including net income. Total comprehensive income for the applicable periods is as follows:

			Three Months					Twelve Months
			Ended					Ended
			March 31					March 31
			2000		1999			2000			1999
(in Thousands)
Comprehensive Income (Loss)
Net Income (Loss)			$	58,942	$	85,543		$	(57,449	)	$	(279,807	)
Other Comprehensive Income (Loss), Net of Taxes
	Foreign currency translation adjustment
		Foreign currency translation adjustment		10		282			(671	)		(5,773	)
		Less: Reclassification for losses recognized in net income		—		—			13,132			—
				10		282			12,461			(5,773	)
	Unrealized loss on securities
		Unrealized losses during period		—		(517	)		(642	)		(5,941	)
		Less: Reclassification for losses recognized in net income		—		—			4,846			3,987
				—		(517	)		4,204			(1,954	)
Total Other Comprehensive Income (Loss), Net of Taxes				10		(235	)		16,665			(7,727	)
Total Comprehensive Income (Loss)			$	58,952	$	85,308		$	(40,784	)	$	(287,534	)

27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.  CONTINGENCIES

     a.  Personal Property Taxes

As discussed in MCN’s 1999 Annual Report on Form 10-K, in 1998, MichCon began filing its personal property tax information with local governments which reflected a change in the calculation of the value of personal property subject to taxation. The revised calculation excludes intangible costs from the value of personal property. A number of local governments have accepted the revised calculation, and MichCon recorded lower property tax expense in 1999 and 1998 associated with the accepting governments. MichCon has also filed appeals to recover excess payments made in 1996 and 1997 based on the revised calculation. MichCon has pending tax appeals with local governments that have not accepted the revised calculation.

Additionally, MichCon and other Michigan utilities have asserted that Michigan’s valuation tables result in the substantial overvaluation of utility personal property. Valuation tables are used to estimate the reduction in value of personal property based on the property’s age. In November 1999, the Michigan State Tax Commission (STC) approved new valuation tables that more accurately recognize the value of a utility’s personal property. The new tables are effective in 2000, however several local governments have taken legal action to prevent the STC from implementing the new valuation tables. The Michigan Tax Tribunal has requested parties to submit briefs to determine what is the proper scope and standard for its review of the tables. It is management’s belief that several local governments will not use the revised tables until the legal actions have been resolved. The legal action, along with possible additional appeals by local governments, could delay expected recoveries related to the new valuation tables until 2001.

Based on past practice, MichCon expects to ultimately settle pending tax appeals with local governments by applying the new tables retroactively, a solution supported in the past by the STC. MCN’s future results of operations could be significantly affected if the valuation tables are not upheld in court or MichCon is unsuccessful in its appeals.

     b.  Legal and Administrative Proceedings

MCN is involved in certain legal and administrative proceedings before various courts and governmental agencies concerning claims arising in the ordinary course of business. Management cannot predict the final disposition of such proceedings, but believes that adequate provision has been made for probable losses. It is management’s belief, after discussion with legal counsel, that the ultimate resolution of those proceedings still pending will not have a material adverse effect on MCN’s financial statements.

28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.  COMMODITY SWAP AGREEMENTS

MCN’s Diversified Energy group manages commodity price risk through the use of various derivative instruments and predominately limit the use of such instruments to hedging activities. The following assets and liabilities related to the use of gas and oil swap agreements are reflected in the Consolidated Statement of Financial Position:

		March 31				December 31
		2000		1999		1999
(in Thousands)
Deferred Swap Losses and Receivables
	Unrealized losses	$	18,423	$	36,120	$	13,884
	Receivables		62,425		19,012		40,089
			80,848		55,132		53,973
	Less — Current portion		32,488		6,622		10,066
		$	48,360	$	48,510	$	43,907
Deferred Swap Gains and Payables
	Unrealized gains	$	23,794	$	17,809	$	29,596
	Payables		77,261		41,283		48,066
			101,055		59,092		77,662
	Less — Current portion		35,181		7,487		12,700
		$	65,874	$	51,605	$	64,962

29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.  SEGMENT INFORMATION

MCN is organized into two business groups, Diversified Energy and Gas Distribution. The groups operate five major business segments as set forth in the following table:

		Three Months Ended						Twelve Months Ended
		March 31						March 31
		2000			1999			2000			1999
(in Thousands)
Revenues From Unaffiliated Customers
	Pipelines & Processing	$	6,365		$	5,905		$	25,252		$	24,528
	Electric Power		13,903			12,143			53,967			49,596
	Energy Marketing		428,819			242,612			1,384,915			795,167
	Exploration & Production		4,616			28,914			19,073			136,542
	Gas Distribution		449,788			507,012			1,104,766			1,119,991
			903,491			796,586			2,587,973			2,125,824
Revenues From Affiliated Customers
	Pipelines & Processing		176			174			2,251			346
	Energy Marketing		23,673			18,085			74,381			99,618
	Exploration & Production		13,145			20,585			102,279			64,448
	Gas Distribution		3,865			2,668			9,807			6,053
			40,859			41,512			188,718			170,465
Eliminations			(40,859	)		(41,512	)		(188,718	)		(170,465	)
Consolidated Operating Revenues		$	903,491		$	796,586		$	2,587,973		$	2,125,824
Net Income (Loss)
	Pipelines & Processing	$	2,720		$	1,675		$	5,568		$	(84,491	)
	Electric Power		4,441			4,401			11,498			16,900
	Energy Marketing		(8,935	)		2,355			(25,921	)		(2,094	)
	Exploration & Production		3,174			—			(83,989	)		(259,171	)
	Gas Distribution		66,691			84,293			85,853			93,371
	Corporate & Other		(9,149	)		(4,309	)		(50,458	)		(41,450	)
			58,942			88,415			(57,449	)		(276,935	)
	Cumulative effect of accounting change		—			(2,872	)		—			(2,872	)
Consolidated Net Income (Loss)		$	58,942		$	85,543		$	(57,449	)	$	(279,807	)

13.  CONSOLIDATING FINANCIAL STATEMENTS

Debt securities issued by MCN Energy Enterprises Inc. (MCNEE) are subject to a support agreement between MCN and MCNEE, under which MCN has committed to make payments of interest and principal on MCNEE’s securities in the event of failure to pay by MCNEE. Under the terms of the support agreement, the assets of MCN, other than MichCon, and any cash dividends paid to MCN by any of its subsidiaries are available as recourse to holders of MCNEE’s securities. The carrying value of MCN’s assets on an unconsolidated basis, which primarily consists of investments in subsidiaries other than MichCon, is $487,767,000 at March 31, 2000.

The following MCN consolidating financial statements are presented and include separately MCNEE, MichCon and MCN and other subsidiaries. MCN has determined that separate financial statements and other disclosures concerning MCNEE are not material to investors. The other MCN subsidiaries represent Citizens Gas Fuel Company, MCN Michigan Limited Partnership, MCN Financing I, MCN Financing II, MCN Financing III, MCN Financing VI, and MichCon Enterprises, Inc.

30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENT OF FINANCIAL POSITION

			MCN								Eliminations
			and Other								and			Consolidated
			Subsidiaries			MCNEE			MichCon		Reclasses			Total
			March 31, 2000
(in Thousands)
ASSETS
Current Assets
	Cash and cash equivalents, at cost		$	525		$	13,105		$	10,366	$	—		$	23,996
	Accounts receivable			16,589			290,087			219,483		(13,286	)		512,873
		Less — Allowance for doubtful accounts		176			2,887			18,276		—			21,339
	Accounts receivable, net			16,413			287,200			201,207		(13,286	)		491,534
	Accrued unbilled revenues			966			—			67,744		—			68,710
	Gas in inventory			—			18,281			34,014		—			52,295
	Property taxes assessed applicable to future periods			302			1,191			49,525		—			51,018
	Deferred income taxes			(345	)		51,201			—		(6,371	)		44,485
	Other			9,154			45,666			31,742		(35,218	)		51,344
				27,015			416,644			394,598		(54,875	)		783,382
Deferred Charges and Other Assets
	Deferred income taxes			154			89,760			—		(89,914	)		—
	Investments in debt and equity securities			—			28,026			68,104		624			96,754
	Deferred swap losses and receivables			—			48,360			—		—			48,360
	Deferred environmental costs			2,535			—			26,067		—			28,602
	Prepaid benefit costs			—			—			170,563		37			170,600
	Other			3,018			28,867			58,138		5,720			95,743
				5,707			195,013			322,872		(83,533	)		440,059
Investments in and Advances to Joint Ventures and Subsidiaries				1,219,501			593,558			19,802		(1,216,657	)		616,204
Property, Plant and Equipment, at cost				44,484			675,789			3,004,736		—			3,725,009
	Less — Accumulated depreciation and depletion			19,143			221,994			1,486,590		—			1,727,727
				25,341			453,795			1,518,146		—			1,997,282
			$	1,277,564		$	1,659,010		$	2,255,418	$	(1,355,065	)	$	3,836,927
LIABILITIES AND CAPITALIZATION
Current Liabilities
	Accounts payable		$	7,785		$	225,492		$	81,071	$	(14,703	)	$	299,645
	Notes payable			(40	)		89,783			79,416		(143	)		169,016
	Current portion of long-term debt and capital lease obligations			—			60,100			26,150		—			86,250
	Gas inventory equalization			—			9,667			80,844		—			90,511
	Federal income, property and other taxes payable			(8,425	)		3,057			78,328		(27,301	)		45,659
	Gas payable			—			5,697			2,048		—			7,745
	Customer deposits			16			—			16,944		—			16,960
	Other			8,335			68,812			53,285		(6,368	)		124,064
				7,671			462,608			418,086		(48,515	)		839,850
Deferred Credits and Other Liabilities
	Deferred income taxes			(5,025	)		—			117,250		(89,760	)		22,465
	Unamortized investment tax credit			237			—			27,300		—			27,537
	Tax benefits amortizable to customers			—			—			135,616		—			135,616
	Deferred swap gains and payables			—			65,874			—		—			65,874
	Accrued environmental costs			3,000			—			24,711		—			27,711
	Minority interest			—			592			6,524		—			7,116
	Other			11,385			33,290			58,703		35			103,413
				9,597			99,756			370,104		(89,725	)		389,732
Long-Term Debt, including capital lease obligations				—			682,409			664,786		—			1,347,195
Redeemable Preferred Securities of Subsidiaries				402,994			—			—		—			402,994
Common Shareholders’ Equity
	Common stock			857			5			10,300		(10,305	)		857
	Additional paid-in capital			961,591			740,746			230,399		(971,145	)		961,591
	Retained earnings (deficit)			(82,858	)		(326,368	)		561,743		(235,375	)		(82,858	)
	Accumulated other comprehensive loss			—			(146	)		—		—			(146	)
	Yield enhancement, contract and issuance costs			(22,288	)		—			—		—			(22,288	)
				857,302			414,237			802,442		(1,216,825	)		857,156
			$	1,277,564		$	1,659,010		$	2,255,418	$	(1,355,065	)	$	3,836,927

31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENT OF FINANCIAL POSITION

			MCN								Eliminations
			and Other								and			Consolidated
			Subsidiaries			MCNEE			MichCon		Reclasses			Total
			March 31, 1999
(in Thousands)
ASSETS
Current Assets
	Cash and cash equivalents, at cost		$	1,472		$	9,849		$	23,512	$	—		$	34,833
	Accounts receivable			11,697			225,981			226,238		(18,722	)		445,194
		Less — Allowance for doubtful accounts		93			1,773			11,545		—			13,411
	Accounts receivable, net			11,604			224,208			214,693		(18,722	)		431,783
	Accrued unbilled revenues			904			—			76,431		—			77,335
	Gas in inventory			—			65,637			24,485		—			90,122
	Property taxes assessed applicable to future periods			262			3,547			59,255		—			63,064
	Deferred income taxes			—			—			—		—			—
	Other			6,130			30,974			32,990		(20,032	)		50,062
				20,372			334,215			431,366		(38,754	)		747,199
Deferred Charges and Other Assets
	Deferred income taxes			324			115,025			—		(86,295	)		29,054
	Investments in debt and equity securities			—			2,209			66,110		601			68,920
	Deferred swap losses and receivables			—			48,510			—		—			48,510
	Deferred environmental costs			2,770			—			28,286		—			31,056
	Prepaid benefit costs			—			—			124,235		(2,174	)		122,061
	Other			11,678			29,742			61,250		4,841			107,511
				14,772			195,486			279,881		(83,027	)		407,112
Investments in and Advances to Joint Ventures and Subsidiaries				1,589,031			814,912			19,808		(1,587,403	)		836,348
Property, Plant and Equipment, at cost				48,826			1,125,366			2,911,368		—			4,085,560
	Less — Accumulated depreciation and depletion			17,943			250,082			1,420,513		—			1,688,538
				30,883			875,284			1,490,855		—			2,397,022
			$	1,655,058		$	2,219,897		$	2,221,910	$	(1,709,184	)	$	4,387,681
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable		$	3,846		$	175,097		$	96,390	$	(16,967	)	$	258,366
	Notes payable			237,762			188,828			107,900		149			534,639
	Current portion of long-term debt and capital lease obligations			—			130,216			58,211		—			188,427
	Gas inventory equalization			—			—			79,559		—			79,559
	Federal income, property and other taxes payable			(3,555	)		4,053			103,464		(14,228	)		89,734
	Gas payable			—			11,680			25,835		—			37,515
	Customer deposits			17			—			17,459		—			17,476
	Other			21,504			20,602			58,935		(2,591	)		98,450
				259,574			530,476			547,753		(33,637	)		1,304,166
Deferred Credits and Other Liabilities
	Deferred income taxes			(10,383	)		—			96,353		(85,970	)		—
	Unamortized investment tax credit			266			—			29,303		—			29,569
	Tax benefits amortizable to customers			—			—			129,494		—			129,494
	Deferred swap gains and payables			—			51,605			—		—			51,605
	Accrued environmental costs			3,000			—			31,888		—			34,888
	Minority interest			—			2,230			8,175		—			10,405
	Other			13,167			14,770			51,860		(2,174	)		77,623
				6,050			68,605			347,073		(88,144	)		333,584
Long-Term Debt, including capital lease obligations				—			778,905			613,945		—			1,392,850
Redeemable Preferred Securities of Subsidiaries				502,157			—			—		—			502,157
Common Shareholders’ Equity
	Common stock			798			5			10,300		(10,305	)		798
	Additional paid-in capital			830,450			1,042,982			230,399		(1,273,381	)		830,450
	Retained earnings (deficit)			78,317			(184,265	)		472,440		(303,717	)		62,775
	Accumulated other comprehensive loss			—			(16,811	)		—		—			(16,811	)
	Yield enhancement, contract and issuance costs			(22,288	)		—			—		—			(22,288	)
				887,277			841,911			713,139		(1,587,403	)		854,924
			$	1,655,058		$	2,219,897		$	2,221,910	$	(1,709,184	)	$	4,387,681

32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENT OF FINANCIAL POSITION

			MCN								Eliminations
			and Other								and			Consolidated
			Subsidiaries			MCNEE			MichCon		Reclasses			Total
			December 31, 1999
(in Thousands)
ASSETS
Current Assets
	Cash and cash equivalents, at cost		$	470		$	49,191		$	9,705	$	—		$	59,366
	Accounts receivable			23,989			404,299			165,189		(26,068	)		567,409
		Less — Allowance for doubtful accounts		176			2,767			17,777		—			20,720
	Accounts receivable, net			23,813			401,532			147,412		(26,068	)		546,689
	Accrued unbilled revenues			1,573			—			98,866		—			100,439
	Gas in inventory			—			106,222			74,150		—			180,372
	Property taxes assessed applicable to future periods			277			1,785			60,589		—			62,651
	Deferred income taxes			(878	)		44,024			—		(10,638	)		32,508
	Other			9,938			17,728			31,594		(7,947	)		51,313
				35,193			620,482			422,316		(44,653	)		1,033,338
Deferred Charges and Other Assets
	Deferred income taxes			(254	)		114,970			—		(99,951	)		14,765
	Investments in debt and equity securities			—			4,242			67,210		625			72,077
	Deferred swap losses and receivables			—			43,907			—		—			43,907
	Deferred environmental costs			2,534			—			28,639		—			31,173
	Prepaid benefit costs			—			—			156,290		(14	)		156,276
	Other			3,638			30,647			64,546		9,457			108,288
				5,918			193,766			316,685		(89,883	)		426,486
Investments in and Advances to Joint Ventures and Subsidiaries				1,388,386			741,960			19,115		(1,385,489	)		763,972
Property, Plant And Equipment, at cost				44,141			680,011			2,988,318		—			3,712,470
	Less — Accumulated depreciation and depletion			18,147			215,359			1,463,706		—			1,697,212
				25,994			464,652			1,524,612		—			2,015,258
			$	1,455,491		$	2,020,860		$	2,282,728	$	(1,520,025	)	$	4,239,054
LIABILITIES AND CAPITALIZATION
Current Liabilities
	Accounts payable		$	11,426		$	215,228		$	93,549	$	(24,064	)	$	296,139
	Notes payable			200,721			179,249			237,785		—			617,755
	Current portion of long-term debt and capital lease obligations			—			118			27,984		—			28,102
	Gas inventory equalization			—			—			—		—			—
	Federal income, property and other taxes payable			(6,343	)		3,428			71,415		—			68,500
	Gas payable			—			21,260			3,598		—			24,858
	Customer deposits			9			—			17,698		—			17,707
	Other			18,935			73,910			64,741		(10,637	)		146,949
				224,748			493,193			516,770		(34,701	)		1,200,010
Deferred Credits and Other Liabilities
	Deferred income taxes			(5,678	)		—			105,351		(99,673	)		—
	Unamortized investment tax credit			244			—			27,778		—			28,022
	Tax benefits amortizable to customers			—			—			136,236		—			136,236
	Deferred swap gains and payables			—			64,962			—		—			64,962
	Accrued environmental costs			3,000			—			25,068		—			28,068
	Minority interest			—			2,380			8,716		—			11,096
	Other			11,591			33,639			46,398		(15	)		91,613
				9,157			100,981			349,547		(99,688	)		359,997
Long-Term Debt, including capital lease obligations				—			776,708			680,909		—			1,457,617
Redeemable Preferred Securities of Subsidiaries				402,922			—			—		—			402,922
Common Shareholders’ Equity
	Common stock			857			5			10,300		(10,305	)		857
	Additional paid-in capital			960,176			969,733			230,399		(1,200,132	)		960,176
	Retained earnings (deficit)			(120,081	)		(319,604	)		494,803		(175,199	)		(120,081	)
	Accumulated other comprehensive loss			—			(156	)		—		—			(156	)
	Yield enhancement, contract and issuance costs			(22,288	)		—			—		—			(22,288	)
				818,664			649,978			735,502		(1,385,636	)		818,508
			$	1,455,491		$	2,020,860		$	2,282,728	$	(1,520,025	)	$	4,239,054

33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENTS OF OPERATIONS

		MCN									Eliminations
		and Other									and			Consolidated
		Subsidiaries			MCNEE			MichCon			Reclasses			Total
		Three Months Ended March 31, 2000
(in Thousands)
Operating Revenues		$	10,907		$	455,755		$	442,747		$	(5,918	)	$	903,491
Operating Expenses
	Cost of sales		7,709			433,000			216,520			(5,160	)		652,069
	Operation and maintenance		1,773			26,314			64,063			(758	)		91,392
	Depreciation, depletion and amortization		932			7,343			25,944			—			34,219
	Property and other taxes		270			2,333			18,990			—			21,593
	Property write-downs, contract losses and restructuring charges		—			—			—			—			—
	Gains and losses on sale of assets, net		—			(12,874	)		—			—			(12,874	)
	Merger costs		1			14			347			—			362
			10,685			456,130			325,864			(5,918	)		786,761
Operating Income (Loss)			222			(375	)		116,883			—			116,730
Equity in Earnings of Joint Ventures			60,122			10,245			587			(60,175	)		10,779
Other Income and (Deductions)
	Interest income		8,687			2,178			726			(8,843	)		2,748
	Interest on long-term debt		27			(11,263	)		(12,273	)		—			(23,509	)
	Other interest expense		(1,686	)		(11,501	)		(3,009	)		8,842			(7,354	)
	Dividends on preferred securities of subsidiaries		—			—			—			(8,622	)		(8,622	)
	Investment losses		—			—			—			—			—
	Minority interest		—			(346	)		(139	)		—			(485	)
	Other		(423	)		109			320			—			6
			6,605			(20,823	)		(14,375	)		(8,623	)		(37,216	)
Income (Loss) Before Income Taxes			66,949			(10,953	)		103,095			(68,798	)		90,293
Income Tax Provision (Benefit)			(615	)		(4,189	)		36,155			—			31,351
Income (Loss) Before Cumulative Effect of Accounting Change			67,564			(6,764	)		66,940			(68,798	)		58,942
Cumulative Effect of Accounting Change, Net of Taxes			—			—			—			—			—
Net Income (Loss)			67,564			(6,764	)		66,940			(68,798	)		58,942
Dividends on Preferred Securities			8,622			—			—			(8,622	)		—
Net Income (Loss) Available for Common Stock		$	58,942		$	(6,764	)	$	66,940		$	(60,176	)	$	58,942
		Three Months Ended March 31, 1999
Operating Revenues		$	11,664		$	293,567		$	498,090		$	(6,735	)	$	796,586
Operating Expenses
	Cost of sales		7,405			222,301			248,351			(4,172	)		473,885
	Operation and maintenance		(1,425	)		38,366			67,546			(2,537	)		101,950
	Depreciation, depletion and amortization		834			19,733			24,608			—			45,175
	Property and other taxes		388			2,802			18,462			6			21,658
	Property write-downs, contract losses and restructuring charges		—			—			—			—			—
	Gains and losses on sale of assets, net		—			(3,005	)		—			—			(3,005	)
	Merger costs		—			—			—			—			—
			7,202			280,197			358,967			(6,703	)		639,663
Operating Income (Loss)			4,462			13,370			139,123			(32	)		156,923
Equity in Earnings of Joint Ventures			85,103			12,017			441			(85,103	)		12,458
Other Income and (Deductions)
	Interest income		10,654			517			999			(10,674	)		1,496
	Interest on long-term debt		211			(11,147	)		(10,966	)		—			(21,902	)
	Other interest expense		(4,162	)		(12,492	)		(2,655	)		10,674			(8,635	)
	Dividends on preferred securities of subsidiaries		—			—			—			(10,335	)		(10,335	)
	Investment losses		—			—			—			—			—
	Minority interest		—			(62	)		(257	)		—			(319	)
	Other		(131	)		3,283			464			34			3,650
			6,572			(19,901	)		(12,415	)		(10,301	)		(36,045	)
Income (Loss) Before Income Taxes			96,137			5,486			127,149			(95,436	)		133,336
Income Tax Provision (Benefit)			259			1,486			43,176			—			44,921
Income (Loss) Before Cumulative Effect of Accounting Change			95,878			4,000			83,973			(95,436	)		88,415
Cumulative Effect of Accounting Change, Net of Taxes			—			(2,872	)		—			—			(2,872	)
Net Income (Loss)			95,878			1,128			83,973			(95,436	)		85,543
Dividends on Preferred Securities			10,335			—			—			(10,335	)		—
Net Income (Loss) Available for Common Stock		$	85,543		$	1,128		$	83,973		$	(85,101	)	$	85,543

34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENTS OF OPERATIONS

		MCN									Eliminations
		and Other									and			Consolidated
		Subsidiaries			MCNEE			MichCon			Reclasses			Total
		Twelve Months Ended March 31, 2000
(in Thousands)
Operating Revenues		$	34,177		$	1,486,877		$	1,080,396		$	(13,477	)	$	2,587,973
Operating Expenses
	Cost of sales		23,760			1,329,292			452,094			(11,970	)		1,793,176
	Operation and maintenance		1,471			138,106			262,621			(1,535	)		400,663
	Depreciation, depletion and amortization		3,231			50,236			100,215			—			153,682
	Property and other taxes		1,503			9,877			45,758			(6	)		57,132
	Property write-downs, contract losses and restructuring charges		—			61,782			—			—			61,782
	Gains and losses on sale of assets, net		—			60,956			—			—			60,956
	Merger costs		373			9,069			25,776			—			35,218
			30,338			1,659,318			886,464			(13,511	)		2,562,609
Operating Income (Loss)			3,839			(172,441	)		193,932			34			25,364
Equity in Earnings of Joint Ventures			(52,872	)		48,656			2,122			52,801			50,707
Other Income and (Deductions)
	Interest income		39,413			5,899			2,331			(39,816	)		7,827
	Interest on long-term debt		624			(43,090	)		(48,572	)		—			(91,038	)
	Other interest expense		(9,626	)		(50,271	)		(8,980	)		39,816			(29,061	)
	Dividends on preferred securities of subsidiaries		—			—			—			(38,426	)		(38,426	)
	Investment losses		—			(7,456	)		—			—			(7,456	)
	Minority interest		—			(876	)		(902	)		—			(1,778	)
	Other		548			3,786			(1,160	)		(35	)		3,139
			30,959			(92,008	)		(57,283	)		(38,461	)		(156,793	)
Income (Loss) Before Income Taxes			(18,074	)		(215,793	)		138,771			14,374			(80,722	)
Income Tax Provision (Benefit)			949			(73,690	)		49,468			—			(23,273	)
Income (Loss) Before Cumulative Effect of Accounting Change			(19,023	)		(142,103	)		89,303			14,374			(57,449	)
Cumulative Effect of Accounting Change, Net of Taxes			—			—			—			—			—
Net Income (Loss)			(19,023	)		(142,103	)		89,303			14,374			(57,449	)
Dividends on Preferred Securities			38,426			—			—			(38,426	)		—
Net Income (Loss) Available for Common Stock		$	(57,449	)	$	(142,103	)	$	89,303		$	52,800		$	(57,449	)

		Twelve Months Ended March 31, 1999
Operating Revenues		$	23,744		$	1,014,541		$	1,102,521		$	(14,982	)	$	2,125,824
Operating Expenses
	Cost of sales		14,990			767,727			482,291			(9,645	)		1,255,363
	Operation and maintenance		(11,772	)		155,853			257,721			(5,311	)		396,491
	Depreciation, depletion and amortization		3,394			81,436			95,046			—			179,876
	Property and other taxes		1,474			12,258			56,598			6			70,336
	Property write-downs, contract losses and restructuring charges		17,169			558,849			24,800			—			600,818
	Gains and losses on sale of assets, net		—			(10,403	)		—			—			(10,403	)
	Merger costs		—			—			—			—			—
			25,255			1,565,720			916,456			(14,950	)		2,492,481
Operating Income (Loss)			(1,511	)		(551,179	)		186,065			(32	)		(366,657	)
Equity in Earnings of Joint Ventures			(274,807	)		56,952			1,798			273,979			57,922
Other Income and (Deductions)
	Interest income		37,916			3,932			5,575			(39,382	)		8,041
	Interest on long-term debt		(671	)		(46,404	)		(43,644	)		—			(90,719	)
	Other interest expense		(6,187	)		(47,882	)		(11,511	)		39,382			(26,198	)
	Dividends on preferred securities of subsidiaries		—			—			—			(36,951	)		(36,951	)
	Investment losses		—			(6,135	)		—			—			(6,135	)
	Minority interest		—			271			6,215			(203	)		6,283
	Other		(770	)		3,496			161			237			3,124
			30,288			(92,722	)		(43,204	)		(36,917	)		(142,555	)
Income (Loss) Before Income Taxes			(246,030	)		(586,949	)		144,659			273,030			(451,290	)
Income Tax Provision (Benefit)			(3,174	)		(216,555	)		45,374			—			(174,355	)
Income (Loss) Before Cumulative Effect of Accounting Change			(242,856	)		(370,394	)		99,285			237,030			(276,935	)
Cumulative Effect of Accounting Change, Net of Taxes			—			(2,872	)		—			—			(2,872	)
Net Income (Loss)			(242,856	)		(373,266	)		99,285			237,030			(279,807	)
Dividends on Preferred Securities			36,951			—			—			(36,951	)		—
Net Income (Loss) Available for Common Stock		$	(279,807	)	$	(373,266	)	$	99,285		$	273,981		$	(279,807	)

35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			MCN									Eliminations
			and Other									and			Consolidated
			Subsidiaries			MCNEE			MichCon			Reclasses			Total
			Three Months Ended March 31, 2000
(in Thousands)
Net Cash Flow From Operating Activities			$	1,264		$	53,240		$	199,221		$	(8,290	)	$	245,435
Cash Flow From Financing Activities
	Notes payable, net			(200,761	)		(89,466	)		(158,369	)		(143	)		(448,739	)
	Capital contributions received from (distributions paid to) affiliates, net			—			(228,987	)		—			228,987			—
	Dividends paid			(21,719	)		—			—			—			(21,719	)
	Preferred securities dividends paid			(8,622	)		—			—			8,622			—
	Issuance of common stock			2,897			—			—			—			2,897
	Reacquisition of common stock			(1,655	)		—			—			—			(1,655	)
	Long-term commercial paper and bank borrowings, net			—			(34,138	)		—			—			(34,138	)
	Retirement of long-term debt and preferred securities			—			(38	)		(17,925	)		—			(17,963	)
		Net cash provided from (used for) financing activities		(229,860	)		(352,629	)		(176,294	)		237,466			(521,317	)
Cash Flow From Investing Activities
	Capital expenditures			(378	)		(2,330	)		(20,963	)		—			(23,671	)
	Investment in debt and equity securities, net			—			(2,000	)		(893	)		—			(2,893	)
	Investment in joint ventures and subsidiaries			228,987			(28,641	)		—			(228,987	)		(28,641	)
	Sale of property and joint venture interests			—			296,340			—			(864	)		295,476
	Other			42			(66	)		(410	)		675			241
		Net cash provided from (used for) investing activities		228,651			263,303			(22,266	)		(229,176	)		240,512
Net Increase (Decrease) in Cash and Cash Equivalents				55			(36,086	)		661			—			(35,370	)
Cash and Cash Equivalents, January 1				470			49,191			9,705			—			59,366
Cash and Cash Equivalents, March 31			$	525		$	13,105		$	10,366		$	—		$	23,996

			Three Months Ended March 31, 1999
Net Cash Flow From Operating Activities			$	20,753		$	27,288		$	179,713		$	(24,885	)	$	202,869
Cash Flow From Financing Activities
	Notes payable, net			(23,009	)		51,066			(113,269	)		1,000			(84,212	)
	Capital contributions received from (distributions paid to) affiliates, net			—			(28,408	)		—			28,408			—
	Dividends paid			(19,791	)		—			(17,500	)		17,500			(19,791	)
	Preferred securities dividends paid			(5,125	)		—			—			5,125			—
	Issuance of common stock			226			—			—			—			226
	Reacquisition of common stock			(977	)		—			—			—			(977	)
	Long-term commercial paper and bank borrowings, net			—			92,344			—			—			92,344
	Retirement of long-term debt and preferred securities			—			(81,847	)		(5,934	)		—			(87,781	)
		Net cash provided from (used for) financing activities		(48,676	)		33,155			(136,703	)		52,033			(100,191	)
Cash Flow From Investing Activities
	Capital expenditures			(381	)		(56,730	)		(24,209	)		—			(81,320	)
	Acquisitions			—			(1,602	)		—			—			(1,602	)
	Investment in debt and equity securities, net			—			542			—			(554	)		(12	)
	Investment in joint ventures and subsidiaries			28,258			(27,482	)		(16	)		(28,408	)		(27,648	)
	Sale of property and joint venture interests			—			29,560			—			(574	)		28,986
	Return of investment in joint ventures			—			1,136			—			—			1,136
	Other			118			(5,054	)		(1,876	)		2,388			(4,424	)
		Net cash provided from (used for) investing activities		27,995			(59,630	)		(26,101	)		(27,148	)		(84,884	)
Net Increase (Decrease) in Cash and Cash Equivalents				72			813			16,909			—			17,794
Cash and Cash Equivalents, January 1				1,400			9,036			6,603			—			17,039
Cash and Cash Equivalents, March 31			$	1,472		$	9,849		$	23,512		$	—		$	34,833

36

INDEPENDENT ACCOUNTANTS’ REPORT

To the Board of Directors of

MCN Energy Group Inc.:

We have reviewed the accompanying condensed consolidated statements of financial position of MCN Energy Group Inc. and subsidiaries (the “Company”) as of March 31, 2000 and 1999, the related condensed consolidated statements of operations and retained earnings (deficit) for the three and twelve-month periods ended March 31, 2000 and 1999, and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to the financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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 review, we are not aware of any material modifications that should be made to such condensed consolidated 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 auditing standards generally accepted in the United States of America, the consolidated statement of financial position of the Company as of December 31, 1999, and the related consolidated statements of operations, financial position, and cash flows for the year then ended (not presented herein); and in our report dated March 21, 2000, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to a change in accounting method as described in Note 5 to those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

DELOITTE & TOUCHE LLP

Detroit, Michigan

May 11, 2000

37

OTHER INFORMATION

EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

Exhibit
Number		Description
	12-1	Computation of Ratio of Earnings to Fixed Charges for MCN Energy Group Inc.
	12-2	Computation of Ratio of Earnings to Fixed Charges for MCN Energy Enterprises Inc.
	15-1	Letter re unaudited interim Financial information
	27-1	Financial Data Schedule

(b)  Reports on Form 8-K

None.

38

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.

MCN ENERGY GROUP INC.

Date: May 15, 2000

By:  /s/ GERARD KABZINSKI

Gerard Kabzinski

Vice President and Controller

39

EXHIBIT INDEX

Exhibit
Number		Description
	12-1	Computation of Ratio of Earnings to Fixed Charges for MCN Energy Group Inc.
	12-2	Computation of Ratio of Earnings to Fixed Charges for MCN Energy Enterprises Inc.
	15-1	Letter re unaudited interim Financial information
	27-1	Financial Data Schedule