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<SEC-DOCUMENT>0000950124-03-001047.txt : 20030331
<SEC-HEADER>0000950124-03-001047.hdr.sgml : 20030331
<ACCEPTANCE-DATETIME>20030331165355
ACCESSION NUMBER:		0000950124-03-001047
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030331

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CONSUMERS ENERGY CO
		CENTRAL INDEX KEY:			0000201533
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC & OTHER SERVICES COMBINED [4931]
		IRS NUMBER:				380442310
		STATE OF INCORPORATION:			MI
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05611
		FILM NUMBER:		03631616

	BUSINESS ADDRESS:	
		STREET 1:		212 W MICHIGAN AVE
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201
		BUSINESS PHONE:		5177881030

	MAIL ADDRESS:	
		STREET 1:		212 W MICHIGAN AVE
		STREET 2:		M 946
		CITY:			JACKSON
		STATE:			MI
		ZIP:			49201

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CONSUMERS POWER CO
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>k75486e10vk.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
================================================================================
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

================================================================================

                                   FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
                                       OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
               For the transition period from          to
                                              --------    --------

<TABLE>
<CAPTION>
Commission                             Registrant; State of Incorporation;                         IRS Employer
File Number                               Address; and Telephone Number                         Identification No.
- -----------                               -----------------------------                         ------------------


<S>                                 <C>                                                         <C>

    1-5611                                      CONSUMERS ENERGY COMPANY                              38-0442310
                                                (A Michigan Corporation)
                                    212 West Michigan Avenue, Jackson, Michigan 49201
                                                     (517)788-0550
</TABLE>


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                                                              Name of Each Exchange
        Registrant                                  Title of Class                             on Which Registered
        ----------                                  --------------                             -----------------------

<S>                          <C>                                                             <C>
CONSUMERS ENERGY COMPANY     Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series    New York Stock Exchange

CONSUMERS POWER
 COMPANY FINANCING I                  8.36% Trust Originated Preferred Securities            New York Stock Exchange

CONSUMERS ENERGY
 COMPANY FINANCING II                 8.20% Trust Originated Preferred Securities            New York Stock Exchange

CONSUMERS ENERGY
 COMPANY FINANCING III                9.25% Trust Originated Preferred Securities            New York Stock Exchange

CONSUMERS ENERGY
  COMPANY FINANCING IV                9.00% Trust Originated Preferred Securities            New York Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None

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
                                       ---    ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether Registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2).  Yes      No  X
                                  ---     ---
As of June 28, 2002 and March 15, 2003, CMS Energy held all voting and
non-voting common equity of Consumers.

Documents incorporated by reference: Consumers' information statement relating
to the 2003 annual meeting of shareholders to be held May 23, 2003, is
incorporated by reference in Part III, except for the organization and
compensation committee report and audit committee report contained therein.

================================================================================


<PAGE>
                            CONSUMERS ENERGY COMPANY


      Annual Report on Form 10-K to the Securities and Exchange Commission
                      for the Year Ended December 31, 2002


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                           <C>
Glossary        .............................................................................................   3

PART I:

Item  1.        Business.....................................................................................   7
Item  2.        Properties...................................................................................  20
Item  3.        Legal Proceedings............................................................................  20
Item  4.        Submission of Matters to a Vote of Security Holders..........................................  20

PART II:

Item  5.        Market for Consumers' Common Equity and Related Stockholder Matters..........................  21
Item  6.        Selected Financial Data......................................................................  21
Item  7.        Management's Discussion and Analysis of Financial Condition and
                     Results of Operations...................................................................  21
Item  7A.       Quantitative and Qualitative Disclosures About Market Risk...................................  21
Item  8.        Financial Statements and Supplementary Data..................................................  22
Item  9.        Changes in and Disagreements With Accountants on Accounting and
                     Financial Disclosure.................................................................... 104

PART III:

Item 10.        Directors and Executive Officers of Consumers................................................ 105
Item 11.        Executive Compensation....................................................................... 105
Item 12.        Security Ownership of Certain Beneficial Owners and Management............................... 105
Item 13.        Certain Relationships and Related Transactions............................................... 105
Item 14.        Controls and Procedures...................................................................... 105

PART IV:

Item 15.        Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 106
</TABLE>




                                      -2-
<PAGE>
                                    GLOSSARY

   Certain terms used in the text and financial statements are defined below.


<TABLE>
<S>                                        <C>
ABATE..................................... Association of Businesses Advocating Tariff Equity
Accumulated Benefit Obligation............ The liabilities of a pension plan based on service and pay to date.
                                           This differs from the Projected
                                           Benefit Obligation that is typically
                                           disclosed in that it does not reflect
                                           expected future salary increases
AEP....................................... American Electric Power Co.
ALJ....................................... Administrative Law Judge
Alliance.................................. Alliance Regional Transmission Organization
AMT....................................... Alternative minimum tax
APB....................................... Accounting Principles Board
APB Opinion No. 25........................ APB Opinion No. 25, "Accounting for Stock Issued to Employees"
APB Opinion No. 30........................ APB Opinion No. 30, "Reporting Results of Operations -- Reporting the
                                           Effects of Disposal of a Segment of a Business"
Arthur Andersen........................... Arthur Andersen, LLP
Articles.................................. Articles of Incorporation
Attorney General.......................... Michigan Attorney General

bcf....................................... Billion cubic feet
Big Rock.................................. Big Rock Point nuclear power plant, owned by Consumers
Board of Directors........................ Board of Directors of CMS
Bookouts.................................. Unplanned netting of transactions from multiple contracts
Btu....................................... British thermal unit

CEO....................................... Chief Executive Officer
CFO....................................... Chief Financial Officer
Clean Air Act............................. Federal Clean Air Act, as amended
CMS Energy................................ CMS Energy Corporation, the parent of Consumers and Enterprises
CMS Energy Common Stock................... Common stock of CMS Energy, par value $.01 per share
CMS Holdings.............................. CMS Midland Holdings Company, a subsidiary of Consumers
CMS Midland............................... CMS Midland Inc., a subsidiary of Consumers
CMS MST................................... CMS Marketing, Services and Trading Company, a subsidiary of
                                           Enterprises
CMS Oil and Gas........................... CMS Oil and Gas Company, formerly a subsidiary of Enterprises
Common Stock.............................. All classes of Common Stock of CMS Energy and each of its
                                           subsidiaries, or any of them individually, at the time of an award or
                                           grant under the Performance Incentive Stock Plan
Consumers................................. Consumers Energy Company, a subsidiary of CMS Energy
Consumers Campus Holdings................. Consumers Campus Holdings, L.L.C., a wholly owned subsidiary of
                                           Consumers
Consumers Funding......................... Consumers Funding, L.L.C., a special consolidated subsidiary of
                                           Consumers
Consumers Receivables Funding............. Consumers Receivables Funding, L.L.C., a wholly owned subsidiary of
                                           Consumers
Court of Appeals.......................... Michigan Court of Appeals
Customer Choice Act....................... Customer Choice and Electricity Reliability Act, a Michigan statute enacted in
                                           June 2000 that allows all retail customers choice of alternative
                                           electric suppliers no later than January 1, 2002, provides for full
                                           recovery of net stranded costs and implementation costs, establishes a
                                           five percent reduction in residential rates, establishes rate freeze and
                                           rate cap, and allows for Securitization
</TABLE>



                                      -3-
<PAGE>
<TABLE>
<S>                                        <C>
Detroit Edison............................ The Detroit Edison Company, a non-affiliated company
DOE....................................... U.S. Department of Energy
Dow....................................... The Dow Chemical Company, a non-affiliated company
DSM....................................... Demand-side management

EISP...................................... Executive Incentive Separation Plan
EITF...................................... Emerging Issues Task Force
EITF No. 97-4............................. EITF 97-4, "Deregulation of the Pricing of Electricity"
Enterprises............................... CMS Enterprises Company, a subsidiary of CMS Energy
EPA....................................... U. S. Environmental Protection Agency
EPS....................................... Earnings per share
ERISA..................................... Employee Retirement Income Security Act
Ernst & Young............................. Ernst & Young LLP

FASB...................................... Financial Accounting Standards Board
FERC...................................... Federal Energy Regulatory Commission
FMLP...................................... First Midland Limited Partnership, a partnership which holds a lessor
                                           interest in the MCV facility

GCR....................................... Gas cost recovery

Health Care Plan.......................... The medical, dental, and prescription drug programs offered to
                                           eligible employees of Panhandle, Consumers and CMS Energy

IPP....................................... Independent Power Producer
ISO....................................... Independent System Operator
ITC....................................... Investment tax credit

kWh....................................... Kilowatt-hour

LIBOR..................................... London Inter-Bank Offered Rate
Ludington................................. Ludington pumped storage plant, jointly owned by Consumers and Detroit
                                           Edison

MACT...................................... Maximum Achievable Control Technology
Massachusetts Formula..................... A widely used and FERC accepted method of allocating general and
                                           administrative expenses, based on three factors: property, sales and payroll
mcf....................................... Thousand cubic feet
MCV Facility.............................. A natural gas-fueled, combined-cycle cogeneration facility operated by
                                           the MCV Partnership
MCV Partnership........................... Midland Cogeneration Venture Limited Partnership in which Consumers
                                           has a 49 percent interest through CMS Midland
MD&A...................................... Management's Discussion and Analysis
METC...................................... Michigan Electric Transmission Company, a former subsidiary of
                                           Consumers Energy, and now an indirect subsidiary of Trans-Elect, Inc.
Michigan Gas Storage...................... Michigan Gas Storage Company, a former subsidiary of Consumers that
                                           merged into Consumers in November 2002
MISO...................................... Midwest Independent System Operator
Moody's................................... Moody's Investors Service, Inc.
MPSC...................................... Michigan Public Service Commission
MTH....................................... Michigan Transco Holdings, Limited Partnership
MW........................................ Megawatts
</TABLE>


                                      -4-
<PAGE>
<TABLE>
<S>                                        <C>
NEIL...................................... Nuclear Electric Insurance Limited, an industry mutual insurance
                                           company owned by member utility companies
NMC....................................... Nuclear Management Company, a Wisconsin company, formed in 1999 by
                                           Northern States Power Company (now Xcel Energy Inc.), Alliant Energy,
                                           Wisconsin Electric Power Company, and Wisconsin Public Service Company to
                                           operate and manage nuclear generating facilities owned by the four
                                           utilities
NRC....................................... Nuclear Regulatory Commission
NYMEX..................................... New York Mercantile Exchange

OATT...................................... Open Access Transmission Tariff
OPEB...................................... Postretirement benefit plans other than pensions for retired employees

Palisades................................. Palisades nuclear power plant, owned by Consumers
Panhandle................................. Panhandle Eastern Pipe Line Company, including its subsidiaries
                                           Trunkline, Pan Gas Storage, Panhandle Storage, and Trunkline LNG.
                                           Panhandle is a wholly owned subsidiary of CMS Gas Transmission
PCB....................................... Polychlorinated biphenyl
Pension Plan.............................. The trusteed, non-contributory, defined benefit pension plan of
                                           Panhandle, Consumers and CMS Energy
PJM....................................... Pennsylvania-Jersey-Maryland
PPA....................................... The Power Purchase Agreement between Consumers and the MCV Partnership
                                           with a 35-year term commencing in March 1990
Price-Anderson Act........................ Price-Anderson Act, enacted in 1957 as an amendment to the Atomic
                                           Energy Act of 1954, as revised and extended over the years.  This act
                                           stipulates between nuclear licensees and the U.S. government the
                                           insurance, financial responsibility, and legal liability for nuclear
                                           accidents
PSCR...................................... Power supply cost recovery
PURPA..................................... Public Utility Regulatory Policies Act

RTO....................................... Regional Transmission Organization

SEC....................................... U.S. Securities and Exchange Commission
Securitization............................ A financing authorized by statute in which a MPSC approved flow of
                                           revenues from a portion of the rates charged by a utility to its customers
                                           is set aside and pledged as security for the repayment of Securitization
                                           bonds issued by a special purpose entity affiliated with such utility
SERP...................................... Supplemental Executive Retirement Plan
SFAS...................................... Statement of Financial Accounting Standards
SFAS No. 5................................ SFAS No. 5, "Accounting for Contingencies"
SFAS No. 13............................... SFAS No. 13, "Accounting for Leases"
SFAS No. 71............................... SFAS No. 71, "Accounting for the Effects of Certain Types of
                                           Regulation"
SFAS No. 87............................... SFAS No. 87, "Employers' Accounting for Pensions"
SFAS No. 106.............................. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
                                           Than Pensions"
SFAS No. 109.............................. SFAS No. 109, "Accounting for Income Taxes"
SFAS No. 115.............................. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
                                           Securities"
SFAS No. 121.............................. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
                                           for Long-Lived Assets to be Disposed Of"
</TABLE>


                                      -5-
<PAGE>
<TABLE>
<S>                                        <C>
SFAS No. 123.............................. SFAS No. 123, "Accounting for Stock-Based Compensation"
SFAS No. 133.............................. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
                                           Activities, as amended and interpreted"
SFAS No. 141.............................. SFAS No. 141, "Business Combinations"
SFAS No. 142.............................. SFAS No. 142, "Goodwill and Other Intangible Assets"
SFAS No. 143.............................. SFAS No. 143, "Accounting for Asset Retirement Obligations"
SFAS No. 144.............................. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
                                           Assets"
SFAS No. 145.............................. SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
                                           Amendment of FASB Statement No. 13, and Technical Corrections"
SFAS No. 146.............................. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
                                           Activities"
SFAS No. 147.............................. SFAS No. 147, "Acquisitions of Certain Financial Institutions"
SFAS No. 148.............................. SFAS No. 148 "Accounting for Stock-Based Compensation -- Transition
                                           and Disclosure"
Special Committee......................... A special committee of independent directors, established by CMS
                                           Energy's Board of Directors, to investigate matters surrounding
                                           round-trip trading
Stranded Costs............................ Costs incurred by utilities in order to serve their customers in a
                                           regulated monopoly environment, but which may not be recoverable in a
                                           competitive environment because of customers leaving their systems and
                                           ceasing to pay for their costs.  These costs could include owned and
                                           purchased generation and regulatory assets.
Superfund................................. Comprehensive Environmental Response, Compensation and Liability Act

Trunkline................................. Trunkline Gas Company, a subsidiary of Panhandle Eastern Pipe Line
                                           Company
Trust Preferred Securities................ Securities representing an undivided beneficial interest in the assets
                                           of statutory business trusts, which interests have a preference with
                                           respect to certain trust distributions over the interests of either
                                           CMS Energy or Consumers, as applicable, as owner of the common
                                           beneficial interests of the trusts

Union..................................... Utility Workers of America, AFL-CIO

VEBA Trusts............................... VEBA (voluntary employees' beneficiary association) Trusts are
                                           tax-exempt accounts established to specifically set aside employer
                                           contributed assets to pay for future expenses of the OPEB plan
</TABLE>





                                      -6-
<PAGE>
                                     PART I

                                ITEM 1. BUSINESS

GENERAL

CMS ENERGY

    CMS Energy, formed in Michigan in 1987, is an energy holding company
operating, through subsidiaries, in the United States and in selected markets
around the world. Its two principal subsidiaries are Consumers and Enterprises.
Consumers is a public utility that provides natural gas and/or electricity to
almost 6 million of Michigan's 10 million residents and serves customers in all
68 of the state's Lower Peninsula counties. Enterprises, through subsidiaries,
is engaged in several energy businesses in the United States and in selected
international markets.

    In 2002, CMS Energy's consolidated operating revenue was approximately $8.7
billion.

CONSUMERS

    Consumers, formed in Michigan in 1968, is the successor to a corporation
organized in Maine in 1910 that conducted business in Michigan from 1915 to
1968. In 1997, Consumers, formerly named Consumers Power Company, changed its
name to Consumers Energy Company to better reflect its integrated electricity
and gas businesses.

    Consumers' service areas include automotive, metal, chemical, food and wood
products and a diversified group of other industries. Consumers' consolidated
operations account for a majority of CMS Energy's total assets and income, as
well as a substantial portion of its operating revenue. At year-end 2002,
Consumers' customer base and operating revenues were as follows:

<TABLE>
<CAPTION>
                                                                   Customers      Operating       2002 vs. 2001
                                                                     Served        Revenue       Operating Revenue
                                                                   (millions)     (millions)   % Increase/(Decrease)
                                                                   ----------     ----------   ---------------------
<S>                                                                <C>            <C>          <C>
                    Electric Utility Business....................     1.73           $2,648                     0.57%

                    Gas Utility Business.........................     1.65            1,519                     13.53

                    Other........................................      ---            55(a)                     27.91

                    Total........................................     3.38           $4,222                     5.18%
</TABLE>
- ----------
(a) Primarily represents earnings attributable to Consumers' interest in the MCV
Partnership and MCV Facility.

    Consumers' rates and certain other aspects of its business are subject to
the jurisdiction of the MPSC and FERC, as described in CONSUMERS REGULATION
later in this Item 1.

    CONSUMERS PROPERTIES -- GENERAL: The principal properties of Consumers and
its subsidiaries are owned in fee, except that most electric lines and gas mains
are located, pursuant to easements and other rights, in public roads or on land
owned by others. Substantially all of Consumers' properties are subject to the
lien of its First Mortgage Bond Indenture. For additional information on
Consumers' properties see BUSINESS SEGMENTS -- Consumers Electric Utility
Operations -- Electric Utility Properties, and -- Consumers Gas Utility
Operations -- Gas Utility Properties, below.

    For information on capital expenditures, see ITEM 7. CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS -- OUTLOOK and ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 10 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.


                                      -7-
<PAGE>

BUSINESS SEGMENTS

    For information with respect to the operating revenue, net operating income,
identifiable assets and liabilities attributable to Consumers' business
segments, see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- SELECTED
FINANCIAL INFORMATION AND CONSUMERS' CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.

CONSUMERS' ELECTRIC UTILITY OPERATIONS

    Based on the average number of customers, Consumers' electric utility
operations, if independent, would be the thirteenth largest electric utility
company in the United States. Consumers' electric utility operations include the
generation, purchase, distribution and sale of electricity. At year-end 2002, it
served customers in 61 of the 68 counties of Michigan's lower peninsula.
Principal cities served include Battle Creek, Flint, Grand Rapids, Jackson,
Kalamazoo, Midland, Muskegon and Saginaw. Consumers' electric utility customer
base includes a mix of residential, commercial and diversified industrial
customers, the largest segment of which is the automotive industry. Consumers'
electric utility operations are not dependent upon a single customer, or even a
few customers, and the loss of any one or even a few of such customers is not
reasonably likely to have a material adverse effect on its financial condition.

    Consumers' electric utility operations are seasonal. The summer months
usually increase demand for electric energy, principally due to the use of air
conditioners and other cooling equipment, thereby affecting revenues. In 2002
and 2001, total electric deliveries were 39 billion kWh and 40 billion kWh,
respectively. In 2002, electric sales totaled 37 billion kWh and retail open
access deliveries totaled 2 billion kWh. In 2001, electric sales totaled 39
billion kWh and retail open access deliveries totaled 1 billion kWh.

     Excluding retail open access loads, Consumers experienced a 2002 summer
peak demand of 7,697 MW. In 2002, the winter peak demand was 5,573 MW for the
winter 2001-02 period and 5,862 MW for the winter 2002-03 period. In 2002, based
on the actual summer peak, Consumers' power reserve, also called a reserve
margin, was 20.6 percent compared to 11.1 percent in 2001. Based on its summer
2002 forecast, Consumers carried a 15.0 percent reserve margin. In recent years,
Consumers has planned for a reserve margin of approximately 15 percent from a
combination of its owned electric generating plants and electricity purchase
contracts or options, as well as other arrangements. However, in light of
various factors, including the addition of new generating capacity in Michigan
and throughout the Midwest region and additional transmission import capability,
Consumers is continuing to evaluate the appropriate reserve margin for 2003 and
beyond. Currently, Consumers has an estimated reserve margin of approximately 11
percent for summer 2003 or 111 percent of projected summer peak load. Of the 111
percent, approximately 101 percent is met from owned electric generating plants
and long-term power purchase contracts and 10 percent from short-term contracts
and options for physical deliveries and other agreements. The ultimate use of
the reserve margin needed will depend primarily on summer weather conditions,
the level of retail open access requirements being served by others during the
summer, and any unscheduled plant outages.

    Including retail open access loads, Consumers experienced a 2002 summer peak
demand of 7,984 MW. Winter peak demand for 2002, including retail open access
loads, was 5,694 MW for the winter 2001-02 period and 6,140 MW for the winter
2002-03 period.


                                      -8-
<PAGE>


    ELECTRIC UTILITY PROPERTIES: At December 31, 2002, Consumers' electric
generating system consists of the following:

<TABLE>
<CAPTION>
                                                                                                                    2002 Net
                                                                                          2002 Summer Net          Generation
                                                             Size and Year                  Demonstrated           (Thousands
           Name and Location (Michigan)                    Entering Service               Capability (KWs)          of kWHs)
                                                         --------------------           --------------------     --------------
<S>                                                      <C>                            <C>                      <C>
  Coal Generation

    J H Campbell 1 & 2 -- West Olive................      2 Units, 1962-1967                     615,000            4,406,940
    J H Campbell 3 - West Olive.....................      1 Unit, 1980                           765,140(a)         4,511,713
    D E Karn -- Essexville..........................      2 Units, 1959-1961                     515,000            3,824,249
    B C Cobb -- Muskegon ...........................      2 Units, 1956-1957                     312,000            2,150,510
    J R Whiting -- Erie.............................      3 Units, 1952-1953                     326,000            2,262,509
    J C Weadock -- Essexville.......................      2 Units, 1955-1958                     310,000            2,205,575
                                                                                        --------------------     --------------
  Total coal generation.............................                                           2,843,140           19,361,496
                                                                                        --------------------     --------------

  Oil/Gas Generation
    B C Cobb -- Muskegon............................      3 Units, 1999-2000                     183,000               38,035
    D E Karn -- Essexville..........................      2 Units, 1975-1977                   1,276,000              650,008
                                                                                        --------------------     --------------
  Total oil/gas generation..........................                                           1,459,000              688,043
                                                                                        --------------------     --------------

  Hydroelectric
    Conventional Hydro Generation...................      13 Plants, 1906-1949                    73,540              386,691
    Ludington Pumped Storage........................      6 Units, 1973                          954,700(b)          (486,322)(c)
                                                                                        --------------------     --------------
  Total Hydroelectric...............................                                           1,028,240             (99,631)
                                                                                        --------------------     --------------

  Nuclear Generation
    Palisades -- South Haven........................      1 Unit, 1971                           767,000            6,357,962
                                                                                        --------------------     --------------

  Gas/Oil Combustion Turbine
    Generation......................................      7 Plants, 1966-1971                    346,800(d)            12,743
                                                                                        --------------------     --------------
  Total owned generation............................                                           6,444,180           26,320,613
                                                                                        --------------------     ==============

  Purchased and Interchange Power
    Capacity........................................                                           1,766,180(e)

  Total.............................................                                           8,210,360
                                                                                        ====================
</TABLE>
- ----------

(a)  Represents Consumers' share of the capacity of the J H Campbell 3, net of
     6.69 percent (ownership interests of the Michigan Public Power Agency and
     Wolverine Power Supply Cooperative, Inc.).

(b)  Represents Consumers' share of the capacity of Ludington. Consumers and
     Detroit Edison have 51 percent and 49 percent undivided ownership,
     respectively, in the plant.

(c)  Represents Consumers' share of net pumped storage generation. This facility
     electrically pumps water during off-peak hours for storage to later
     generate electricity during peak-demand hours.

(d)  Includes 1.8 MW of distributed diesel generation.

(e)  Includes 1,240 MW of purchased contract capacity from the MCV Facility.

    In 2002, Consumers purchased, through long-term purchase contracts, options,
spot market and other seasonal purchases, up to 2,683 MW of net capacity from
other power producers, which amounted to 34.9 percent of Consumers' total system
requirements, the largest of which was the MCV Partnership.


                                      -9-
<PAGE>
    A high voltage transmission system interconnects Consumers' electric
generating plants at many locations with transmission facilities of unaffiliated
systems including those of other utilities in Michigan and Indiana. The
interconnections permit a sharing of the reserve capacity of the connected
systems. This allows mutual assistance during emergencies and substantially
reduces investment in utility plant facilities. Consumers owns: a) 338 miles of
high voltage distribution radial lines operating at 120 kilovolts and above; b)
4,159 miles of high voltage distribution overhead lines operating at 23
kilovolts and 46 kilovolts; c) 16 subsurface miles of high voltage distribution
underground lines operating at 23 kilovolts and 46 kilovolts; d) 54,681 miles of
electric distribution overhead lines; e) 8,201 subsurface miles of underground
distribution lines and f) substations having an aggregate transformer capacity
of 20,596,240 kilovoltamperes.

    On April 1, 2001, Consumers transferred its investment in electric
transmission lines and substations to a wholly owned subsidiary, Michigan
Electric Transmission Company (METC). On May 1, 2002, Consumers transferred its
interest in METC to a third party, Michigan Transco Holdings, LLC (MTH), and
Consumers no longer owns or controls transmission facilities either directly or
indirectly. MTH owns the former Consumers transmission assets through a new
transmission company called Michigan Electric Transmission Company, LLC. For
additional information on the sale of the transmission assets, see ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS -- ELECTRIC RATE MATTERS -- TRANSMISSION.

    FUEL SUPPLY: Consumers has four generating plant sites that use coal as a
fuel source and that constitute 73.6 percent of its baseload supply, the
capacity used to serve a constant level of customer demand. In 2002, these
plants produced a combined total of 19,361 million kWhs of electricity and
required 9.7 million tons of coal. On December 31, 2002, Consumers' coal
inventory amounted to approximately 30 days' supply. For additional information
on future sources of coal, see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- OTHER
ELECTRIC UNCERTAINTIES -- COAL SUPPLY.

    Consumers owns two nuclear power plants, Big Rock, located near Charlevoix,
Michigan and Palisades, located near South Haven, Michigan. In 1997, Consumers
ceased operating Big Rock. In May 2001, with the approval of the NRC, Consumers
transferred its authority to operate Palisades to the Nuclear Management Company
(NMC). The Palisades nuclear fuel supply responsibilities are under the control
of NMC acting as agent for Consumers. During 2002, Palisades' net generation was
6,358 million kWhs, constituting 24.2 percent of Consumers' baseload supply. New
fuel contracts are being written as NMC Agreements. Consumers/NMC currently have
sufficient contracts for uranium concentrates to provide up to 100 percent of
its fuel supply requirements for the 2003 and 2004 period. Consumers/NMC also
have contracts for conversion services and enrichment services with quantity
flexibility ranging up to 100 percent. If spot market prices are below the
contract price, NMC will purchase only the minimum amount of nuclear fuel
required by the contracts. Conversely, if spot market prices are above the
contract prices, Consumers will purchase the maximum amount of nuclear fuel
allowed by the contracts to meet its requirements.

    For the spring 2003 refueling outage, Consumers has purchased all of its
fuel supply requirements. NMC also has contracts for nuclear fuel services and
for fabrication of nuclear fuel assemblies. The fabrication contract for
Palisades remains in effect for the next two reloads with options to extend the
contract for an additional two reloads. The fuel contracts are with major
private industrial suppliers of nuclear fuel and related services and with
uranium producers, converters and enrichers who participate in the world nuclear
fuel marketplace.

    As shown below, Consumers generates electricity principally from coal and
nuclear fuel.

<TABLE>
<CAPTION>
                                                                                 MILLIONS OF KWHS
                                                               -----------------------------------------------------
                POWER GENERATED                                  2002        2001        2000      1999       1998
                ---------------                                ----------  --------    --------  --------   --------
<S>                                                            <C>         <C>         <C>       <C>        <C>
                Coal                                            19,361      19,203      17,926    19,085     17,959
                Nuclear                                          6,358       2,326(a)    5,724     5,105      5,364
                Oil                                                347         331         645       809        520
                Gas                                                354         670         400       441        302
                Hydro                                              387         423         351       365        395
                Net pumped storage                                (486)       (553)       (541)     (476)      (480)
                                                               -------    --------     -------  --------    -------
                Total net generation.......................     26,321      22,400      24,505    25,329     24,060
                                                               =======    ========     =======  ========    =======
</TABLE>
- ----------
         (a) On June 20, 2001, the Palisades reactor was shut down so
technicians could inspect a small steam leak on a control rod drive assembly.
The defective components were replaced and the plant returned to service on
January 21, 2002.



                                      -10-
<PAGE>

         The cost of all fuels consumed, shown below, fluctuates with the mix of
fuel burned.

<TABLE>
<CAPTION>
                                                                             COST PER MILLION BTU
                                                               -------------------------------------------------
               FUEL CONSUMED                                     2002         2001     2000      1999      1998
               -------------                                   -------      -------  -------   -------   -------
<S>                                                            <C>          <C>      <C>       <C>       <C>
               Coal..........................................    $1.34      $  1.38   $ 1.34   $ 1.38    $ 1.45
               Oil...........................................     3.49         4.02     3.30     2.69      2.73
               Gas...........................................     3.98         4.05     4.80     2.74      2.66
               Nuclear ......................................     0.35         0.39     0.45     0.52      0.50
               All Fuels(a)..................................     1.19         1.44     1.27     1.28      1.28
</TABLE>
- ----------
(a) Weighted average fuel costs.

    Pursuant to the Nuclear Waste Policy Act of 1982, the federal government
became responsible for the permanent disposal of spent nuclear fuel and
high-level radioactive waste by 1998. To date, the DOE has been unable to
arrange for storage facilities to meet this obligation and it does not expect
that in 2003 it will be able to receive spent nuclear fuel for storage. For
additional information on disposal of nuclear fuel see ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. The amount of spent nuclear fuel discharged from the
reactor to date exceeds Palisades' temporary on-site storage pool capacity, and
Consumers is currently storing spent nuclear fuel in NRC-approved steel and
concrete vaults, known as "dry casks". Currently, three dry casks are available
for future storage. For a discussion relating to the NRC approval of dry casks
and Consumers' use of the dry casks, see ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- UNCERTAINTIES -- OTHER ELECTRIC UNCERTAINTIES.

CONSUMERS' GAS UTILITY OPERATIONS

    Based on the average number of customers, Consumers' gas utility operations,
if independent, would be the 6th largest gas utility company in the United
States. Consumers' gas utility operations purchase, transport, store, distribute
and sell natural gas. As of December 31, 2002, it was authorized to provide
service in 54 of the 68 counties in Michigan's lower peninsula. Principal cities
served include Bay City, Flint, Jackson, Kalamazoo, Lansing, Pontiac and
Saginaw, as well as the suburban Detroit area, where nearly 900,000 of the gas
customers are located. Consumers' gas utility operations are not dependent upon
a single customer, or even a few customers, and the loss of any one or even a
few of such customers is not reasonably likely to have a material adverse effect
on its financial condition.

    Consumers' gas utility operations are seasonal. Consumers injects natural
gas into storage during the summer months of the year for use during the winter
months when the demand for natural gas is higher. Peak demand usually occurs in
the winter due to colder temperatures and the resulting increased demand for
heating fuels. In 2002, total deliveries of natural gas sold by Consumers and by
other sellers who deliver natural gas through Consumers' pipeline and
distribution network to ultimate customers, including the MCV Partnership,
totaled 376.4 bcf.

    Due to prolonged colder than normal weather during the winter months of
2002-2003, Consumers' gas storage fields were drawn down to unexpected and
unusually low levels. This caused withdrawal of the entire amount of working
storage gas from some fields. As a result, some salt water has entered
Consumers' pipelines and distribution lines that may increase future maintenance
problems and costs resulting from pipe corrosion.

    GAS UTILITY PROPERTIES: Consumers' gas distribution and transmission system
consists of 25,218 miles of distribution mains and 1,624 miles of transmission
lines throughout Michigan's lower peninsula. It owns and operates seven
compressor stations with a total of 162,000 installed horsepower. Consumers has
14 gas storage fields located across Michigan with an aggregate storage capacity
of 330.8 bcf.

    In February 2002, the FERC approved Michigan Gas Storage's application for a
declaration of exemption from provisions of the National Gas Act. This allowed
Consumers to file with the MPSC for approval to merge with Michigan Gas Storage.
The merger was approved and completed in November 2002.

    GAS SUPPLY: Total 2002 purchases included 58 percent from United States
producers outside Michigan, 22 percent from Canadian producers and 6 percent
from Michigan producers. Authorized suppliers in the permanent gas customer
choice pilot program, which started in April 2001, supplied the remaining 14
percent of gas delivered by Consumers.


                                      -11-
<PAGE>

    Consumers' firm transportation agreements are with ANR Pipeline Company,
Great Lakes Gas Transmission, L.P., Trunkline and Panhandle Eastern Pipe Line.
Consumers uses these agreements to deliver gas to Michigan for ultimate
deliveries to market. In total, Consumers' firm transportation and city gate
arrangements are capable of delivering over 95 percent of Consumers' total gas
supply requirements. As of December 31, 2002, Consumers' portfolio of firm
transportation from pipelines to Michigan is as follows:

<TABLE>
<CAPTION>
                                                                                VOLUME
                                                                           (DEKATHERMS/DAY)           EXPIRATION
                                                                           ----------------      --------------------
<S>                                                                        <C>                   <C>
               ANR Pipeline Company....................................          84,113          October         2003
               Great Lakes Gas Transmission, L.P.......................          85,092          April           2004
               Trunkline...............................................         336,375          October         2005
               Panhandle Eastern Pipe Line (starting April 1, 2003)....          60,000          October         2003
               ANR Pipeline Company....................................          10,000          December        2002
</TABLE>

    Consumers purchases the balance of its required gas supply under firm city
gate contracts and as needed, interruptible contracts. The amount of
interruptible transportation service and its use varies primarily with the price
for such service and the availability and price of the spot supplies being
purchased and transported. Consumers' use of interruptible transportation is
generally in off-peak summer months and after Consumers has fully utilized the
services under the firm transportation agreements.

CONSUMERS REGULATION

     Consumers and its subsidiaries are subject to regulation by various
federal, state and local governmental agencies, including those specifically
described below.

MICHIGAN PUBLIC SERVICE COMMISSION

    Consumers is subject to the MPSC's jurisdiction, which regulates public
utilities in Michigan with respect to retail utility rates, accounting, utility
services, certain facilities and various other matters. The Attorney General,
ABATE, and the MPSC staff typically intervene in MPSC electric and gas related
proceedings concerning Consumers. For many years, almost every significant MPSC
order affecting Consumers has been appealed. Certain appeals from the MPSC
orders are pending in the Court of Appeals.

    RATE PROCEEDINGS: In 1996, the MPSC issued an order that established the
electric authorized rate of return on common equity at 12.25 percent. In 2002,
the MPSC issued an order that established the gas authorized rate of return on
common equity at 11.4 percent.

    MPSC REGULATORY AND MICHIGAN LEGISLATIVE CHANGES: State regulation of the
retail electric and gas utility businesses is in the process of undergoing
significant changes. In 2000, the Michigan Legislature enacted the Customer
Choice Act. Pursuant to the Customer Choice Act, as of January 2002, all
electric customers have their choice of buying generation service from an
alternative electric supplier. The Customer Choice Act also imposes rate
reductions, rate freezes and rate caps. For a description and additional
information regarding the Customer Choice Act, see ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.

    As a result of regulatory changes in the natural gas industry, Consumers
transports the natural gas commodity that is sold to some customers by
competitors like gas producers, marketers and others. From April 1, 1998, to
March 31, 2001, Consumers' implemented a statewide experimental gas customer
choice pilot program that allowed up to 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier and froze the
rates Consumers was permitted to charge for the service of distributing gas to
its customers.

    Beginning April 1, 2001, Consumers established a permanent gas customer
choice program that allows up to 600,000 of Consumers' gas customers to select
an alternative gas commodity supplier. By April 2003, all of Consumers' gas
customers will be eligible to select an alternative gas commodity supplier. As
of December 31, 2002, 178,000 of Consumers' gas customers had elected an
alternate gas commodity supplier. Also on April 1, 2001, pursuant to the
permanent gas customer choice program, Consumers returned to a GCR mechanism
that allows it to recover from its customers all prudently incurred costs to
purchase the natural gas commodity and transport it to Consumers' facilities.
For additional information on gas customer choice programs see ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.



                                      -12-
<PAGE>

FEDERAL ENERGY REGULATORY COMMISSION

    Some of Consumers' gas business is also subject to regulation by FERC,
including a blanket transportation tariff pursuant to which Consumers can
transport gas in interstate commerce. FERC also regulates certain aspects of
Consumers' electric operations including: compliance with FERC accounting rules;
wholesale rates; transfers of certain facilities; and corporate mergers and
issuance of securities. For a discussion of the effect of certain FERC orders on
Consumers, see ITEM 7. CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS --
OUTLOOK -- ELECTRIC BUSINESS OUTLOOK.

NUCLEAR REGULATORY COMMISSION

    Under the Atomic Energy Act of 1954, as amended, and the Energy
Reorganization Act of 1974, Consumers is subject to the jurisdiction of the NRC
with respect to the design, construction, operation and decommissioning of its
nuclear power plants. Consumers is also subject to NRC jurisdiction with respect
to certain other uses of nuclear material. These and other matters concerning
Consumers' nuclear plants are more fully discussed in ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTES 1 AND 2 OF CONSUMERS' CONSOLIDATED
FINANCIAL STATEMENTS.

OTHER REGULATION

    The Secretary of Energy regulates the importation and exportation of natural
gas and has delegated various aspects of this jurisdiction to FERC and the DOE's
Office of Fossil Fuels. Consumers is also subject to the Hazardous Liquid
Pipeline Safety Act of 1979, which regulates oil and petroleum pipelines.

CONSUMERS ENVIRONMENTAL COMPLIANCE

    Consumers and its subsidiaries are subject to various federal, state and
local regulations for environmental quality, including air and water quality,
waste management, zoning and other matters. For additional information
concerning environmental matters, see ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS -- UNCERTAINTIES -- ELECTRIC CONTINGENCIES.

    Consumers has installed and is currently installing modern emission controls
at its electric generating plants and has converted and is converting electric
generating units to burn cleaner fuels. Consumers expects that the cost of
future environmental compliance, especially compliance with clean air laws, will
be significant because of EPA regulations regarding nitrogen oxide and
particulate-related emissions. These regulations will require Consumers to make
significant capital expenditures. For the preliminary estimates of these capital
expenditures to reduce nitrogen oxide-related emissions see NOTE 2 OF CONSUMERS'
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNCERTAINTIES --ELECTRIC
CONTINGENCIES.

    Consumers is in the process of closing older ash disposal areas at two
plants. Construction, operation, and closure of a modern solid waste disposal
area for ash can be expensive, because of strict federal and state requirements.
In order to significantly reduce ash field closure costs, Consumers has worked
with others to use bottom ash and fly ash as part of temporary and final cover
for ash disposal areas instead of native materials in cases where such use of
bottom ash and fly ash is compatible with environmental standards. To reduce
disposal volumes, Consumers sells coal ash for use as a filler for asphalt, for
incorporation into concrete products and for other environmentally compatible
uses. The EPA has announced its intention to develop new nationwide standards
for ash disposal areas. Consumers intends to work through industry groups to
help ensure that any such regulations require only the minimum cost necessary to
adhere to standards that are consistent with protection of the environment.

    Consumers has PCB in some of its electrical equipment, as do most electric
utilities. During routine maintenance activities, Consumers identified PCB as a
component in certain paint, grout and sealant materials at the Ludington Pumped
Storage facility. Consumers removed and replaced part of the PCB material.
Consumers has proposed a plan to the EPA to deal with the remaining materials
and is waiting on a response from the EPA.

    Certain environmental regulations affecting Consumers include, but are not
limited to, the Clean Air Act Amendments of 1990 and Superfund. Superfund can
require any individual or entity that may have owned or operated a disposal
site, as well as transporters or generators of hazardous substances that were
sent to such site, to share in remediation costs for the site.

    Consumers' current insurance coverage does not extend to certain
environmental clean-up costs, such as claims for air pollution, some past PCB
contamination and for some long-term storage or disposal of pollutants.


                                      -13-
<PAGE>

CONSUMERS COMPETITION

ELECTRIC COMPETITION

    Consumers' electric utility business experiences competition, actual and
potential, from many sources, both in the wholesale and retail markets, and in
electric generation, electric delivery, and retail services.

    In the wholesale electricity markets, Consumers competes with other
wholesale suppliers, marketers and brokers. Electric competition in the
wholesale markets increased significantly since 1996 due to FERC Order 888.
Whereas Consumers is still active in wholesale electricity markets, wholesale
for retail transactions by Consumers generated an immaterial amount of
Consumers' 2002 revenues from electric utility operations. Consumers does not
believe future loss of wholesale for retail sales to be significant.

    A significant increase in retail electric competition is now possible with
the passage of the Customer Choice Act and the availability of retail open
access. The Customer Choice Act of June 2000 required Consumers to open
progressive tiers of its electric customer power supply requirement such that a
total of 750 MW was open to competition in 2001. As of January 1, 2002, the
Consumer Choice Act also gave all electric customers the right to buy generation
service from an alternative electric supplier. The Michigan Public Service
Commission has adopted a mechanism pursuant to the Customer Choice Act to
provide for recovery of stranded costs. The company cannot predict the total
amount of electric supply load that may be lost to competitor suppliers, nor
whether the stranded cost recovery method adopted by the MPSC will be applied in
a manner that will fully offset any associated margin loss.

    In addition to retail electric customer choice, Consumers also has
competition or potential competition from: 1) the threat of customers relocating
outside Consumers' service territory; 2) the possibility of municipalities
owning or operating competing electric delivery systems; 3) customer
self-generation; and 4) adjacent municipal utilities that extend lines to
customers near service territory boundaries. Consumers addresses this
competition primarily through offering rate discounts, providing additional
services and insistence upon compliance with MPSC and FERC rules.

    Consumers offers non-commodity retail services to electric customers in an
effort to offset costs. Consumers faces competition from many sources, including
energy management services companies, other utilities, contractors, and retail
merchandisers.

    For additional information concerning electric competition, see ITEM 7.
CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- ELECTRIC BUSINESS
OUTLOOK.

GAS COMPETITION

    Competition has existed for the past decade, and is likely to increase, in
various aspects of Consumers' gas utility business. Competition traditionally
comes from alternate fuels and energy sources, such as propane, oil, and
electricity. Competition has also been introduced through the gas customer
choice program which allows residential, commercial and industrial retail gas
sales customers to choose an alternative gas commodity supplier in direct
competition with Consumers. Consumers would continue to transport and distribute
gas to these customers.

    For additional information concerning gas competition, see ITEM 7.
CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS -- OUTLOOK -- GAS BUSINESS
OUTLOOK.

    INSURANCE

    Consumers maintains insurance coverage similar to other comparable companies
in the same lines of business. The insurance policies are subject to term,
conditions, limitations and exclusions that might not fully compensate Consumers
for all losses. Furthermore, as Consumers renews its policies it is possible
that full insurance coverage may not be obtainable on commercially reasonable
terms due to the recent increasingly restrictive insurance markets.

    For additional information regarding Insurance, see ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- OTHER ELECTRIC UNCERTAINTIES -- INSURANCE.




                                      -14-
<PAGE>

EMPLOYEES

    As of December 31, 2002, Consumers and its subsidiaries had 8,311 full-time
equivalent employees of whom 8,238 are full-time employees and 73 full-time
equivalent employees associated with the part-time work force. Included in the
total are 3,630 full-time operating, maintenance and construction employees of
Consumers who are represented by the Utility Workers Union of America. Consumers
and the Union negotiated a collective bargaining agreement that became effective
as of June 1, 2000 and will continue in full force and effect until June 1,
2005. Consumers is currently negotiating with the Union for a collective
bargaining agreement for its Call Center employees.

CONSUMERS FORWARD-LOOKING STATEMENTS CAUTIONARY FACTORS AND UNCERTAINTIES.

UNCERTAINTIES

    Specific uncertainties are described in ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTE 2 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS. Certain risks are described in ITEM 7. CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS -- OUTLOOK -- LIQUIDITY AND CAPITAL RESOURCES.

    The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage such disclosures without the
threat of litigation, if those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying important
factors that could cause the actual results to differ materially from those
projected in the statements. Forward-looking statements give our expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Forward-looking
statements have been and will be made in this Form 10-K and in our other written
documents (such as press releases, visual presentations, and securities
disclosure documents) and oral presentations (such as analyst conference calls).
Such statements are based on management's beliefs as well as assumptions made
by, and information currently available to, management. When used in our
documents or oral presentations, we intend the words "anticipate", "believe",
"estimate", "expect", "forecast", "intend", "objective", "plan", "possible",
"potential", "project", "projection" and variations of such words and similar
expressions to target forward-looking statements that involve risk and
uncertainty.

    Any or all of our forward-looking statements in oral or written statements
or in other publications may turn out to be wrong. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties. Many such
factors will be important in determining our actual future results.
Consequently, we cannot guarantee any forward-looking statement.

    In addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, there are numerous factors that
could cause our actual results to differ materially from those contemplated in
any forward-looking statements. Such factors include our inability to predict
and/or control:

    -    Achievement of capital expenditure reductions and cost savings;

    -    Capital and financial market conditions, including current price of CMS
         Energy Common Stock and the effect on the Pension Plan, interest rates
         and availability of financing to CMS Energy, Consumers, Panhandle or
         any of their affiliates and the energy industry;

    -    Market perception of the energy industry, CMS Energy, Consumers,
         Panhandle or any of their affiliates;

    -    CMS Energy's, Consumers', Panhandle's or any of their affiliates'
         securities ratings;

    -    Ability to successfully access the capital markets;

    -    Factors affecting utility and diversified energy operations such as
         unusual weather conditions, catastrophic weather-related damage,
         unscheduled generation outages, maintenance or repairs, unanticipated
         changes to fossil fuel, nuclear fuel or gas supply costs or
         availability due to higher demand, shortages, transportation problems
         or other developments, environmental incidents, or electric
         transmission or gas pipeline system constraints;

    -    Electric transmission or gas pipeline system constraints;




                                      -15-
<PAGE>

    -    National, regional and local economic, competitive and regulatory
         conditions and developments;

    -    Adverse regulatory or legal decisions, including environmental laws and
         regulations;

    -    Federal regulation of electric sales and transmission of electricity
         including re-examination by Federal regulators of the market-based
         sales authorizations by which our affiliates participate in wholesale
         power markets without price restrictions and proposals by FERC to
         change the way it currently lets Consumers and other public utilities
         and natural gas companies interact with each other;

    -    Energy markets, including the timing and extent of unanticipated
         changes in commodity prices for oil, coal, natural gas, natural gas
         liquids, electricity and certain related products due to lower or
         higher demand, shortages, transportation problems or other
         developments;

    -    Nuclear power plant performance, decommissioning, policies, procedures,
         incidents, and regulation, including the availability of spent nuclear
         fuel storage;

    -    Technological developments in energy production, delivery and usage;

    -    Changes in financial or regulatory accounting principles or policies;

    -    Outcome, cost, and other effects of legal and administrative
         proceedings, settlements, investigations and claims;

    -    Disruptions in the normal commercial insurance and surety bond markets
         that may increase costs or reduce traditional insurance coverage,
         particularly terrorism and sabotage insurance and performance bonds;

    -    Other business or investment considerations that may be disclosed from
         time to time in CMS Energy's, Consumers' or Panhandle's SEC filings or
         in other publicly disseminated written documents; and

    -    Other uncertainties, which are difficult to predict and many of which
         are beyond our control.

    Consumers and its affiliates undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors pursuant to the Private
Securities Litigation Reform Act should not be construed as exhaustive or as any
admission regarding the adequacy of our disclosures. Certain risk factors are
detailed from time to time in our various public filings. You are advised,
however to consult any further disclosures we make on related subjects in our
reports to the SEC. In particular, you should read the discussion in the section
entitled "Forward-Looking Statements and Risk Factors" in our most recent
reports to the SEC on Form 10-Q or Form 8-K filed subsequent to this Form 10-K.



                                      -16-
<PAGE>

EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
    NAME                                               AGE                      POSITION                           PERIOD
    ----                                               ---                      --------                           ------
<S>                                                    <C>      <C>                                             <C>
    Kenneth Whipple.................................   68       Chairman of the Board, Chief Executive          2002-Present
                                                                Officer of CMS Energy
                                                                Chairman of the Board, Chief Executive          2002-Present
                                                                Officer of Consumers
                                                                Chairman of the Board of Enterprises            2002-Present
                                                                Director of CMS Energy                          1993-Present
                                                                Director of Consumers                           1993-Present
                                                                Chairman and Chief Executive Officer of
                                                                Ford Credit Company                             1997-1999
                                                                Executive Vice President and President of       1989-1999
                                                                Ford Financial Services Group

    S. Kinnie Smith, Jr. ...........................   72       Vice Chairman of the Board of CMS Enterprises   2003-Present
                                                                Vice Chairman of the Board and General          2002-Present
                                                                Counsel of CMS Energy
                                                                Vice Chairman of the Board of Consumers         2002-Present
                                                                Executive Vice President of Enterprises         2002-Present
                                                                Director of CMS Energy                          2002-Present
                                                                Director of Consumers                           2002-Present
                                                                Vice Chairman of Trans-Elect, Inc.              2002
                                                                Senior Counsel at Skadden, Arps, Slate,         1995-2002
                                                                Meagher & Flom LLP

    David W. Joos...................................   49       Chairman of the Board and Chief Executive       2003-Present
                                                                Officer of CMS Enterprises
                                                                President and Chief Operating Officer of        2001-Present
                                                                CMS Energy
                                                                President and Chief Operating Officer           2001-Present
                                                                of Consumers
                                                                President and Chief Operating Officer of        2001-2003
                                                                CMS Enterprises
                                                                Director of CMS Energy                          2001-Present
                                                                Director of Consumers                           2001-Present
                                                                Executive Vice President and Chief Operating    2000-2001
                                                                Officer -- Electric of Enterprises
                                                                Executive Vice President and Chief Operating    2000-2001
                                                                Officer -- Electric of CMS Energy
                                                                Executive Vice President and President and      1997-2001
                                                                Chief Executive Officer -- Electric of
                                                                Consumers

    Thomas J. Webb..................................   50       Executive Vice President and Chief Financial    2002-Present
                                                                Officer of CMS Energy
                                                                Executive Vice President and Chief Financial    2002-Present
                                                                Officer of Consumers
                                                                Executive Vice President and Chief Financial    2002-Present
                                                                Officer of Enterprises
                                                                Executive Vice President and Chief Financial    2002-Present
                                                                Officer of Panhandle Eastern Pipe Line
                                                                Executive Vice President and Chief Financial    1999-2002
                                                                Officer of Kellogg Company
                                                                Vice President and Chief Financial Officer of   1996-1999
                                                                Visteon, a division of Ford Motor Company

    Thomas W. Elward................................   54       President and Chief Operating Officer of        2003-Present
                                                                CMS Enterprises
                                                                President and Chief Executive Officer of        2002-Present
                                                                CMS Generation Company
                                                                Senior Vice President of CMS Enterprises        2002
                                                                Senior Vice President of CMS Generation         1998
                                                                Company

</TABLE>

                                      -17-
<PAGE>



<TABLE>
<CAPTION>
    NAME                                               AGE                      POSITION                           PERIOD
    ----                                               ---                      --------                           ------
<S>                                                    <C>      <C>                                             <C>
    Carl L. English.................................   56       Executive Vice President and President and      1999-Present
                                                                Chief Executive Officer -- Gas of Consumers
                                                                Vice President of Consumers                     1990-1999

    John G. Russell**...............................   45       Executive Vice President and President and      2001-Present
                                                                Chief Executive Officer - Electric of
                                                                Consumers
                                                                Senior Vice President of Consumers              2000-2001
                                                                Vice President of Consumers                     1999-2000

    John F. Drake..................................   54        Senior Vice President of CMS Enterprises        2003-Present
                                                                Senior Vice President of CMS Energy             2002-Present
                                                                Senior Vice President of Consumers              2002-Present
                                                                Vice President of CMS Energy                    1997-2002
                                                                Vice President of Consumers                     1998-2002

    David G. Mengebier*.............................   45       Senior Vice President of CMS Enterprises        2003-Present
                                                                Senior Vice President of CMS Energy             2001-Present
                                                                Senior Vice President of Consumers              2001-Present
                                                                Vice President of CMS Energy                    1999-2001
                                                                Vice President of Consumers                     1999-2001

    Robert A. Fenech................................   55       Senior Vice President of Consumers              1997-Present
                                                                Vice President of Consumers                     1994-1997

    Preston D. Hopper...............................    52      Senior Vice President of CMS Enterprises        2003-Present
                                                                Senior Vice President of CMS Energy             2003-Present
                                                                Senior Vice President of Consumers              2003-Present
                                                                Senior Vice President and Chief Accounting      1997-2003
                                                                Officer of Enterprises
                                                                Senior Vice President, Chief Accounting         1996-2003
                                                                Officer and Controller of CMS Energy
                                                                Senior Vice President and Controller of         1996-1997
                                                                Enterprises

    Frank Johnson...................................   55       Senior Vice President of Consumers              2001-Present
                                                                President and Chief Executive Officer of CMS    2000-2002
                                                                Electric and Gas
                                                                Vice President and Chief Operating Officer of   2000
                                                                CMS Electric and Gas
                                                                Vice President of CMS Electric and Gas          1996-2000

    David A. Mikelonis..............................   54       Senior Vice President and General Counsel of    1988-Present
                                                                Consumers

    Paul N. Preketes................................   53       Senior Vice President of Consumers              1999-Present
                                                                Vice President of Consumers                     1994-1999

    Glenn P. Barba..................................   37       Vice President and Chief Accounting
                                                                Officer of CMS Enterprises                      2003-Present
                                                                Vice President, Controller and Chief            2003-Present
                                                                Accounting Officer of CMS Energy
                                                                Vice President, Controller and Chief            2003-Present
                                                                Accounting Officer of Consumers
                                                                Vice President and Controller of Consumers      2001-2003
                                                                Controller of CMS Generation                    1997-2001
</TABLE>

- ---------

*   Mr. Mengebier has served as Senior Vice President of CMS Energy and
    Consumers since 2001, after receiving a promotion from his position in both
    companies as Vice President, which he had held since 1999. From 1997 to
    1999, Mr. Mengebier served as Executive Director of Federal Governmental
    Affairs for CMS Enterprises.



                                      -18-
<PAGE>

**  Mr. Russell has served as Executive Vice President and President and Chief
    Executive Officer - Electric of Consumers since October 2001. From December
    2000 until October 2001, Mr. Russell served as Senior Vice President of
    Consumers. From October 1999 until December 2000, Mr. Russell served as Vice
    President of Consumers. From July 1997 until October 1999, Mr. Russell
    served as Manager -- Electric Customer Operations of Consumers.

    There are no family relationships among executive officers and directors of
Consumers.

    The present term of office of each of the executive officers extends to the
first meeting of the Board of Directors after the next annual election of
Directors of Consumers (scheduled to be held on May 23, 2003).














                                      -19-
<PAGE>

                               ITEM 2. PROPERTIES.

    A description of Consumers' properties is contained in ITEM 1. BUSINESS --
Consumers -- Consumers Properties -- General; BUSINESS -- BUSINESS SEGMENTS --
Consumers' Electric Utility Operations -- Electric Utility Properties;
Consumers' Gas Utility Operations -- Gas Utility Properties--all of which are
incorporated by reference herein.


                            ITEM 3. LEGAL PROCEEDINGS

    Consumers and some of its subsidiaries and affiliates are parties to certain
routine lawsuits and administrative proceedings incidental to their businesses
involving, for example, claims for personal injury and property damage,
contractual matters, various taxes, and rates and licensing. Reference is made
to ITEM 1. BUSINESS -- CONSUMERS REGULATION, as well as ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS and Consumers' ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included herein
for additional information regarding various pending administrative and judicial
proceedings involving regulatory, operating and environmental matters.

EMPLOYMENT RETIREMENT INCOME SECURITY ACT CLASS ACTION LAWSUITS

Consumers is a named defendant, along with CMS Energy, CMS MST and certain named
and unnamed officers and directors, in two lawsuits brought as purported class
actions on behalf of participants and beneficiaries of the CMS Employee's
Savings and Incentive Plan (the "Plan"). The two cases, filed in July 2002 in
the U.S. District Court, were consolidated by the trial judge and an amended
consolidated complaint has been filed. Plaintiffs allege breaches of fiduciary
duties under ERISA and seek restitution on behalf of the Plan with respect to a
decline in value of the shares of CMS Energy Common Stock held in the Plan.
Plaintiffs also seek other equitable relief and legal fees. These cases will be
vigorously defended. Consumers cannot predict the outcome of this litigation.

SECURITIES CLASS ACTION LAWSUITS

Beginning on May 17, 2002, a number of securities class action complaints have
been filed against CMS Energy, Consumers and certain officers and directors of
CMS Energy and its affiliates. The complaints have been filed in the United
States District Court for the Eastern District of Michigan as purported class
actions by individuals who allege that they purchased CMS Energy's securities
during a purported class period. At least two of the complaints contain
purported class periods beginning on August 3, 2000 and running through May 10,
2002 or May 14, 2002. These complaints generally seek unspecified damages based
on allegations that the defendants violated United States securities laws and
regulations by making allegedly false and misleading statements about the
company's business and financial condition. The cases have been consolidated
into a single lawsuit and an amended and consolidated complaint is due to be
filed by May 1, 2003. CMS Energy and Consumers intend to vigorously defend
against this action. Consumers cannot predict the outcome of this litigation.

    ENVIRONMENTAL MATTERS: Consumers and its subsidiaries and affiliates are
subject to various federal, state and local laws and regulations relating to the
environment. Several of these companies have been named parties to various
actions involving environmental issues. Based on their present knowledge and
subject to future legal and factual developments, Consumers believes that it is
unlikely that these actions, individually or in total, will have a material
adverse effect on their financial condition. See ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS; and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -- NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.

          ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    During the fourth quarter of 2002, Consumers did not submit any matters to
vote of security holders.





                                      -20-
<PAGE>
                                     PART II

             ITEM 5. MARKET FOR CONSUMERS' COMMON EQUITY AND RELATED
                              STOCKHOLDER MATTERS.

Consumers' common stock is privately held by its parent, CMS Energy, and does
not trade in the public market. In February, May, June, November and December
2002, Consumers paid $55 million, $43 million, $56 million, $52 million and $25
million in cash dividends, respectively, on its common stock. In February, May,
August, and November 2001, Consumers paid $66 million, $30 million, $39 million
and $55 million in cash dividends, respectively, on its common stock. Pursuant
to restrictive covenants in its debt facilities, Consumers is limited to
dividend payments that will not exceed $300 million in any calendar year.


                        ITEM 6. SELECTED FINANCIAL DATA.

Selected financial information is contained in ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA -- CONSUMERS' SELECTED FINANCIAL INFORMATION, which is
incorporated by reference herein.


                 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management's discussion and analysis of financial condition and results of
operations is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -
CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS, which is incorporated by
reference herein.


                      ITEM 7A. QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk is contained in ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS - CRITICAL ACCOUNTING POLICIES - ACCOUNTING FOR
DERIVATIVE AND FINANCIAL INSTRUMENTS AND MARKET RISK INFORMATION, which is
incorporated by reference herein.



                                      -21-
<PAGE>

              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


<TABLE>
<CAPTION>
Index to Financial Statements:                                                             Page
                                                                                           ----
<S>                                                                                        <C>

CONSUMERS ENERGY

Selected Financial Information..........................................................    24
Management's Discussion and Analysis....................................................    25
Consolidated Statements of Income.......................................................    51
Consolidated Statements of Cash Flows...................................................    52
Consolidated Balance Sheets.............................................................    53
Consolidated Statements of Long-Term Debt...............................................    55
Consolidated Statements of Preferred Stock..............................................    56
Consolidated Statements of Common Stockholder's Equity..................................    57
Notes to Consolidated Financial Statements..............................................    59
Reports of Independent Auditors.........................................................    100
Quarterly Financial Information.........................................................    103
</TABLE>




                                      -22-
<PAGE>

[CONSUMERS ENERGY LOGO]














                            2002 FINANCIAL STATEMENTS











                                      -23-
<PAGE>

SELECTED FINANCIAL INFORMATION                          CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                            2002        2001        2000         1999        1998
- -----------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>         <C>         <C>          <C>         <C>
Operating revenue (in millions)                   ($)      4,222       4,014       3,935        3,874       3,709

Income before cumulative effect of change
  in accounting principle (in millions)           ($)        363         199         284          340         306

Net income (in millions) (b)                      ($)        381         188         284          340         349

Net income available to common
 stockholder (in millions)                        ($)        335         145         248          313         312

Cash from operations (in millions)                ($)        769         518         515          791         637

Capital expenditures, excluding capital
 lease additions and DSM (in millions)            ($)        559         745         498          444         369

Total assets (in millions)                        ($)      8,700       8,321       7,776        7,170       7,163

Long-term debt, excluding current
 maturities (in millions)                         ($)      2,442       2,472       2,110        2,006       2,007

Non-current portion of capital
 leases (in millions)                             ($)        116          72          49           85         100

Total preferred stock (in millions)               ($)         44          44          44           44         238

Total preferred securities (in millions)          ($)        490         520         395          395         220

Number of preferred shareholders at year-end               2,132       2,220       2,365        2,534       5,649

Book value per common share at year-end           ($)      22.46       22.81       23.85        23.87       21.94

Return on average common equity                   (%)       17.6         7.4        12.4         16.2        17.5

Return on average assets                          (%)        5.9         3.9         5.4          6.4         6.6
Number of full-time equivalent
 employees at year-end (d)
   Consumers                                               8,547       8,477       8,748        8,736       8,456
   Michigan Gas Storage (c)                                    -          62          57           63          65

ELECTRIC STATISTICS
   Sales (billions of kWh)                                  39.3        39.6        41.0         41.0        40.0
   Customers (in thousands)                                1,734       1,712       1,691        1,665       1,640
   Average sales rate per kWh                 (cents)       6.88        6.65        6.56         6.54        6.50

GAS STATISTICS
   Sales and transportation deliveries (bcf)                 376         367         410          389         360
   Customers (in thousands) (a)                            1,652       1,630       1,611        1,584       1,558
   Average sales rate per mcf                     ($)       5.67        5.34        4.39         4.52        4.56
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

    (a) Excludes off-system transportation customers.
    (b) See Notes 1 and 2 in the notes to the consolidated financial statements.
    (c) Effective November 2002, Michigan Storage Company was merged into
        Consumers.
    (d) Includes employees on workers compensation and temporary employees at
        December 31, 2002.
                                      -24-
<PAGE>
                                                        Consumers Energy Company

                            CONSUMERS ENERGY COMPANY
                      MANAGEMENT'S DISCUSSION AND ANALYSIS


Consumers, a subsidiary of CMS Energy, a holding company, is an electric and gas
utility company that provides service to customers in Michigan's Lower
Peninsula. Consumers' customer base includes a mix of residential, commercial
and diversified industrial customers, the largest segment of which is the
automotive industry.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This MD&A refers to, and in some sections specifically incorporates by
reference, Consumers' Notes to Consolidated Financial Statements and should be
read in conjunction with such Consolidated Financial Statements and Notes. This
Annual Report and other written and oral statements that Consumers may make
contain forward--looking statements as defined by the Private Securities
Litigation Reform Act of 1995. Consumers' intentions with the use of the words,
"anticipates," "believes," "estimates," "expects," "intends," and "plans," and
variations of such words and similar expressions, are solely to identify
forward-looking statements that involve risk and uncertainty. These
forward-looking statements are subject to various factors that could cause
Consumers' actual results to differ materially from the results anticipated in
such statements. Consumers has no obligation to update or revise forward-looking
statements regardless of whether new information, future events or any other
factors affect the information contained in such statements. Consumers does,
however, discuss certain risk factors, uncertainties and assumptions in this
MD&A and in Item 1 of this Form 10-K in the section entitled "Forward-Looking
Statements Cautionary Factors" and in various public filings it periodically
makes with the SEC. Consumers designed this discussion of potential risks and
uncertainties, which is by no means comprehensive, to highlight important
factors that may impact Consumers' business and financial outlook. This Annual
Report also describes material contingencies in Consumers' Notes to Consolidated
Financial Statements, and Consumers encourages its readers to review these
Notes. All note references within this MD&A refer to Consumers' Notes to
Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

Presenting financial statements in accordance with accounting principles
generally accepted in the United States requires using estimates, assumptions,
and accounting methods that are often subject to judgment. Presented below, are
the accounting policies and assumptions that Consumers believes are most
critical to both the presentation and understanding of its financial statements.
Applying these accounting policies to financial statements can involve very
complex judgments. Accordingly, applying different judgments, estimates or
assumptions could result in a different financial presentation.

USE OF ESTIMATES IN ACCOUNTING FOR CONTINGENCIES

The principles in SFAS No. 5 guide the recording of estimated liabilities for
contingencies within the financial statements. SFAS No. 5 requires a company to
record estimated liabilities in the financial statements when a current event
has caused a probable future loss payment of an amount that can be reasonably
estimated. Consumers has used this accounting principle to record or disclose
estimated liabilities for the following significant events.

ELECTRIC ENVIRONMENTAL ESTIMATES: Consumers is subject to costly and
increasingly stringent environmental regulations. Consumers expects to incur
significant costs for future environmental compliance, especially compliance
with clean air laws.


                                      -25-
<PAGE>
                                                        Consumers Energy Company


The EPA has issued final regulations regarding nitrogen oxide emissions from
certain generators, including some of Consumers' electric generating facilities.
These regulations will require Consumers to make significant capital
expenditures estimated to be $770 million. As of December 31, 2002, Consumers
has incurred $405 million in capital expenditures to comply with these
regulations and anticipates that the remaining capital expenditures will be
incurred between 2003 and 2009. Additionally, Consumers expects to supplement
its compliance plan with the purchase of nitrogen oxide emissions credits in the
years 2005 through 2008. The cost of these credits based on the current market
is estimated to average $6 million per year; however, the market for nitrogen
oxide emissions credits is volatile and the price could change significantly. At
some point, if new environmental standards become effective, Consumers may need
additional capital expenditures to comply with the standards. These and other
required environmental expenditures, if not recovered in Consumers' rates, may
have a material adverse effect upon Consumers' financial condition and results
of operations. For further information see Note 2, Uncertainties, "Electric
Contingencies - Electric Environmental Matters."

GAS ENVIRONMENTAL ESTIMATES: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will incur investigation
and remedial action costs at a number of sites. Consumers estimates the costs
for 23 former manufactured gas plant sites will be between $82 million and $113
million, using the Gas Research Institute-Manufactured Gas Plant Probabilistic
Cost Model. These estimates are based on discounted 2001 costs and follow EPA
recommended use of discount rates between three and seven percent. Consumers
expects to recover a significant portion of these costs through MPSC-approved
rates charged to its customers. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination, and legal and
regulatory requirements, could change the remedial action costs for the sites.
For further information see Note 2, Uncertainties, "Gas Contingencies - Gas
Environmental Matters."

MCV UNDERRECOVERIES: The MCV Partnership, which leases and operates the MCV
Facility, contracted to sell electricity to Consumers for a 35-year period
beginning in 1990 and to supply electricity and steam to Dow. Consumers, through
two wholly owned subsidiaries, holds a 49 percent partnership interest in the
MCV Partnership, and a 35 percent lessor interest in the MCV Facility.

Consumers' annual obligation to purchase capacity from the MCV Partnership is
1,240 MW through 2025. The PPA requires Consumers to pay, based on the MCV
Facility's availability, a levelized average capacity charge of 3.77 cents per
kWh, a fixed energy charge, and a variable energy charge based primarily on
Consumers' average cost of coal consumed for all kWh delivered. Consumers has
not been allowed full recovery of the capacity charges in rates. After September
2007, the PPA's terms obligate Consumers to pay the MCV Partnership only those
capacity and energy charges that the MPSC has authorized for recovery from
electric customers.

In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At December 31, 2002, 2001 and 2000, the remaining after-tax
present value of the estimated future PPA liability associated with the loss
totaled $34 million, $50 million and $64 million, respectively. The PPA
liability is expected to be depleted in late 2004.

In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1, 1999, that addressed, among other things, the ability of
the MCV Partnership to count modifications increasing the capacity of the
existing MCV Facility for purposes of computing the availability of contract
capacity under the PPA for billing purposes. That settlement agreement capped
availability payments that may be billed by the MCV Partnership at a 98.5
percent level.

When Consumers returns, as expected, to unfrozen rates beginning in 2004,
Consumers will recover from customers, on-peak and off-peak capacity, so long as
availability does not exceed an average 88.7 percent established in previous
MPSC orders. For availability payments billed by the MCV Partnership after
September 15, 2007, and not recovered from customers, Consumers would expect to
claim a regulatory out under the PPA. If the MCV Facility's generating
availability remains at the maximum 98.5 percent level during the next five
years, Consumers' after-tax cash underrecoveries associated with the PPA could
be as follows:


                                      -26-
<PAGE>

                                                        Consumers Energy Company

<TABLE>
<CAPTION>
                                                                                                      In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                                        2003      2004      2005     2006     2007
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>       <C>       <C>      <C>      <C>
Estimated cash underrecoveries at 98.5%, net of tax                      $37      $36       $36       $36      $25
===================================================================================================================
</TABLE>

It is currently estimated that 51 percent of the actual cash underrecoveries for
the years 2003 and 2004 will be charged to the PPA liability, with the remaining
portion charged to operating expense as a result of Consumers' 49 percent
ownership in the MCV Partnership. All cash underrecoveries will be expensed
directly to income once the PPA liability is depleted.

For further information see Note 2, Uncertainties, "Other Electric Uncertainties
- - The Midland Cogeneration Venture."

ACCOUNTING FOR DERIVATIVE AND FINANCIAL INSTRUMENTS AND MARKET RISK INFORMATION

DERIVATIVE INSTRUMENTS: Consumers uses SFAS No. 133 criteria to determine which
contracts must be accounted for as derivative instruments. These rules, however,
are numerous and complex. As a result, significant judgment is required, and
similar contracts can sometimes be accounted for differently.

Consumers currently accounts for the following contracts as derivative
instruments: interest rate swaps, certain electric call options, fixed priced
weather-based gas supply call options and fixed price gas supply put options.
Consumers does not account for the following contracts as derivative
instruments: electric capacity and energy contracts, gas supply contracts
without embedded options, coal and nuclear fuel supply contracts, and purchase
orders for numerous supply items.

Consumers believes that certain of its electric capacity and energy contracts
are not derivatives due to the lack of an active energy market in the state of
Michigan, as defined by SFAS No. 133, and the transportation cost to deliver the
power under the contracts to the closest active energy market at the Cinergy hub
in Ohio. If a market develops in the future, Consumers may be required to
account for these contracts as derivatives. The mark-to-market impact on
earnings related to these contracts, particularly related to the PPA, could be
material to the financial statements.

If a contract is accounted for as a derivative instrument, it is recorded in the
financial statements as an asset or a liability, at the fair value of the
contract. Any difference between the recorded book value and the fair value is
reported either in earnings or other comprehensive income, depending on certain
qualifying criteria. The recorded fair value of the contract is then adjusted
quarterly to reflect any change in the market value of the contract.

In order to fair value the contracts that are accounted for as derivative
instruments, Consumers uses a combination of market quoted prices and
mathematical models. Option models require various inputs, including forward
prices, volatilities, interest rates and exercise periods. Changes in forward
prices or volatilities could significantly change the calculated fair value of
the call option contracts. At December 31, 2002, Consumers assumed a
market-based interest rate of 4.5 percent and a volatility rate of 70 percent in
calculating the fair value of its electric call options.

In order for derivative instruments to qualify for hedge accounting under SFAS
No. 133, the hedging relationship must be formally documented at inception and
be highly effective in achieving offsetting cash flows or offsetting changes in
fair value, attributable to the risk being hedged. If hedging a forecasted
transaction, the forecasted transaction must be probable. If a derivative
instrument, used as a cash flow hedge, is terminated early because it is
probable that a forecasted transaction will not occur, any gain or loss as of
such date is immediately recognized in earnings. If a derivative instrument,
used as a cash flow hedge, is terminated



                                      -27-
<PAGE>

                                                        Consumers Energy Company


early for other economic reasons, any gain or loss as of the termination date is
deferred and recorded when the forecasted transaction affects earnings.

FINANCIAL INSTRUMENTS: Consumers accounts for its debt and equity investment
securities in accordance with SFAS No. 115. As such, debt and equity securities
can be classified into one of three categories: held-to-maturity, trading, or
available-for-sale securities. Consumers' investments in equity securities,
including its investment in CMS Energy Common Stock, are classified as
available-for-sale securities. They are reported at fair value, with any
unrealized gains or losses from changes in fair value reported in equity as part
of other comprehensive income and excluded from earnings unless such changes in
fair value are other than temporary. In 2002, Consumers determined that the
decline in value related to its investment in CMS Energy Common Stock was other
than temporary as the fair value was below the cost basis for a period greater
than six months. As a result, Consumers recognized a loss on its investment in
CMS Energy Common Stock through earnings of $12 million in the fourth quarter of
2002. As of December 31, 2002, Consumers held 2.4 million shares of CMS Energy
Common Stock with a fair value of $22 million; as of March 14, 2003 the fair
value was $8 million. Unrealized gains or losses from changes in the fair value
of Consumers' nuclear decommissioning investments are reported in accumulated
depreciation. The fair value of these investments is determined from quoted
market prices.

MARKET RISK INFORMATION: Consumers is exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, and equity security
prices. Consumers' market risk, and activities designed to minimize this risk,
are subject to the direction of an executive oversight committee consisting of
designated members of senior management and a risk committee, consisting of
certain business unit managers. The role of the risk committee is to review the
corporate commodity position and ensure that net corporate exposures are within
the economic risk tolerance levels established by Consumers' Board of Directors.
Established policies and procedures are used to manage the risks associated with
market fluctuations.

Consumers uses various contracts, including swaps, options, and forward
contracts to manage its risks associated with the variability in expected future
cash flows attributable to fluctuations in interest rates and commodity prices.
When management uses these instruments, it intends that an opposite movement in
the value of the at-risk item would offset any losses incurred on the contracts.
Contracts used to manage interest rate and commodity price risk may be
considered derivative instruments that are subject to derivative and hedge
accounting pursuant to SFAS No. 133. Consumers enters into all risk management
contracts for purposes other than trading.

These instruments contain credit risk if the counterparties, including financial
institutions and energy marketers, fail to perform under the agreements.
Consumers minimizes such risk by performing financial credit reviews using,
among other things, publicly available credit ratings of such counterparties.

In accordance with SEC disclosure requirements, Consumers performs sensitivity
analyses to assess the potential loss in fair value, cash flows and earnings
based upon a hypothetical 10 percent adverse change in market rates or prices.
Management does not believe that sensitivity analyses alone provide an accurate
or reliable method for monitoring and controlling risks. Therefore, Consumers
relies on the experience and judgment of its senior management to revise
strategies and adjust positions, as it deems necessary. Losses in excess of the
amounts determined in sensitivity analyses could occur if market rates or prices
exceed the 10 percent shift used for the analyses.

INTEREST RATE RISK: Consumers is exposed to interest rate risk resulting from
the issuance of fixed-rate financing and variable-rate financing, and from
interest rate swap agreements. Consumers uses a combination of these instruments
to manage and mitigate interest rate risk exposure when it deems it appropriate,
based upon market conditions. These strategies attempt to provide and maintain
the lowest cost of capital. As of December 31, 2002, Consumers had outstanding
$1.268 billion of variable-rate financing, including variable-rate swaps. At
December 31, 2002, assuming a hypothetical 10 percent adverse change in market
interest rates, Consumers' before tax earnings exposure on its variable-rate
financing would be $2 million. As of December 31, 2002,



                                      -28-
<PAGE>

                                                        Consumers Energy Company


Consumers had entered into floating-to-fixed interest rate swap agreements for a
notional amount of $75 million. These swaps exchange variable-rate interest
payment obligations for fixed-rate interest payment obligations in order to
minimize the impact of potential adverse interest rate changes. As of December
31, 2002, Consumers had outstanding fixed-rate financing, including fixed-rate
swaps, of $2.760 billion, with a fair value of $2.677 billion. As of December
31, 2002, assuming a hypothetical 10 percent adverse change in market rates,
Consumers would have an exposure of $137 million to the fair value of these
instruments if it had to refinance all of its fixed-rate financing. As discussed
below in Electric Business Outlook -- Securitization, Consumers has filed an
application with the MPSC to securitize certain costs. If approved, Consumers
will use the proceeds from the securitization for refinancing or retirement of
debt, which could include a portion of its current fixed-rate financing.
Consumers does not believe that any adverse change in debt price and interest
rates would have a material adverse effect on either its consolidated financial
position, results of operation or cash flows.

COMMODITY MARKET RISK: For purposes other than trading, Consumers enters into
electric call options, fixed price gas supply contracts containing embedded put
options, fixed priced weather-based gas supply call options and fixed priced gas
supply put options. The electric call options are used to protect against risk
due to fluctuations in the market price of electricity and to ensure a reliable
source of capacity to meet customers' electric needs. The gas supply contracts
containing embedded put options, the weather-based gas supply call options, and
the gas supply put options are used to purchase reasonably priced gas supply.

As of December 31, 2002, the fair value based on quoted future market prices of
electricity-related call option contracts was $9 million. At December 31, 2002,
assuming a hypothetical 10 percent adverse change in market prices, the
potential reduction in fair value associated with these contracts would be $2
million. As of December 31, 2002, Consumers had incurred $37 million, of
premiums for electric call option contracts. Consumers' maximum exposure
associated with the call option contracts is limited to the premiums incurred.
As of December 31, 2002, the fair value based on quoted future market prices of
gas supply-related call and put option contracts was $1 million. At December 31,
2002, a hypothetical 10 percent adverse change in market prices would be
immaterial.

EQUITY SECURITY PRICE RISK: Consumers owns less than 20 percent of the
outstanding shares of CMS Energy Common Stock. Consumers recognized a loss on
this investment through earnings of $12 million in the fourth quarter of 2002,
because the loss was other than temporary as the fair value was below the cost
basis for a period greater than six months. As of December 31, 2002, Consumers
held 2.4 million shares of CMS Energy Common stock at a fair value of $22
million, as of March 14, 2003 the fair value was $8 million. Consumers believes
that any further adverse change in the market price of this investment would not
have a material effect on its consolidated financial position, results of
operation or cash flows.

For further information on market risk and derivative activities, see Note 5,
Financial and Derivative Instruments.

ACCOUNTING FOR THE EFFECTS OF INDUSTRY REGULATION

Because Consumers is involved in a regulated industry, regulatory decisions
affect the timing and recognition of revenues and expenses. Consumers uses SFAS
No. 71 to account for the effects of these regulatory decisions. As a result,
Consumers may defer or recognize revenues and expenses differently than a
non-regulated entity.

For example, items that a non-regulated entity would normally expense, Consumers
may capitalize as regulatory assets if the actions of the regulator indicate
such expenses will be recovered in future rates. Conversely, items that
non-regulated entities may normally recognize as revenues, Consumers may record
as regulatory liabilities if the actions of the regulator indicate they will
require such revenues to later be refunded



                                      -29-
<PAGE>

                                                        Consumers Energy Company


to customers. Judgment is required to discern the recoverability of items
recorded as regulatory assets and liabilities. As of December 31, 2002,
Consumers had $1.072 billion recorded as regulatory assets and $313 million
recorded as regulatory liabilities.

In March 1999, Consumers received MPSC electric restructuring orders which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market-based rates for its electric customers. Since 1999,
there has been a significant legislative and regulatory change in Michigan that
has resulted in: 1) electric supply customers of utilities remaining on
cost-based rates and 2) utilities being given the ability to recover Stranded
Costs associated with electric restructuring, from customers who choose an
alternative electric supplier. During 2002, Consumers re-evaluated the criteria
used to determine if an entity or a segment of an entity meets the requirements
to apply regulated utility accounting, and determined that the energy supply
portion of its business could meet the criteria if certain regulatory events
occurred. In December 2002, Consumers received a MPSC Stranded Cost order that
allowed Consumers to re-apply regulatory accounting standard SFAS No. 71 to the
energy supply portion of its business. Re-application of SFAS No. 71 will have
no effect on the prior discontinuation accounting, but will allow Consumers to
apply regulatory accounting treatment to the energy supply portion of its
business on a prospective basis, including regulatory accounting treatment of
costs required to be recognized in accordance with SFAS No. 143.

ACCOUNTING FOR PENSION AND OPEB

Consumers provides postretirement benefits under its Pension Plan, and
postretirement health and life benefits under its OPEB plans to substantially
all its retired employees. Consumers uses SFAS No. 87 to account for pension
costs and uses SFAS No. 106 to account for other postretirement benefit costs.
These statements require liabilities to be recorded on the balance sheet at the
present value of these future obligations to employees net of any plan assets.
The calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions including life
expectancies, present value discount rates, expected long-term rate of return on
plan assets, rate of compensation increase and anticipated health care costs.
Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year. The Pension Plan includes
amounts for employees of CMS Energy and non-utility affiliates, including
Panhandle, which were not distinguishable from the Pension Plan's total assets.
On December 21, 2002, a definitive agreement was executed to sell Panhandle. The
sale is expected to close in 2003. No portion of the Pension Plan will be
transferred with the sale of Panhandle. At the closing of the sale, none of the
employees of Panhandle will be eligible to accrue additional benefits. The
Pension Plan will retain pension payment obligations for Panhandle employees
that are vested under the Pension Plan. Consumers does not expect the impact to
be material.

Pension and OPEB plan assets, net of contributions, have been reduced in value
from the previous year due to the downturn in the equities market, and a
decrease in the price of CMS Energy Common Stock. As a result, Consumers expects
to see an increase in pension and OPEB expense levels over the next several
years unless investment performance of plan assets improves. Consumers
anticipates its allocated share of pension expense to rise in 2003 by
approximately $11 million over 2002 expenses. OPEB expenses in 2003 are
anticipated to stay the same as 2002 expenses. For pension expense, this
increase is due to a downturn in value of pension assets during the past two
years, forecasted increases in pay and added service, and a decline in the
interest rate used to value the liability of the plan. Estimated 2003 OPEB
expenses, remained the same as 2002 due to additional required contributions
from retirees and increases in mail-order prescription copays. Under the OPEB
plans' assumptions, health care costs increase at a slower rate from current
levels through 2010; however, Consumers cannot predict the impact that future
health care costs and interest rates or market returns will have on pension and
OPEB expense in the future. As of January 2002, OPEB plan claims are paid from
the VEBA Trusts.




                                      -30-
<PAGE>

                                                        Consumers Energy Company


The recent significant downturn in the equities markets has affected the value
of the Pension Plan assets. The Pension Plan's Accumulated Benefit Obligation
exceeded the value of these assets at December 31, 2002, and as a result,
Consumers and the other participants were required to recognize an additional
minimum liability for this excess in accordance with SFAS No. 87. The fair value
of the Pension Plan assets at December 31, 2002 was $607 million, including CMS
Energy Common Stock which had a market value of $49 million based on a market
price of $9.44. As of March 14, 2003, the market value of CMS Energy Common
Stock in the Pension Plan was $18 million based on a share price of $3.52. As of
December 31, 2002, the Accumulated Benefit Obligation was estimated at $1.055
billion and the additional minimum liability was $426 million. Consumers was
allocated $325 million of the additional minimum liability, of which $40 million
was recorded as an intangible asset, and $285 million was charged to other
comprehensive income ($185 million after-tax).

At December 31, 2002, the balance of the OPEB plan's assets was $465 million.
This amount consists primarily of stocks and bonds, including CMS Energy Common
Stock of $1.3 million, based on a share price of $9.44. As of March 14, 2003,
the market value of CMS Energy Common Stock in the OPEB plan's assets was $0.5
million, based on a share price of $3.52.

During 2002, Consumers' portion of contributions made to the plans' trust
accounts was $120 million. This amount represents $47 million of pension related
benefits and $73 million of postretirement health care and life insurance
benefits. Consumers expects similar contributions for postretirement health care
and life insurance benefits will be made in 2003, 2004, and 2005. The investment
performance returns and declining discount rates have increased the underfunding
of the Pension Plan, net of benefit obligations, from $350 million at December
31, 2001 to $649 million at December 31, 2002. Because of the recent rise in the
underfunded status of the Pension Plan, based on actuarial assumptions,
Consumers expects to make cash contributions to the Pension Plan which
approximates $158 million, $209 million, and $24 million in 2003, 2004, and
2005, respectively. However, if necessary to increase liquidity, Consumers would
postpone the 2003 contribution.

Consumers' expense for the Pension Plan approximated $25 million and $17 million
for the years ended December 31, 2002 and December 31, 2001, respectively, and
is calculated based upon a number of actuarial assumptions, including an
expected long-term rate of return on the Pension Plan assets of 8.75 percent in
2002 and 9.75 percent in 2001.

Lowering the expected long-term rate of return on the Pension Plan assets by
0.25 percent (from 8.75 percent to 8.5 percent) would have increased pension
expense for fiscal 2002 by approximately $3 million. Lowering the discount rate
by 0.25 percent would have increased pension expense for fiscal 2002 by
approximately $2 million.

Consumers estimates pension expense will approximate $36 million, $42 million
and $48 million in fiscal 2003, fiscal 2004 and fiscal 2005, respectively.
Future actual pension expense will depend on future investment performance,
changes in future discount rates and various other factors related to the
populations participating in the Pension Plan.

Consumers bases the determination of pension expense on a market-related
valuation of assets, which reduces year-to-year volatility. This market-related
valuation recognizes investment gains or losses over a 5-year period from the
year in which they occur. Investment gains or losses for this purpose are the
difference between the expected return calculated using the market-related value
of assets and the actual return based on the market-related value of assets.
Since the market-related value of assets recognizes gains or losses over a
5-year period, the future value of assets will be impacted as previously
deferred gains or losses are recorded.

Due to the unfavorable performance of the equity markets, as of December 31,
2002, Consumers had



                                      -31-
<PAGE>


                                                        Consumers Energy Company

cumulative losses of approximately $205 million that remain to be recognized in
the calculation of the market-related value of assets. These unrecognized net
actuarial losses result in increases in future pension expense depending on
several factors, including whether such losses at each measurement date exceed
the corridor in accordance with SFAS No.87.

Consumers has announced changes to the Pension Plan. Employees hired on or after
July 1, 2003 will be covered by the cash balance plan section of the plan
currently being used. Under the cash balance plan, an employee's retirement
account is credited annually with a percentage of their salary and any amounts
that are vested are portable when an employee leaves the company. In addition,
the method used to convert an employee's benefit to a lump sum payment is being
changed. Employees who elect the lump sum payment option will no longer receive
an early retirement subsidy. As a result, employees who choose the lump sum
payment option, and retire before age 65, will receive lower lump sum payments.

Consumers also provides retirement benefits under a defined contribution 401(k)
plan. Consumers previously offered an employer's contribution match of 50
percent of the employee's contribution up to six percent (three percent
maximum), as well as an incentive match in years when Consumers' financial
performance exceeded targeted levels. Effective September 1, 2002, the
employer's match was suspended until January 1, 2005, and the incentive match
was permanently eliminated. The amount charged to expense for the employer's
match for 2002 was $8 million. Amounts charged to expense for the employer's
match and incentive match during 2001 were $12 million and $8 million,
respectively.

In order to keep health care benefits and costs competitive, Consumers has
announced several changes to the Health Care Plan. These changes were effective
January 1, 2003. The most significant change is that Consumers' future increases
in health care costs will be shared with salaried employees. The salaried
retirees health care plan has also been amended. Pre-Medicare retirees now elect
coverage from four different levels of coverage, with the two best coverage
options requiring premium contributions. These plans also coordinate benefits
under a maintenance of benefits provision to reduce claims cost for Consumers.
Mail-order prescription copays have also been increased for all salaried
retirees.

For detailed information on postretirement benefits see Note 7, Retirement
Benefits.

ACCOUNTING FOR NUCLEAR DECOMMISSIONING COSTS

Consumers' decommissioning cost estimates for the Big Rock and Palisades plants
assume that each plant site will eventually be restored to conform to the
adjacent landscape with all contaminated equipment and material removed and
disposed of in a licensed burial facility and the site released for unrestricted
use. A March 1999 MPSC order provided for fully funding the decommissioning
trust funds for both sites. The order set the annual decommissioning surcharge
for the Palisades decommissioning at $6 million a year. Consumers estimates that
at the time of the decommissioning of Palisades, its decommissioning trust fund
will be fully funded. Earnings assumptions are that the trust funds are invested
in equities and fixed income investments, equities will be converted to fixed
income investments during decommissioning and fixed income investments are
converted to cash as needed. Decommissioning costs have been developed, in part,
by independent contractors with expertise in decommissioning. These costs
estimates use various inflation rates for labor, non-labor, and contaminated
equipment disposal costs.

On December 31, 2000, the Big Rock trust fund was considered fully funded. A
portion of its current decommissioning cost is due to the failure of the DOE to
remove fuel from the site. These costs, and similar costs incurred at Palisades,
would not be necessary but for the failure of the DOE to take possession of the
spent fuel as required by the Nuclear Waste Policy Act of 1982. If the
litigation, that was commenced in the fourth quarter of 2002, against the DOE is
successful, Consumers anticipates future recoveries from the DOE to



                                      -32-
<PAGE>

                                                        Consumers Energy Company


defray the significant costs it will incur for the storage of spent fuel until
the DOE takes possession as required by law.

On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumers Federation filed a
complaint with the MPSC that asks the MPSC to commence a generic investigation
and contested case to review all facts and issues concerning the recovery of
costs associated with spent nuclear fuel storage and disposal. The complaint
alleges that the rates of Consumers Energy, The Detroit Edison Company, Indiana
& Michigan Electric Company, Wisconsin Electric Power Company and Wisconsin
Public Service Corporation are unjust and unreasonable with respect to the
recovery of costs associated with spent nuclear fuel storage and disposal. The
complaint seeks a variety of relief, including the establishing of external
trusts to which amounts collected in electric rates for spent nuclear fuel
storage and disposal should be transferred, and the adoption of additional
measures to assure that adequate funds are available for the storage and
disposal of spent nuclear fuel. Consumers has not had an opportunity to review
the complaint in detail.

The funds provided by the trusts and additional funds from DOE litigation are
expected to fully fund the decommissioning costs. Variance from trust earnings,
a lesser recovery of costs from the DOE, changes in decommissioning technology,
regulations, estimates or assumptions could affect the cost of decommissioning
these sites.

RELATED PARTY TRANSACTIONS

Consumers enters into a number of significant transactions with related parties.
These transactions include the purchase of capacity and energy from the MCV
Partnership and from affiliates of Enterprises, the purchase of electricity and
gas supply from CMS MST, the sale of electricity to CMS MST, the purchase of gas
transportation from CMS Bay Area Pipeline, L.L.C., the purchase of gas
transportation from Trunkline, a subsidiary of Panhandle, the payment of parent
company overhead costs to CMS Energy, the sale, storage and transportation of
natural gas and other services to the MCV Partnership, and an investment in CMS
Energy Common Stock.

Transactions involving CMS Energy and its affiliates and the sale, storage and
transportation of natural gas and other services to the MCV Partnership are
based on regulated prices, market prices or competitive bidding. Transactions
involving the power supply purchases from the MCV Partnership, and certain
affiliates of Enterprises, are based upon avoided costs under PURPA and
competitive bidding; and the payment of parent company overhead costs to CMS
Energy are based upon use or accepted industry allocation methodologies.

In 2002, Consumers also sold its transmission facilities to MTH, a
non-affiliated limited partnership whose general partner is a subsidiary of
Trans-Elect, Inc., an independent company, whose management includes former
executive employees of Consumers. The transaction was based on competitive
bidding.

For detailed information about related party transactions see Note 2,
Uncertainties, "Electric Rate Matters - Transmission", and "Other Electric
Uncertainties - The Midland Cogeneration Venture".

RESULTS OF OPERATIONS

CONSUMERS CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                   2002      2001    Change       2001      2000      Change
- -------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>     <C>          <C>       <C>  <C>
Net income available to common stockholder                $335      $145      $190       $145      $248      $(103)
===================================================================================================================
</TABLE>

2002 COMPARED TO 2001: For 2002, Consumers' net income available to the common
stockholder totaled $335 million, an increase of $190 million from the previous
year. The earnings increase reflects the after-tax benefit of decreased electric
power costs of $85 million from 2001. This reduction in power costs was
primarily due to the need to purchase higher replacement power resulting from a
refueling outage and an unscheduled forced outage at Palisades in 2001. This
reduction in power costs also can be attributed to the lower price of power
options and dispatchable capacity contracts purchased for 2002. The increase in
earnings also reflects the after-tax $26 million gain from the May 2002 sale of
Consumers' electric transmission system to MTH, an after-tax $5 million gain
from the sale of an unused nuclear plant reactor head, along with a $25 million
benefit, which includes an after-tax cumulative effect of accounting change of
$18 million, associated with the fair value of certain long-term gas contracts
held by the MCV Partnership. The fair value of these contracts is adjusted,
through earnings, on a quarterly basis in accordance with SFAS No. 133. Earnings
also increased as a result of an after-tax $11 million adjustment to its
electric call option and option like contracts that was booked in 2001, as a
result of the implementation of SFAS No. 133. For



                                      -33-
<PAGE>

                                                        Consumers Energy Company


further information on SFAS No. 133, see Note 5, Financial and Derivative
Instruments. Increased electric deliveries to the higher margin residential and
commercial sectors contributed an additional after-tax benefit of $27 million.
Also, contributing to the earnings increase is an after-tax benefit of $16
million due to the interim and final gas rate orders issued in 2001 and 2002.
Offsetting these increases is a $9 million decrease resulting from the
recognition of a historic, cumulative 4 bcf loss of natural gas from inventory.

2001 COMPARED TO 2000: For 2001, Consumers' net income available to the common
stockholder totaled $145 million, a decrease of $103 million from the previous
year. The earnings decrease reflects significantly increased operating expense
in 2001, primarily $59 million of after-tax costs for replacement power supply
costs due to a six month unscheduled outage at the Palisades Plant. Net income
in 2001 was also adversely impacted by $11 million to reflect a change in
accounting for certain electric call option contracts under SFAS No. 133. In
addition, 2001 earnings decreased due to the impact of reduced gas deliveries
resulting from milder temperatures during both the first quarter and fourth
quarter heating seasons. Gas delivery revenues were also adversely impacted as a
result of warmer temperatures compared to the 2000 heating season and a
reduction due to the year-long impact of an economic slowdown in 2001,
throughout Michigan. Also contributing to this earnings decrease is the fact
that 2001 reflects a full year impact of a five percent electric residential
rate decrease that was implemented to comply with the Customer Choice Act.

For further information, see the Electric and Gas Utility Results of Operations
sections and Note 2, Uncertainties.

ELECTRIC UTILITY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                   2002      2001    Change    2001       2000        Change
- -------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>     <C>       <C>        <C>    <C>
Net income available to common stockholder                $264      $109      $155    $109       $199         $(90)
===================================================================================================================

Reasons for the change:

Electric deliveries                                                           $ 41                           $  19
Power supply costs and related revenue                                         120                            (109)
Rate decrease                                                                   -                              (35)
Other operating expenses and non-commodity revenue                               5                              17
Implementation of accounting standard (SFAS No. 133)                            17                             (17)
Gain on asset sales                                                             38                               -
Fixed charges                                                                    9                              (6)
Income taxes                                                                   (75)                             41
                                                         ---------------------------------------------------------

Total change                                                                  $155                           $ (90)
===================================================================================================================
</TABLE>

ELECTRIC DELIVERIES: For the year 2002, electric delivery revenues increased by
$41 million from the previous year. Electric deliveries, including transactions
with other wholesale market participants and other electric utilities, were 39.3
billion kWh, a decrease of 0.3 billion kWh or 0.7 percent from 2001. This
reduction in electric deliveries is primarily due to reduced transactions with
other utilities and the expiration of wholesale power sales contracts with
certain Michigan municipal utilities. Although total deliveries were below the
2001 level, increased deliveries to the higher margin residential and commercial
sectors, along with the growth in retail deliveries, more than offset the impact
of reduced deliveries to lower margin customers. For the year, Consumers set an
all-time monthly sendout record during the month of July, and new monthly hourly
peak demand records were set on April 16, 2002, June 25, 2002, September 9,
2002, and October 1, 2002. For the year 2001, electric delivery revenues
increased by $19 million from the previous year. Electric deliveries,



                                      -34-
<PAGE>


                                                        Consumers Energy Company

including transactions with other wholesale market participants and other
electric utilities, were 39.6 billion kWh, a decrease of 1.4 billion kWh or 3.5
percent from 2000.

POWER SUPPLY COSTS AND RELATED REVENUE: For the year 2002, power supply costs
and related revenues provided a net increase of $120 million from 2001. This net
increase was primarily due to reduced purchased power costs resulting from the
Palisades plant being returned to service in 2002. In 2001, Consumers purchased
higher cost replacement power during the refueling outage that began in March
and ended in May and the unscheduled forced outage at Palisades that began in
June and ended in January 2002. Also contributing to this decrease in power
costs is lower priced power options and dispatchable capacity contracts that
were purchased for 2002. For the year 2001, power supply costs and related
revenues resulted in a net decrease of $109 million from 2000. This net decrease
was primarily due to the need to purchase greater quantities of higher-priced
electricity to offset the loss of generation resulting from the Palisades
outages mentioned above.

For the years 2002 and 2001 respectively, Consumers purchased and expensed $23
million and $65 million of electric call options to ensure a reliable source of
power supply during the summer months. As a result of periodic excess daily
capacity, certain call options were sold and the remaining call options were
either exercised or expired. Consumers accounted for the costs relating to the
expired call options and the income received from the sale of call options, as
purchased power supply costs.

OTHER OPERATING EXPENSES AND NON-COMMODITY REVENUE: For the year 2002,
non-commodity revenues increased primarily resulting from increased
miscellaneous service revenues. Partially offsetting this increase in revenues,
are increased other operating expenses compared to 2001. This increase can be
attributed to higher depreciation expense resulting from higher plant in service
along with increased operating costs resulting from higher health care expenses,
storm restoration expenses, and increased contracted maintenance expenses. For
the year 2001, other operating expenses and non-commodity revenues provided a
net benefit when compared to 2000. This benefit is primarily due to reduced
amortization expense, as permitted by MPSC orders resulting from the Customer
Choice Act. Consumers temporarily suspended amortization of the securitized
assets pending the issuance of Securitization bonds in November 2001.

IMPLEMENTATION OF ACCOUNTING STANDARD (SFAS No. 133): In 2001, Consumers
implemented SFAS No. 133 which provides for derivative and hedge accounting for
certain utility industry contracts, particularly electric call option contracts
and option-like contracts. After receiving guidance from the FASB, Consumers
re-evaluated its electric call option and option-like contracts and determined
that these contracts require derivative accounting, and therefore recorded a $17
million pre-tax cumulative effect adjustment as a decrease to earnings. This
adjustment relates to the difference between the fair value and the recorded
book value of these electric call option contracts.

GAIN ON ASSET SALES: For the year 2002, asset sales resulted in a $31 million
pretax gain associated with the sale of Consumers' electric transmission system
and a $7 million pretax gain on the sale of nuclear equipment from the cancelled
Midland project.

INCOME TAXES: For the year 2002, income tax expense increased primarily due to
an increase in earnings by the electric utility. Income taxes associated with
the transmission system sale reflect a $5 million benefit due to the recognition
of the remaining unutilized investment tax credit related to the assets sold.




                                      -35-
<PAGE>

                                                        Consumers Energy Company


GAS UTILITY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                   2002      2001    Change    2001       2000        Change
- -------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>     <C>       <C>        <C>    <C>

Net income available to common stockholder                 $46       $21       $25     $21        $18            $3
===================================================================================================================

Reasons for the change:

Gas deliveries                                                                $ 21                            $(21)
Gas commodity and related revenue                                                -                              44
Gas rate increase                                                               25                               -
Gas wholesales and retail services                                               1                               8
Operation and maintenance                                                      (14)                            (30)
General taxes and depreciation                                                  (3)                              -
Fixed charges                                                                    3                               1
Income taxes                                                                    (8)                              1
                                                         ---------------------------------------------------------

Total change                                                                  $ 25                            $  3
==================================================================================================================
</TABLE>

GAS DELIVERIES: For the year 2002, gas delivery revenues increased by $21
million from the previous year. System deliveries, including miscellaneous
transportation, totaled 376.4 bcf, an increase of 9.4 bcf or 2.6 percent
compared with 2001. This increase is primarily due to colder weather that
resulted in increased deliveries to the residential and commercial sectors in
2002. For the year 2001, gas delivery revenues decreased by $21 million from the
previous year. System deliveries, including miscellaneous transportation,
totaled 367 bcf, a decrease of 43 bcf or 10 percent compared with 2000. This
decrease is primarily due to warmer temperatures compared to the 2000 heating
season and a reduction due to the economic slowdown in 2001.

GAS RATE INCREASE: In 2001, the MPSC issued an interim order in Consumers' gas
rate filing. In November 2002, the MPSC issued a final gas rate order
authorizing a $56 million annual increase in Consumers gas tariff rates. As a
result of these orders, Consumers recognized increased gas revenues of $25
million.

OPERATION AND MAINTENANCE: For the year 2002, operation and maintenance expenses
increased $14 million compared to 2001. This increase reflects the recognition
of gas storage inventory losses, and additional expenditures on customer
reliability and service.

INCOME TAXES: For the year 2002, income tax expense increased, primarily due to
improved earnings of the gas utility.

CAPITAL RESOURCES AND LIQUIDITY

CASH POSITION, INVESTING AND FINANCING

OPERATING ACTIVITIES: Consumers' principal source of liquidity is from cash
derived from operating activities involving the sale and transportation of
natural gas and the generation, delivery and sale of electricity. For 2002 and
2001, cash from operations totaled $769 million and $518 million, respectively.
The $251 million increase resulted primarily from an increase in cash due to
lower expenditures for natural gas and increased tax refunds provided by the Job
Creation and Worker Assistance Act of 2002, a gas rate increase and lower
electric power purchase costs as discussed in the results of operations also
contributed to the increase. Partially offsetting the cash increase was a
decrease in cash collected from customers and related parties. Consumers


                                      -36-
<PAGE>


                                                        Consumers Energy Company


primarily uses cash derived from operating activities to operate, maintain,
expand and construct its electric and gas systems, to retire portions of
long-term debt, and to pay dividends. A decrease in cash from operations could
reduce the availability of funds and result in additional short-term financings,
see Note 3, Financings and Capitalization for additional details about this
source of funds.

INVESTING ACTIVITIES: For 2002 and 2001, cash used for investing activities
totaled $311 million and $803 million, respectively. The change of $492 million
is primarily the result of $298 million cash proceeds from the sale of METC and
other assets, and lower capital expenditures to comply with the Clean Air Act.

FINANCING ACTIVITIES: Cash used for financing activities totaled $204 million
for 2002 compared to $281 million provided in 2001. The change of $485 million
is primarily due to $173 million additional retirement of bonds and other
long-term debt, and a net reduction in proceeds from new borrowings of $334
million for 2002 compared to 2001.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following schedule of
material contractual obligations and commercial commitments is provided to
aggregate information in a single location so that a picture of liquidity and
capital resources is readily available. For further information see Note 2,
Uncertainties, and Note 3, Financings and Capitalization.

<TABLE>
<CAPTION>
Contractual Obligations                                                                            In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                          Payments Due
                                                  ------------------------------------------------------------
                                                                                                      2008 and
December 31                          Total         2003        2004      2005       2006    2007        beyond
- --------------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>         <C>        <C>        <C>     <C>    <C>
On-balance sheet:
   Long-term debt                  $ 2,442       $    -        $328      $470       $362      $31       $1,251
   Current portion of long-
     term debt                         305          305           -         -          -        -            -
   Notes payable                       457          457           -         -          -        -            -
   Capital lease obligations (a)       157           21          20        18         17       16           65
Off-balance sheet:
   Headquarters building lease (a)       6            -           -         -          -        -            6
   Operating leases                     78           13          10         8          8        6           33
   Non-recourse debt of FMLP           208            8          54        41         26       13           66
   Sale of accounts receivable         325          325           -         -          -        -            -
   Unconditional purchase
     obligations                    17,344        1,368         975       877        727      727       12,670
==============================================================================================================
</TABLE>

(a) The headquarters building capital lease is estimated to be $60 million of
which a $54 million construction obligation has been incurred and recorded on
Consumers' balance sheet as of December 31, 2002.

REGULATORY AUTHORIZATION FOR FINANCINGS: At December 31, 2002, Consumers had
FERC authorization to issue or guarantee through June 2004, up to $1.1 billion
of short-term securities outstanding at any one time. Consumers also had
remaining FERC authorization to issue through June 2004 up to $500 million of
long-term securities for refinancing or refunding purposes, $677 million for
general corporate purposes, and $900 million of first mortgage bonds to be
issued solely as security for the long-term securities. On October 10, 2002,
FERC granted a waiver of its competitive bid/negotiated placement requirements
applicable to the remaining long-term securities authorization indicated above.

LONG TERM DEBT: Consumers' current portion of long-term debt maturing in 2003 is
$305 million. Refer to Outlook, "Liquidity and Capital Resources" below for
information about Consumers strategic measures




                                      -37-
<PAGE>


                                                        Consumers Energy Company

addressing its future liquidity and capital requirements.

SHORT TERM FINANCINGS: On July 12, 2002, Consumers entered into two credit
facilities as follows: a $250 million revolving credit facility maturing July
11, 2003 and a $300 million term loan maturing July 11, 2003. In March 2003,
Consumers obtained a replacement revolving credit facility in the amount of $250
million. The new credit facility matures in March 2004 with two annual
extensions at Consumers' option, which would extend the maturity to March 2006.
In September 2002, the term loan maturity was extended by one year at Consumers'
option and now has a maturity date of July 11, 2004. These two facilities
aggregating $550 million replaced a $300 million revolving credit facility that
matured July 14, 2002, as well as various credit lines aggregating $200 million.
At December 31, 2002, a total of $550 million was outstanding under the revolver
and term loan, of which $250 million was included in notes payable and $300
million was included in long-term debt maturing in 2004. The prior credit
facilities and lines were unsecured. The two new credit facilities are secured
with Consumers' first mortgage bonds and are available to finance seasonal
working capital requirements and to pay for capital expenditures between
long-term financings.

Consumers' $250 million revolving credit facility had, as of December 31, 2002,
an effective interest rate of 5.9 percent, although the rate may fluctuate
depending on the rating of Consumers' first mortgage bonds or changes in the
base LIBOR rate. The effective interest rate on the $300 million term loan was
8.9 percent as of December 31, 2002. The rate may fluctuate depending on the
rating of Consumers' first mortgage bonds or changes in the base LIBOR rate.
Consumers' bank and legal fees associated with arranging the facilities in July
2002 were $6 million.

The two credit facilities have contractual restrictions that require Consumers
to maintain, as of the last day of each fiscal quarter, the following:

<TABLE>
<CAPTION>
                                                               Limitation               Ratio at December 31, 2002
- ------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                                      <C>
Debt to Capital Ratio (a)(b)                   Not more than 0.65 to 1.00                             0.55 to 1.00
Interest Coverage Ratio (a)(b)                   Not less than 2.0 to 1.0                             4.00  to 1.0
===================================================================================================================
</TABLE>

(a) Violation of this ratio would constitute an event of default under the
facility which provides the lender, among other remedies, the right to declare
the principal and interest immediately due and payable.

(b) The terms of the credit facilities provide for the exclusion of
securitization bonds in the calculation of the debt to capital ratio.

Also, pursuant to restrictive covenants in the new facilities, Consumers is
limited to common stock dividend payments that will not exceed $300 million in
any calendar year. Consumers paid $231 million and $190 million in common stock
dividends to CMS Energy in 2002 and 2001, respectively. In January 2003,
Consumers declared and paid a $78 million common dividend.

In October 2002, Consumers simultaneously entered into a new term loan agreement
collateralized by first mortgage bonds and a new gas inventory term loan
agreement collateralized by Consumers' natural gas in storage. These agreements
contain complementary collateral packages that provide Consumers, as additional
first mortgage bonds become available, borrowing capacity of up to $225 million,
of which $207 million was outstanding at December 31, 2002 with an effective
interest rate of 6.3 percent. The bank and legal fees associated with the
agreements were $2 million. The first amortization payment under these
agreements occurred in December 2002 with monthly amortization payments
scheduled until full repayment is completed in mid-April of 2003. The loan
amortization also reduces the bank's loan commitment to the amount of loan
outstanding, which was $207 million as of December 31, 2002.

LEASES: Consumers' capital leases are predominately for leased service vehicles
and the new headquarters building. Operating leases are predominately railroad
coal car leases.




                                      -38-
<PAGE>

                                                        Consumers Energy Company


OFF-BALANCE SHEET ARRANGEMENTS: Consumers' use of long-term contracts for the
purchase of commodities and services, the sale of its accounts receivable, and
operating leases are considered to be off-balance sheet arrangements. Consumers
has responsibility for the collectability of the accounts receivable sold, and
the full obligation of its leases become due in case of lease payment default.
Consumers uses these off-balance sheet arrangements in its normal business
operations.

SALE OF ACCOUNTS RECEIVABLE: Consumers had, through its wholly owned subsidiary
Consumers Receivables Funding, a $325 million trade receivable sale program in
place as an anticipated source of funds for general corporate purposes and
currently expected capital expenditures at December 31, 2002. At December 31,
2001, prior to the establishment of its new subsidiary, Consumers Receivables
Funding, Consumers had a $450 million trade receivables sale program in place as
an anticipated source of funds for general corporate purposes and currently
expected capital expenditures. At December 31, 2002 and 2001, the receivable
sold totaled $325 million and $334 million, respectively. Accounts receivable
and accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.

UNCONDITIONAL PURCHASE OBLIGATIONS: Unconditional purchase obligations include
natural gas, electricity, and coal purchase contracts and their associated cost
of transportation. These obligations represent normal business operating
contracts used to assure adequate supply and to minimize exposure to market
price fluctuations.

Included in unconditional purchase obligations are long-term power purchase
agreements with various generating plants including the MCV Facility. These
contracts require monthly capacity payments based on the plants' availability or
deliverability. These payments are approximately $45 million per month for year
2003, including $33 million related to the MCV Facility. For the period that a
plant is not available to deliver electricity to Consumers, Consumers is not
obligated to make the capacity payments to the plant. See Electric Utility
Results of Operations above and Note 2, Uncertainties, "Electric Rate Matters -
Power Supply Costs" and "Other Electric Uncertainties - The Midland Cogeneration
Venture" for further information concerning power supply costs.

<TABLE>
<CAPTION>
Commercial Commitments                                                                             In Millions
- --------------------------------------------------------------------------------------------------------------
                                                                      Commitment Expiration
                                                   -----------------------------------------------------------
                                                                                                      2008 and
December 31                          Total         2003        2004      2005       2006     2007       beyond
- --------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>         <C>       <C>        <C>      <C>   <C>
Off-balance sheet:
   Indemnities                         $11           $-           -         -          -        -          $11
   Letters of credit                     7            7           -         -          -        -            -
==============================================================================================================
</TABLE>

Indemnities are agreements by Consumers to reimburse other companies, such as an
insurance company, if those companies have to complete Consumers' performance
involving a third party contract. Letters of credit are issued by a bank on
behalf of Consumers, guaranteeing payment to a third party. Letters of credit
substitute the bank's credit for Consumers' and reduce credit risk for the third
party beneficiary. The amount and time period for drawing on a letter of credit
is limited.




                                      -39-
<PAGE>
                                                        Consumers Energy Company

OUTLOOK

LIQUIDITY AND CAPITAL RESOURCES

Consumers' liquidity and capital requirements are generally a function of its
results of operations, capital expenditures, contractual obligations, debt
maturities, working capital needs and collateral requirements. Consumers has
historically met its consolidated cash needs through its operating and financing
activities and access to bank financing and the capital markets. As discussed
above, during 2003, Consumers has contractual obligations and planned capital
expenditures that would require substantial amounts of cash. Consumers also has
approximately $727 million of publicly issued and credit facility debt maturing
in 2003, including the Consumers' credit facilities described above. However, in
March 2003, a $250 million revolving credit facility was replaced, as discussed
below. In addition, Consumers may also become subject to liquidity demands
pursuant to commercial commitments under guarantees, indemnities and letters of
credit as indicated above.

Consumers is partially addressing its near-to-mid-term liquidity and capital
requirements through reduced capital expenditures and cost reduction. Consumers
believes that its current level of cash and borrowing capacity, along with
anticipated cash flows from operating and investing activities, will be
sufficient to meet its liquidity needs through 2003, including debt maturities
in 2003. Consumers expects to borrow approximately $1.1 billion in total in
2003, which includes an amount to refinance the majority of the maturing debt
above.

During the summer months, Consumers purchases natural gas and stores it for
resale primarily during the winter heating season. Recently the market price for
natural gas has increased. If continued, this price increase could impose
liquidity needs beyond what is anticipated for 2003. Although Consumers' natural
gas purchases are recoverable from its customers, the amount paid for natural
gas stored as inventory could require additional liquidity due to the timing of
the cost recoveries.

In July 2002, the credit rating of the publicly traded securities of Consumers
was downgraded by the major rating agencies. As a result of certain of these
rating agency downgrades, certain commodity suppliers to Consumers have
requested advance payments or other forms of assurances in connection with
maintenance of ongoing deliveries of gas and electricity. Consumers is
addressing these issues as required.

As a result of the ratings downgrades and related changes in its financial
situation, Consumers' access to bank financing and the capital markets and its
ability to incur additional indebtedness may be restricted. Consumers continues
to explore the full range of strategic measures to provide adequate liquidity.
These measures include refinancing its bank credit facilities, entering into
leasing arrangements, inventory financing, vendor financing, refinancing and
issuing new capital markets debt, and preferred equity, and negotiating private
placement debt, and preferred equity. Consumers believes that these measures
will also supplement its cash balances in 2003.

Consumers plans to meet its liquidity and capital requirements in 2003 through a
combination of approximately $229 million from operations and approximately $513
million of new debt along with reduced capital expenditures, cost reductions and
other measures. As of March 14, 2003, Consumers planned to refinance $727
million of debt in 2003. To that end, Consumers has initiated several
transactions with various financial institutions, regulators, banks, lenders,
and others that are designed to provide liquidity:





                                      -40-
<PAGE>

                                                        Consumers Energy Company

     -   Consumers has obtained a replacement revolving credit facility in the
         amount of $250 million secured by first mortgage bonds. The cost of the
         facility is LIBOR plus 350 basis points. The new credit facility
         matures in March 2004 with two annual extensions at Consumers' option,
         which would extend the maturity to March 2006. The prior facility was
         due to expire in July 2003.

     -   Consumers has entered into a $140 million term loan secured by first
         mortgage bonds with a private investor bank. This loan has a term of
         six years at a cost of LIBOR plus 475 basis points. Proceeds from this
         loan would be used to retire debt or for general corporate purposes.

     -   Consumers has entered into a $150 million term loan secured by first
         mortgage bonds. This term loan has a three-year maturity at a
         cost of LIBOR plus 450 basis points. Proceeds from this
         loan would be used to retire debt or for general corporate purposes.

     -   Consumers filed a general rate case for its gas utility business on
         March 14, 2003. Consumers requested rate relief in the amount of
         approximately $156 million. In its filing, Consumers requested
         immediate interim relief. If interim relief of $156 million were
         granted, Consumers expects that the rate relief will be in place by the
         fourth quarter of 2003.

     -   Consumers has filed an application with the MPSC seeking authorization
         to issue $1.084 billion of securitization bonds. These bonds would
         provide liquidity to Consumers at interest rates reflective of high
         quality credit. Consumers would utilize these proceeds to retire higher
         cost debt and in turn would realize significant interest expense
         savings over the life of the bonds. If the MPSC approves a financing in
         the amount requested, and there are no delays in the offering process,
         Consumers anticipates that bonds would be issued by year end, 2003.

If necessary for liquidity purposes, Consumers would also postpone the planned
$158 million pension contribution expected to be made in September 2003.

In the event Consumers is unable to access bank financing or the capital markets
to incur or refinance indebtedness, there could be a material adverse effect on
Consumers' liquidity and operations. There is no assurance that the pending
securitization bond issuance transaction noted above will be completed. Further,
there is no assurance that the MPSC will grant either interim or final gas
utility rate relief.

SEC AND OTHER INVESTIGATIONS

As a result of round-trip trading transactions at CMS MST, CMS Energy's Board of
Directors established a Special Committee of independent directors to
investigate matters surrounding the transactions and retained outside counsel to
assist in the investigation. The Special Committee completed its investigation
and reported its findings to the Board of Directors in October 2002. The Special
Committee concluded, based on an extensive investigation, that the round-trip
trades were undertaken to raise CMS MST's profile as an energy marketer with the
goal of enhancing its ability to promote its services to new customers. The
Special Committee found no apparent effort to manipulate the price of CMS Energy
Common Stock or affect energy prices. The Special Committee also made
recommendations designed to prevent any reoccurrence of this practice, most of
which have already been implemented. Previously, CMS Energy terminated its
speculative trading business and revised its risk management policy. The Board
of Directors adopted, and CMS Energy has begun implementing, the remaining
recommendations of the Special Committee.

CMS Energy is cooperating with other investigations concerning round-trip
trading, including an investigation by the SEC regarding round-trip trades and
CMS Energy's financial statements, accounting policies and controls, and
investigations by the United States Department of Justice, the Commodity Futures
Trading Commission and the FERC. CMS Energy has also received subpoenas from
U.S. Attorneys Offices regarding investigations of those trades. CMS Energy is
unable to predict the outcome of these matters, and Consumers is unable to
predict what effect, if any, these investigations will have on its business.




                                      -41-
<PAGE>

                                                        Consumers Energy Company

SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints have been filed against CMS Energy,
Consumers, and certain officers and directors of CMS Energy and its affiliates.
The complaints have been filed in the United States District Court for the
Eastern District of Michigan as purported class actions by individuals who
allege that they purchased CMS Energy's securities during a purported class
period. At least two of the complaints contain purported class periods beginning
on August 3, 2000 and running through May 10, 2002 or May 14, 2002. These
complaints generally seek unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about the company's business and
financial condition. The cases have been consolidated into a single lawsuit and
an amended and consolidated complaint is due to be filed by May 1, 2003. CMS
Energy and Consumers intend to vigorously defend against this action. Consumers
cannot predict the outcome of this litigation.

ERISA CASES: Consumers is a named defendant, along with CMS Energy, CMS MST and
certain named and unnamed officers and directors, in two lawsuits brought as
purported class actions on behalf of participants and beneficiaries of the
401(k) plan. The two cases, filed in July 2002 in the United States District
Court for the Eastern District of Michigan, were consolidated by the trial judge
and an amended and consolidated complaint has been filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
plan with respect to a decline in value of the shares of CMS Energy Common Stock
held in the plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be vigorously defended. Consumers cannot predict the outcome of
this litigation.

CAPITAL EXPENDITURES OUTLOOK

Consumers estimates the following capital expenditures, including new lease
commitments, by expenditure type and by business segments during 2003 through
2005. Consumers prepares these estimates for planning purposes and may revise
them.

<TABLE>
<CAPTION>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31                                                           2003         2004         2005
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>          <C>
Construction                                                                      $424         $520         $585
Nuclear fuel                                                                        33           32            0
Other capital leases                                                                28           23           25
                                                                                 -------------------------------

                                                                                  $485         $575         $610
================================================================================================================

Electric utility operations (a)(b)                                                $341         $408         $385
Gas utility operations (a)                                                         144          167          225
                                                                                 -------------------------------

                                                                                  $485         $575         $610
================================================================================================================
</TABLE>

(a) These amounts include an attributed portion of Consumers' anticipated
capital expenditures for plant and equipment common to both the electric and gas
utility businesses.

(b) These amounts include estimates for capital expenditures that may be
required by recent revisions to the Clean Air Act's national air quality
standards.

ELECTRIC BUSINESS OUTLOOK

GROWTH: Over the next five years, Consumers expects electric deliveries
(including both full service sales and delivery service to customers who choose
to buy generation service from an alternative electric supplier, but


                                      -42-
<PAGE>
                                                        Consumers Energy Company

excluding transactions with other wholesale market participants including other
electric utilities) to grow at an average rate of approximately two percent per
year based primarily on a steadily growing customer base. This growth rate
reflects a long-range expected trend of growth. Growth from year to year may
vary from this trend due to customer response to abnormal weather conditions and
changes in economic conditions including, utilization and expansion of
manufacturing facilities. Consumers has experienced much stronger than expected
growth in 2002 as a result of warmer than normal summer weather. Assuming that
normal weather conditions will occur in 2003, electric deliveries are expected
to grow less than one percent over the strong 2002 electric deliveries.

COMPETITION AND REGULATORY RESTRUCTURING: The enactment in 2000 of Michigan's
Customer Choice Act and other developments will continue to result in increased
competition in the electric business. Generally, increased competition can
reduce profitability and threatens Consumers' market share for generation
services. The Customer Choice Act allowed all of the company's electric
customers to buy electric generation service from Consumers or from an
alternative electric supplier as of January 1, 2002. As a result, alternative
electric suppliers for generation services have entered Consumers' market. As of
mid-March 2003, alternative electric suppliers are providing 516 MW of
generation supply to customers. To the extent Consumers experiences "net"
Stranded Costs as determined by the MPSC, the Customer Choice Act allows for the
company to recover such "net" Stranded Costs by collecting a transition
surcharge from those customers who switch to an alternative electric supplier.
Consumers cannot predict the total amount of electric supply load that may be
lost to competitor suppliers, nor whether the stranded cost recovery method
adopted by the MPSC will be applied in a manner that will fully offset any
associated margin loss.

Stranded and Implementation Costs: The Customer Choice Act allows electric
utilities to recover the act's implementation costs and "net" Stranded Costs
(without defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue required to cover the costs
associated with fixed generation assets, generation-related regulatory assets,
and capacity payments associated with purchase power agreements, and (b) the
revenues received from customers under existing rates available to cover the
revenue requirement. The MPSC authorized Consumers to use deferred accounting to
recognize the future recovery of costs determined to be stranded. Consumers has
initiated an appeal at the Michigan Court of Appeals related to the MPSC's
December 2001 "net" Stranded Cost order.

According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million and $43
million for 2000 and 2001, respectively. In the same filing, Consumers estimated
that it would experience "net" Stranded Costs of $126 million for 2002.
Consumers, in its hearing brief, filed in August 2002, revised its request for
"net" Stranded Costs to $7 million and $4 million for 2000 and 2001,
respectively, and an estimated $73 million for 2002. The single largest reason
for the difference was the exclusion, as ordered by the MPSC, of all costs
associated with expenditures required by the Clean Air Act.

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant rehearing and revise certain features of the order. Several other parties
also filed rehearing petitions with the MPSC. As discussed below, Consumers has
filed a request with the MPSC for authority to issue securitization bonds that
would allow recovery of the Clean Air Act expenditures and post-2000 Palisades
expenditures that were excluded from the Stranded Cost calculation.

On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs


                                      -43-
<PAGE>
                                                        Consumers Energy Company

incurred in 2002, and for approval of a "net" Stranded Cost recovery charge. In
the application, Consumers indicated that if Consumers' proposal to securitize
Clean Air Act expenditures and post-2000 Palisades expenditures were approved as
proposed in its securitization case as discussed below, then Consumers' "net"
Stranded Costs incurred in 2002 are approximately $35 million. If the proposal
to securitize those costs is not approved, then Consumers indicated that the
costs would be properly included in the 2002 "net" Stranded Cost calculation,
which would increase Consumers' 2002 "net" Stranded Costs to approximately $103
million. Consumers cannot predict the recoverability of Stranded Costs, and
therefore has not recorded any regulatory assets to recognize the future
recovery of such costs.

The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers intends to participate in this collaborative process.

Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.

<TABLE>
<CAPTION>
                                                                                                   In Millions
- --------------------------------------------------------------------------------------------------------------
Year Filed          Year Incurred         Requested         Pending              Allowed            Disallowed
- --------------------------------------------------------------------------------------------------------------
<S>                 <C>                 <C>             <C>                  <C>                   <C>
1999                  1997 & 1998               $20             $ -                  $15                    $5
2000                         1999                30               -                   25                     5
2001                         2000                25               -                   20                     5
2002                         2001                 8               8                    -                     -
2003                         2002                 2               2                    -                     -
==============================================================================================================
</TABLE>

The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs incremental to costs already reflected in electric rates. In
the orders received for the years 1997 through 2000, the MPSC also reserved the
right to review again the total implementation costs depending upon the progress
and success of the retail open access program, and ruled that due to the rate
freeze imposed by the Customer Choice Act, it was premature to establish a cost
recovery method for the allowable implementation costs. In addition to the
amounts shown above, as of December 2002, Consumers incurred and deferred as a
regulatory asset, $1 million of additional implementation costs and has also
recorded as a regulatory asset $13 million for the cost of money associated with
total implementation costs. Consumers believes the implementation costs and the
associated cost of money are fully recoverable in accordance with the Customer
Choice Act. Cash recovery from customers will probably begin after the rate
freeze or rate cap period has expired. Consumers cannot predict the amounts the
MPSC will approve as allowable costs.

Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.

Securitization: On March 4, 2003, Consumers filed an application with the MPSC
seeking approval to issue Securitization bonds in the amount of approximately
$1.084 billion. If approved, this would allow the recovery of costs associated
with Clean Air Act expenditures, post-2000 Palisades expenditures and retail
open access implementation costs through December 31, 2003, and certain pension
fund expenses, and expenses associated with the issuance of the bonds.

Rate Caps: The Customer Choice Act imposes certain limitations on electric rates
that could result in Consumers being unable to collect from electric customers
its full cost of conducting business. Some of these


                                      -44-
<PAGE>
                                                        Consumers Energy Company

costs are beyond Consumers' control. In particular, if Consumers needs to
purchase power supply from wholesale suppliers while retail rates are frozen or
capped, the rate restrictions may make it impossible for Consumers to fully
recover purchased power and associated transmission costs from its customers. As
a result, Consumers may be unable to maintain its profit margins in its electric
utility business during the rate freeze or rate cap periods. The rate freeze is
in effect through December 31, 2003. The rate caps are in effect through at
least December 31, 2004 for small commercial and industrial customers, and at
least through December 31, 2005 for residential customers.

Industrial Contracts: In response to industry restructuring efforts, in 1995 and
1996, Consumers entered into multi-year electric supply contracts with certain
large industrial customers to provide electricity at specially negotiated
prices, usually at a discount from tariff prices. The MPSC approved these
special contracts as part of its phased introduction to competition. Unless
terminated or restructured, the majority of these contracts are in effect
through 2005. As of December 2002, some contracts have expired, but outstanding
contracts involve approximately 500 MW. Consumers cannot predict the ultimate
financial impact of changes related to these power supply contracts, or whether
additional contracts will be necessary or advisable.

Code of Conduct: In December 2000, as a result of the passage of the Customer
Choice Act, the MPSC issued a new code of conduct that applies to electric
utilities and alternative electric suppliers. The code of conduct seeks to
prevent cross-subsidization, information sharing, and preferential treatment
between a utility's regulated and unregulated services. The new code of conduct
is broadly written, and as a result, could affect Consumers' retail gas
business, the marketing of unregulated services and equipment to Michigan
customers, and internal transfer pricing between Consumers' departments and
affiliates. In October 2001, the new code of conduct was reaffirmed by the MPSC
without substantial modification. Consumers appealed the MPSC orders related to
the code of conduct and sought a stay of the orders until the appeal was
complete; however, the request for a stay was denied. Consumers filed a
compliance plan in accordance with the code of conduct. It also sought waivers
to the code of conduct in order to continue utility activities that provide
approximately $50 million in annual revenues. In October 2002, the MPSC denied
waivers for three programs that provide approximately $32 million in revenues in
2001, of which $30 million relates to the appliance service plan. The waivers
denied included all waivers associated with the appliance service plan program
that has been offered by Consumers for many years. Consumers filed a renewed
motion for a stay of the effectiveness of the code of conduct and an appeal of
the waiver denials with the Michigan Court of Appeals. On November 8, 2002, the
Michigan Court of Appeals denied Consumers' request for a stay. Consumers has
filed an application for leave to appeal with the Michigan Supreme Court with
respect to the Michigan Court of Appeals' November ruling denying the stay. In
February 2003, the Michigan Supreme Court denied the application. In December
2002, Consumers filed a renewed request with the MPSC for a temporary waiver
until April 2004 for the appliance service plan, which generated $33 million in
revenues in 2002. In February 2003, the MPSC granted an extension of the
temporary waiver until December 31, 2003. The full impact of the new code of
conduct on Consumers' business will remain uncertain until the appellate courts
issue definitive rulings. Recently, in an appeal involving affiliate pricing
guidelines, the Michigan Court of Appeals struck the guidelines down because of
a procedurally defective manner of enactment by the MPSC. A similar procedure
was used by the MPSC in enacting the new code of conduct. Consumers is also
exploring seeking legislative clarification of the scope of the code of conduct.

Energy Policy: Uncertainty exists regarding the enactment of a national
comprehensive energy policy, specifically federal electric industry
restructuring legislation. A variety of bills introduced in the United States
Congress in recent years aimed to change existing federal regulation of the
industry. If the federal government enacts a comprehensive energy policy or
electric restructuring legislation, then that legislation could potentially
affect company operations and financial requirements.

Transmission: In 1999, the FERC issued Order No. 2000, strongly encouraging
electric utilities to transfer operating control of their electric transmission
system to an RTO, or sell the facilities to an independent


                                      -45-
<PAGE>

                                                        Consumers Energy Company

company. In addition, in June 2000, the Michigan legislature passed Michigan's
Customer Choice Act, which also requires utilities to divest or transfer the
operating authority of transmission facilities to an independent company.
Consumers chose to offer its electric transmission system (METC) for sale rather
than own and invest in an asset it could not control. In May 2002, Consumers
sold its electric transmission system for approximately $290 million in cash to
MTH, a non-affiliated limited partnership whose general partner is a subsidiary
of Trans-Elect, Inc.

Trans-Elect, Inc. submitted the winning bid through a competitive bidding
process, and various federal agencies approved the transaction. Consumers did
not provide any financial or credit support to Trans-Elect, Inc. Certain of
Trans-Elect's officers and directors are former officers and directors of CMS
Energy, Consumers and their subsidiaries. None of them were employed by CMS
Energy, Consumers, or their affiliates when the transaction was discussed
internally and negotiated with purchasers. As a result of the sale, Consumers
experienced an after-tax earnings increase of approximately $17 million in 2002,
due to the recognition of a $26 million gain on the sale of the electric
transmission system. This gain from the sale is offset by a loss of revenue from
wholesale and retail open access customers who will buy services directly from
MTH, including the loss of a return on the sold electric transmission system.
Consumers anticipates that the future impact of the loss of revenue from
wholesale and retail open access customers who will buy services directly from
MTH and the loss of a return on the sold electric transmission system on its
after-tax earnings will be a decrease of $15 million in 2003, and a decrease of
approximately $14 million annually for the next three years.

Under the agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH. Effective April 30, 2002, Consumers and METC withdrew from the Alliance
RTO, and MTH (METC) has joined the MISO RTO. For further information, see Note
2, Uncertainties, "Electric Rate Matters -- Transmission."

Consumers is a customer of AEP, holding 500 MW of long-term transmission service
reservations through the AEP transmission system. AEP recently indicated its
intent to turn control of its transmission system over to the PJM RTO and become
part of the PJM market sometime after May 1, 2003, which requires approval by
FERC. This will require current AEP customers to become members of, and resubmit
reservation requests to, PJM. Consumers filed an intervention requesting
clarification in January 2003. Upon FERC's approval of this transfer, Consumers
will complete the application process to join PJM. Of the 500 MW of long-term
transmission service reservations held, 200 MW will expire on April 1, 2003.
Effective June 1, 2003, Consumers will have an additional 100 MW of long-term
transmission, resulting in a total of 400 MW of long-term transmission for
summer 2003.

In July 2002, the FERC issued a 600-page notice of proposed rulemaking on
standard market design for electric bulk power markets and transmission. Its
stated purpose is to remedy undue discrimination in the use of the interstate
transmission system and give the nation the benefits of a competitive bulk power
system. The proposed rulemaking is primarily designed to correct perceived
problems in the electric transmission industry. Consumers sold its electric
transmission system in 2002, but is a transmission customer. The financial
impact to Consumers is uncertain, but the final standard market design rules
could significantly increase delivered power costs to Consumers and the retail
electric customers it serves. Consumers has filed comments with the FERC in
general opposition to the proposal.

There are multiple proceedings pending before the FERC regarding transitional
transmission pricing mechanisms intended to mitigate the revenue impact on
transmission owners resulting from the elimination of "Rate Pancaking". "Rate
Pancaking" represents the application of the transmission rate of each
individual


                                      -46-
<PAGE>


                                                        Consumers Energy Company

transmission owner whose system is utilized on the scheduled path of an energy
delivery and its elimination has been alleged to result in "lost revenues" for
transmission owners. It is unknown what mechanism(s) may result from the
proceedings currently pending before the FERC, and as such, it is not possible
at this time to identify the specific effect on Consumers. It should be noted,
however, that Consumers believes the results of these proceedings could also
significantly increase the delivered power costs to Consumers and the retail
electric customers it serves.

Similarly, other proceedings before the FERC involving rates of transmission
providers of Consumers could increase Consumers' cost of transmitting power to
its customers in Michigan. As RTOs develop and mature in Consumers' area of
electrical operation, and those RTOs respond to FERC initiatives concerning the
services they must provide and the systems they maintain, Consumers believes
that there is likely to be an upward cost trend in transmission used by
Consumers, ultimately increasing the delivered cost of power to Consumers and
the retail electric customers it serves. The specific financial impact on
Consumers of such proceedings and trends are not currently quantifiable.

In addition to the potential cost impacts identified above, Consumers is
evaluating whether or not there may be impacts on electric reliability
associated with the outcomes of these various transmission related proceedings.
Consumers cannot assure that all risks to reliability can be avoided.

Consumers cannot predict the impact of these electric industry-restructuring
issues on its financial position, liquidity, or results of operations.

PERFORMANCE STANDARDS: In July 2001, the MPSC proposed electric distribution
performance standards for Consumers and other Michigan electric distribution
utilities. The proposal would establish standards related to restoration after
an outage, safety, and customer relations. Failure to meet the standards would
result in customer bill credits. Consumers submitted comments to the MPSC. In
December 2001, the MPSC issued an order stating its intent to initiate a formal
rulemaking proceeding to develop and adopt performance standards. In November
2002, the MPSC issued an order initiating the formal rulemaking proceeding.
Consumers has filed comments on the proposed rules and will continue to
participate in this process. Consumers cannot predict the nature of the proposed
standards or the likely effect, if any, on Consumers.

For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, and Note 2, Uncertainties,
"Electric Rate Matters -- Electric Restructuring" and "Electric Rate Matters --
Electric Proceedings."

UNCERTAINTIES: Several electric business trends or uncertainties may affect
Consumers' financial results and condition. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing electric operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
the need to make additional capital expenditures and increase operating expenses
for Clean Air Act compliance; 3) environmental liabilities arising from various
federal, state and local environmental laws and regulations, including potential
liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Acts and Superfund; 4) uncertainties relating to the
storage and ultimate disposal of spent nuclear fuel and the successful operation
of Palisades by NMC; 5) electric industry restructuring issues, including those
described above; 6) Consumers' ability to meet peak electric demand requirements
at a reasonable cost, without market disruption, and successfully implement
initiatives to reduce exposure to purchased power price increases; 7) the
recovery of electric restructuring implementation costs; 8) Consumers new status
as an electric transmission customer and not as an electric transmission
owner/operator; 9) sufficient reserves for OATT rate refunds; 10) the effects of
derivative accounting and potential earnings volatility; 11) increased costs for
safety and homeland security initiatives that are not recoverable on a timely
basis from customers, and 12) Consumers' continuing ability to raise funds at
reasonable rates in order to meet the cash


                                      -47-
<PAGE>


                                                        Consumers Energy Company

requirements of its electric business and to pay maturing debt in the
short-term; 13) potentially rising pension costs due to market losses. For
further information about these trends or uncertainties, see Note 2,
Uncertainties.

GAS BUSINESS OUTLOOK

GROWTH: Over the next five years, Consumers expects gas deliveries, including
gas full service and customer choice deliveries (excluding transportation to the
MCV Facility and off-system deliveries), to grow at an average rate of less than
one percent per year based primarily on a steadily growing customer base. Actual
gas deliveries in future periods may be affected by abnormal weather, use of gas
by independent power producers, changes in competitive and economic conditions,
and the level of natural gas consumption per customer.

2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. On November 7, 2002, the MPSC
issued a final order approving a $56 million annual distribution service rate
increase, which includes the $15 million interim increase, with an 11.4 percent
authorized return on equity, for service effective November 8, 2002. As part of
this order, the MPSC approved Consumers' proposal to absorb the assets and
liabilities of Michigan Gas Storage Company into Consumers' rate base and rates.
This has occurred through a statutory merger of Michigan Gas Storage Company
into Consumers and this is not expected to have an impact on Consumers'
consolidated financial statements. See Note 2, Uncertainties, "Gas Rate Matters
- -- 2001 Gas Rate Case" for further information.

2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which includes a 13.5 percent authorized return on equity, based on a
2004 test year. If approved, the request would add about $6.40 per month, or
about 9 percent, to the typical residential customer's average monthly
distribution bill. Contemporaneously with this filing, Consumers has requested
interim rate relief in the same amount.

UNBUNDLING STUDY: In July 2001, the MPSC directed gas utilities under its
jurisdiction to prepare and file an unbundled cost of service study. The purpose
of the study is to allow parties to advocate or oppose the unbundling of the
following services: metering, billing information, transmission, balancing,
storage, backup and peaking, and customer turn-on and turn-off services.
Unbundled services could be separately priced in the future and made subject to
competition by other providers. The MPSC addressed Consumers' study in the
November 2002 gas distribution rate case order and indicated that it makes
little sense to set rates for unbundled services before the details of those
services are known. Unbundled services may continue to be an issue in future
proceedings.

In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.

UNCERTAINTIES: Several gas business trends or uncertainties may affect
Consumers' financial results and conditions. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing gas operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 3) future gas industry restructuring
initiatives; 4) any initiatives undertaken to protect customers against gas
price increases; 5) an inadequate regulatory response to applications for
requested rate increases;


                                      -48-
<PAGE>


                                                        Consumers Energy Company

6) market and regulatory responses to increases in gas costs, including a
reduced average use per residential customer; 7) increased costs for pipeline
integrity and safety and homeland security initiatives that are not recoverable
on a timely basis from customers; and 8) Consumers' continuing ability to raise
funds at reasonable rates in order to meet the cash requirements of its gas
business; and 9) potentially rising pension costs due to market losses. For
further information about these uncertainties, see Note 2, Uncertainties.

OTHER OUTLOOK

See Outlook, "Liquidity and Capital Resources," "SEC and Other Investigations,"
"Securities Class Action Lawsuits," and "ERISA Cases" above.

TERRORIST ATTACKS: Since the September 11, 2001 terrorist attacks in the United
States, Consumers has increased security at all critical facilities and over its
critical infrastructure, and will continue to evaluate security on an ongoing
basis. Consumers may be required to comply with federal and state regulatory
security measures promulgated in the future. Through December 31, 2002,
Consumers has incurred approximately $4 million in incremental security costs,
including operating, capital, and decommissioning and removal costs. Consumers
estimates it may incur additional incremental security costs in 2003 of
approximately $6 million. Consumers will attempt to seek recovery of these costs
from its customers. In December 2002, the Michigan legislature passed, and the
governor signed, a bill that would allow Consumers to seek recovery of
additional electric division security costs incurred during the rate freeze and
cap periods imposed by the Customer Choice Act. On February 5, 2003, the MPSC
adopted filing requirements for the recovery of enhanced security costs.

ENERGY-RELATED SERVICES: Consumers offers a variety of energy-related services
to retail customers that focus on appliance maintenance, home safety, commodity
choice, and assistance to customers purchasing heating, ventilation and air
conditioning equipment. Consumers continues to look for additional growth
opportunities in providing energy-related services to its customers. The ability
to offer all or some of these services and other utility related
revenue-generating services, which provide approximately $50 million in annual
revenues, may be restricted by the new code of conduct issued by the MPSC, as
discussed above in Electric Business Outlook, "Competition and Regulatory
Restructuring -- Code of Conduct."

OTHER MATTERS

NEW ACCOUNTING STANDARDS

SFAS NO. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: Beginning January 1,
2003, companies must comply with SFAS No. 143. The standard requires companies
to record the fair value of the legal obligations related to an asset retirement
in the period in which it is incurred. Consumers has determined that it has
legal asset retirement obligations, particularly in regard to its nuclear
plants, but has not yet finalized its assessment of the obligation. However,
upon initial adoption of the standard, Consumers expects to record a regulatory
liability, as well as an asset retirement obligation, as required by SFAS No.
71. The regulatory liability recognizes the difference between the cost of
removal included in the reserve for accumulated depreciation for assets within
the scope of SFAS No. 143 and the accretion expense of the asset retirement
obligation and the depreciation expense of the asset retirement obligation asset
from when the obligation was initially incurred through December 2002. When the
asset retirement obligation liability is initially recorded, the company would
capitalize an offsetting amount by increasing the carrying amount of the related
long-lived asset. Over time, the initial liability would be accreted to its
present value each period and the capitalized cost would be depreciated over the
related asset's useful life.

SFAS NO. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS: Issued by the FASB in April 2002,
this standard rescinds SFAS No. 4, Reporting




                                      -49-
<PAGE>

                                                        Consumers Energy Company

Gains and Losses from Extinguishment of Debt, and SFAS No. 64, Extinguishment of
Debt Made to Satisfy Sinking-Fund Requirements. As a result, any gain or loss on
extinguishment of debt should be classified as an extraordinary item only if it
meets the criteria set forth in APB Opinion No. 30. The provisions of this
section are applicable to fiscal years beginning 2003, but may be adopted early.
Consumers has adopted this provision early, with no material affect to its
income statement. SFAS No. 145 amends SFAS No. 13 to require sale-leaseback
accounting for certain lease modifications that have similar economic impacts to
sale-leaseback transactions. This provision is effective for transactions
occurring after May 15, 2002. Finally, SFAS No. 145 amends other existing
authoritative pronouncements to make various technical corrections and rescinds
SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. These
provisions are effective for financial statements issued on or after May 15,
2002. Upon adoption of the standard, there was no impact on Consumers' financial
statements.

SFAS NO. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
Issued by the FASB in July 2002, this standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard is
effective for exit or disposal activities initiated after December 31, 2002.
Consumers does not expect the adoption of SFAS No. 146 to have a material impact
on its financial position or results of operations.

FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENT
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS: This
interpretation, effective January 1, 2003, elaborates on the disclosure to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It requires that a guarantor recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. For contracts that are within the initial recognition and measurement
provision of this interpretation, the provisions are to be applied to guarantees
issued or modified after December 31, 2002; no cumulative effect adjustments are
required. For further information see Note 1, Corporate Structure and Summary of
Significant Accounting Policies, "New Accounting Standards To Be Adopted".

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Consumers, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Consumers will be required to
consolidate any entities that meet the requirements of the interpretation.
Consumers is in the process of studying the interpretation, and has yet to
determine the effects, if any, on its consolidated financial statements.



                                      -50-
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME                       CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                                                                        In Millions

Years Ended December 31                                                             2002        2001         2000
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>          <C>
OPERATING REVENUE        Electric                                                 $2,648       $2,633       $ 2,676
                         Gas                                                       1,519        1,338         1,196
                         Other                                                        55           43            63
                                                                                  ---------------------------------
                                                                                   4,222        4,014         3,935
- -------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES       Operation
                           Fuel for electric generation                              320          330           324
                           Purchased power - related parties                         546          543           534
                           Purchased and interchange power                           314          476           402
                           Cost of gas sold                                          831          707           616
                           Cost of gas sold - related parties                        131          123           103
                           Other                                                     660          625           555
                                                                                  ---------------------------------

                                                                                   2,802        2,804         2,534
                         Maintenance                                                 190          203           172
                         Depreciation                                                300          309           322
                         Amortization                                                 48           30           104
                         General taxes                                               193          187           197
                                                                                  ---------------------------------
                                                                                   3,533        3,533         3,329
- -------------------------------------------------------------------------------------------------------------------

OPERATING                Electric                                                    512          349           454
INCOME                   Gas                                                         127           97            96
                         Other                                                        50           35            56
                                                                                  ---------------------------------
                                                                                     689          481           606
- -------------------------------------------------------------------------------------------------------------------

OTHER INCOME             Dividends and interest from affiliates                        3            6            10
(DEDUCTIONS)             Accretion income (Note 1)                                     -            -             2
                         Accretion expense (Note 1)                                   (6)         (11)           (9)
                         Other, net                                                   25            6            (5)
                                                                                  ---------------------------------
                                                                                      22            1            (2)
- -------------------------------------------------------------------------------------------------------------------

INTEREST CHARGES         Interest on long-term debt                                  153          151           141
                         Other interest                                               27           41            44
                         Capitalized interest                                        (12)          (6)           (2)
                                                                                  ---------------------------------
                                                                                     168          186           183
- -------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                                           543          296           421
INCOME TAXES                                                                         180           97           137
                                                                                  ---------------------------------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                    363          199           284
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR DERIVATIVE INSTRUMENTS,
NET OF $10 TAX EXPENSE IN 2002 (NOTE 11) AND $6 TAX BENEFIT IN 2001 (NOTE 5)          18          (11)            -
                                                                                  ---------------------------------

NET INCOME                                                                           381          188           284
PREFERRED STOCK DIVIDENDS                                                              2            2             2
PREFERRED SECURITIES DISTRIBUTIONS                                                    44           41            34
                                                                                  ---------------------------------

NET INCOME AVAILABLE TO COMMON STOCKHOLDER                                        $  335       $  145       $   248
===================================================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      -51-

<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS                   CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                                                                          In Millions

Years Ended December 31                                                                    2002       2001       2000
- ---------------------------------------------------------------------------------------------------------------------
<S>                   <C>                                                                 <C>        <C>        <C>
CASH FLOWS FROM       Net Income                                                          $ 381      $ 188      $ 284
OPERATING ACTIVITIES  Adjustments to reconcile net income to net cash
                        provided by operating activities
                        Depreciation, depletion and amortization (includes
                          nuclear decommissioning of $6, $6 and $39,
                          respectively)                                                     348        339        426
                        Deferred income taxes and investment tax credit                     280        136        (21)
                        Capital lease and other amortization                                 15         20         32
                        Gain on sale of METC and other assets                               (38)         -          -
                        Loss on CMS Energy stock                                             12          -          -
                        Cumulative effect of accounting change                              (18)        11          -
                        Undistributed earnings of related parties (net
                          of dividends, $15, $8 and $8, respectively)                       (38)       (30)       (49)
                        Changes in assets and liabilities
                          Decrease (increase) in accounts receivable
                            and accrued revenue                                             (98)       149       (178)
                          Increase (decrease) in accounts payable                           (30)        53         19
                          Decrease (increase) in inventories                                 90       (307)       (59)
                          Changes in other assets and liabilities                          (135)       (41)        61
                                                                                   ----------------------------------

                             Net cash provided by operating activities                      769        518        515
- ---------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM       Capital expenditures (excludes assets placed under
INVESTING ACTIVITIES    capital lease)                                                     (559)      (745)      (498)
                      Cost to retire property, net                                          (66)      (118)      (125)
                      Investment in Electric Restructuring Implementation Plan               (8)       (13)       (29)
                      Investments in nuclear decommissioning trust funds                     (6)        (6)       (39)
                      Associated company preferred stock redemption                           -         50         50
                      Proceeds from nuclear decommissioning trust funds                      30         29         37
                      Cash proceeds from sale of METC and other assets                      298          -          -
                                                                                          ---------------------------

                             Net cash used in investing activities                         (311)      (803)      (604)
- ---------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM       Retirement of bonds and other long-term debt                         (574)      (401)        (9)
FINANCING ACTIVITIES  Payment of common stock dividends                                    (231)      (190)      (245)
                      Preferred securities distributions                                    (44)       (41)       (34)
                      Redemption of preferred securities                                    (30)         -          -
                      Payment of capital lease obligations                                  (15)       (20)       (32)
                      Contribution from (return of equity to) stockholder, net               50        (14)         -
                      Payment of preferred stock dividends                                   (2)        (1)        (2)
                      Increase (decrease) in notes payable, net                              41         13        189
                      Proceeds from preferred securities, net                                 -        121          -
                      Proceeds from senior notes and bank loans                             601        355        225
                      Proceeds from securitization bonds, net                                 -        459          -
                                                                                  -----------------------------------

                             Net cash provided by (used in) financing activities           (204)       281         92
- ---------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENT                               254         (4)         3
                      Cash and temporary cash investments - Beginning of year                17         21         18
                                                                                          ---------------------------
                             End of year                                                  $ 271      $  17      $  21
=====================================================================================================================

OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
  Interest paid (net of amounts capitalized)                                              $ 147      $ 169      $ 165
  Income taxes paid (net of refunds of $205, $53 and $15, respectively)                     (78)         3        133
  Pension and OPEB cash contribution                                                        120         96          -
NON-CASH TRANSACTIONS
  Nuclear fuel placed under capital lease                                                 $   -      $  13      $   4
  Other assets placed under capital lease                                                    62         37         15
======================================================================================================================
</TABLE>

ALL HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL MATURITY OF THREE MONTHS OR LESS
ARE CONSIDERED CASH EQUIVALENTS.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      -52-
<PAGE>

CONSOLIDATED BALANCE SHEETS                             CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
ASSETS                                                                                                 In Millions

December 31                                                                         2002                      2001
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>

PLANT (AT ORIGINAL COST) Electric                                                    $ 7,523               $ 7,661
                         Gas                                                           2,719                 2,593
                         Other                                                            23                    23
                                                                                     -----------------------------

                                                                                     $10,265               $10,277
                         Less accumulated depreciation, depletion
                           and amortization                                            5,900                 5,934
                                                                                     -----------------------------

                                                                                       4,365                 4,343
                         Construction work-in-progress                                   548                   480
                                                                                     -----------------------------


                                                                                       4,913                 4,823
- ------------------------------------------------------------------------------------------------------------------

INVESTMENTS              Stock of affiliates                                              22                    57
                         First Midland Limited Partnership                               255                   253
                         Midland Cogeneration Venture Limited Partnership                388                   300
                         Consumers Nuclear Services, LLC                                   2                     2
                                                                                     -----------------------------


                                                                                         667                   612
- ------------------------------------------------------------------------------------------------------------------

CURRENT ASSETS           Cash and temporary cash investments at cost, which
                           approximates market                                           271                    17
                         Accounts receivable and accrued revenue, less allowances
                           of $5 in 2002 and $4 in 2001                                  236                   125
                         Accounts receivable - related parties                            13                    18
                         Inventories at average cost
                           Gas in underground storage                                    486                   569
                           Materials and supplies                                         71                    69
                           Generating plant fuel stock                                    37                    52
                         Deferred property taxes                                         142                   144
                         Regulatory assets                                                19                    19
                         Other                                                            38                    14
                                                                                     -----------------------------

                                                                                       1,313                 1,027
- ------------------------------------------------------------------------------------------------------------------

NON-CURRENT ASSETS       Regulatory Assets
                           Securitized costs                                             689                   717
                           Postretirement benefits                                       185                   209
                           Abandoned Midland project                                      11                    12
                           Other                                                         168                   167
                         Nuclear decommissioning trust funds                             536                   581
                         Other                                                           218                   173
                                                                                     -----------------------------

                                                                                       1,807                 1,859
- ------------------------------------------------------------------------------------------------------------------

TOTAL ASSETS                                                                          $8,700               $ 8,321
==================================================================================================================
</TABLE>



                                      -53-
<PAGE>

STOCKHOLDERS' INVESTMENT AND LIABILITIES                CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                                                                      In Millions

December 31                                                                             2002                  2001
- ------------------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>                   <C>
CAPITALIZATION (NOTE 3)  Common stockholder's equity
                           Common stock, authorized --125.0 shares;                  $   841               $   841
                             outstanding 84.1 shares for all periods
                           Paid-in capital                                               682                   632
                           Other comprehensive income (loss)                            (179)                    4
                           Retained earnings since December 31, 1992                     545                   441
                                                                                     -----------------------------

                                                                                       1,889                 1,918
                         Preferred stock                                                  44                    44
                         Company-obligated mandatorily redeemable
                          preferred securities of subsidiaries (a)                       490                   520
                         Long-term debt                                                2,442                 2,472
                         Non-current portion of capital leases                           116                    72
                                                                                     -----------------------------

                                                                                       4,981                 5,026
- ------------------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES      Current portion of long-term debt and capital leases            318                   257
                         Notes payable                                                   457                   416
                         Accounts payable                                                261                   282
                         Accrued taxes                                                   214                   214
                         Accounts payable - related parties                               84                    96
                         Current portion of purchase power contracts                      26                    24
                         Deferred income taxes                                            25                    12
                         Other                                                           200                   233
                                                                                     -----------------------------

                                                                                       1,585                 1,534
- ------------------------------------------------------------------------------------------------------------------

NON-CURRENT LIABILITIES  Deferred income taxes                                           949                   784
                         Postretirement benefits                                         563                   290
                         Regulatory liabilities for income taxes, net                    297                   276
                         Power purchase agreement-- MCV Partnership                       27                    52
                         Deferred investment tax credit                                   91                   102
                         Other                                                           207                   257
                                                                                     -----------------------------

                                                                                       2,134                 1,761
- ------------------------------------------------------------------------------------------------------------------

                         Commitments and Contingencies (Notes 1, 2, 8, and 11)

TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES                                       $ 8,700               $ 8,321
==================================================================================================================
</TABLE>

(a) See Note 3, Short-Term Financings and Capitalization

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.



                                      -54-
<PAGE>
CONSOLIDATED STATEMENTS OF LONG-TERM DEBT               CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                                                                      In Millions

December 31                          Series (%)   Due                                       2002            2001
- ----------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>                                    <C>               <C>
FIRST MORTGAGE BONDS
                                     6-3/8        2003                                    $    -           $ 300
                                     7-3/8        2023                                       208             208
                                                                                         -----------------------
                                                                                             208             508

SENIOR NOTES                         Floating     2002                                         -             100
                                     6-3/8        2008                                       159             159
                                     6-7/8        2018                                       180             180
                                     6-1/5        2008 (a)                                   250             250
                                     6-1/2        2018 (b)                                   141             141
                                     6-1/2        2028                                       142             143
                                     6-1/4        2006                                       332             332
                                     6-0/0        2005                                       300               -
                                                                                         -----------------------
                                                                                           1,504           1,305

LONG-TERM BANK DEBT                                                                          328             184
POLLUTION CONTROL REVENUE BONDS                                                              126             126
SECURITIZATION BONDS                                                                         453             469
OTHER                                                                                          8               8
NUCLEAR FUEL DISPOSAL (c)                                                                    138             135
                                                                                         -----------------------
                                                                                           1,053             922

TOTAL PRINCIPAL AMOUNT OUTSTANDING                                                         2,765           2,735
CURRENT AMOUNTS                                                                             (305)           (244)
NET UNAMORTIZED DISCOUNT                                                                     (18)            (19)
                                                                                        -------------------------

TOTAL LONG-TERM DEBT                                                                      $2,442          $2,472
================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
LONG-TERM DEBT MATURITIES                                                                            In Millions

            First Mortgage           Senior         Long-Term     Securitization
                     Bonds            Notes         Bank Debt              Bonds          Other            Total
- ----------------------------------------------------------------------------------------------------------------
<C>                   <C>            <C>                 <C>                <C>            <C>            <C>
2003                  $  -           $  250 (a)          $ 28               $ 27           $  -           $  305
2004                     -                -               300                 28              -              328
2005                     -              441 (b)             -                 29              -              470
2006                     -              332                 -                 30              -              362
2007                     -                -                 -                 31              -               31
Thereafter             208              481                 -                308            272            1,269
                      ------------------------------------------------------------------------------------------

Total                 $208           $1,504              $328               $453           $272           $2,765
================================================================================================================
</TABLE>

(a) These Notes are subject to a Call Option by the Callholder or a Mandatory
    Put on May 1, 2003
(b) Includes $141 Senior Remarketed Notes subject to optional redemption by
    Consumers after June 15, 2005
(c) Due date uncertain (see Note 1)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      -55-

<PAGE>



CONSOLIDATED STATEMENTS OF PREFERRED STOCK              CONSUMERS ENERGY COMPANY


<TABLE>
<CAPTION>
                                                        Optional
                                                      Redemption             Number of Shares          In Millions
December 31                                 Series         Price             2002        2001        2002     2001
- ------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>               <C>         <C>          <C>      <C>
PREFERRED STOCK
     Cumulative, $100 par value,
       authorized 7,500,000 shares,
       with no mandatory redemption          $4.16       $103.25           68,451      68,451       $   7    $   7
                                              4.50        110.00          373,148     373,148          37       37
                                                                                                  ----------------

TOTAL PREFERRED STOCK                                                                                 $44      $44
==================================================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      -56-

<PAGE>



CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY  CONSUMERS ENERGY COMPANY

<TABLE>
<CAPTION>
                                                                                                    In Millions

Years Ended December 31                                                             2002        2001       2000
- ---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>        <C>
COMMON STOCK               At beginning and end of period (a)                     $  841      $  841     $  841
- ---------------------------------------------------------------------------------------------------------------

OTHER PAID-IN CAPITAL      At beginning of period                                    632         646        645
                           Stockholder's contribution                                150         150          -
                           Return of stockholder's contribution                     (100)       (164)         -
                           Miscellaneous                                               -           -          1
                                                                                  -----------------------------
                             At end of period                                        682         632        646
- ---------------------------------------------------------------------------------------------------------------

OTHER COMPREHENSIVE INCOME (LOSS)

                           Minimum Pension Liability
                             At beginning of period                                    -           -          -
                             Minimum pension liability adjustments (b)              (185)          -          -
                                                                                 ------------------------------
                             At end of period                                       (185)          -          -

                           Investments
                             At beginning of period                                   16          33         37
                             Unrealized gain (loss) on investments (b)               (16)        (16)        (4)
                             Reclassification adjustments included in net
                             income (b)                                                1          (1)         -
                                                                                 ------------------------------
                             At end of period                                          1          16         33

                           Derivative Instruments (d)
                             At beginning of period (c)                              (12)         18          -
                             Unrealized gain (loss) on derivative
                             instruments (b)                                          10         (30)         -
                             Reclassification adjustments included in
                             net income (b)                                            7           -          -
                                                                                 ------------------------------
                             At end of period                                          5         (12)         -
- ---------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS          At beginning of period                                    441         486        485
                           Net income (b)                                            381         188        284
                           Cash dividends declared - Common Stock                   (231)       (190)      (247)
                           Cash dividends declared - Preferred Stock                  (2)         (2)        (2)
                           Preferred securities distributions                        (44)        (41)       (34)
                                                                                 ------------------------------
                             At end of period                                        545         441        486
- ---------------------------------------------------------------------------------------------------------------

TOTAL COMMON STOCKHOLDER'S EQUITY                                                 $1,889      $1,918     $2,006
===============================================================================================================
</TABLE>

                                           -57-
<PAGE>



(a)      Number of shares of common stock outstanding was 84,108,789 for all
         periods presented

(b)      Disclosure of Comprehensive Income:
         Other comprehensive income

<TABLE>
<S>                                                                              <C>       <C>      <C>
       Minimum Pension Liability
          Minimum pension liability adjustments, net of tax of
             $100, $- and $-, respectively                                       $(185)    $  -     $  -
        Investments
          Unrealized loss on investments, net of tax of
             $9, $9 and $2, respectively                                           (16)     (16)      (4)
          Reclassification adjustments included in net income, net of tax of
             $1, $1 and $-, respectively                                             1       (1)       -
        Derivative Instruments
          Unrealized gain (loss) on derivative instruments, net of tax of
             $6, $15 and $-, respectively                                           10      (30)       -
            Reclassification adjustments included in net income, net of tax of
             $4, $- and $-, respectively                                             7        -        -

      Net income                                                                   381      188      284
                                                                                 -----------------------

      Total Comprehensive Income                                                 $ 198     $141     $280
                                                                                  ======================
</TABLE>

(c)      Cumulative effect of change in accounting principle, as of 1/1/01 and
         7/1/01, net of $(9) tax (Note 5)

(d)      Included in these amounts is Consumers' proportionate share of the
         effects of derivative accounting related to its equity investment in
         the MCV Partnership as follows:


<TABLE>
               <S>                                                         <C>       <C>       <C>
               At the beginning of the period                              $(8)      $  5      $-
               Unrealized gain (loss) on derivative instruments             12        (15)      -
               Reclassification adjustments included in net income           4          2       -
                                                                          ------------------------
               At the end of period                                        $ 8       $ (8)     $-
                                                                          ========================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.




                                -58-

<PAGE>
                                                        Consumers Energy Company

                            CONSUMERS ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1:  CORPORATE STRUCTURE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE STRUCTURE: Consumers, a subsidiary of CMS Energy, a holding company,
is an electric and gas utility company that provides service to customers in
Michigan's Lower Peninsula. Consumers' customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry.

BASIS OF PRESENTATION: The consolidated financial statements include Consumers
and its wholly owned subsidiaries. Consumers uses the equity method of
accounting for investments in companies and partnerships where it has more than
a twenty percent but less than a majority ownership interest and includes these
results in operating income. Consumers prepared the financial statements in
conformity with accounting principles generally accepted in the United States
that include the use of management's estimates.

USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. Estimates and
assumptions are also used in the disclosure of contingent assets and liabilities
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

The principles in SFAS No. 5 guide the recording of estimated liabilities for
contingencies within the financial statements. SFAS No. 5 requires a company to
record estimated liabilities in the financial statements when a current event
has caused a probable future payment of an amount that can be reasonably
estimated. Consumers has used this accounting principle to record estimated
liabilities discussed in Note 2, Uncertainties.

REVENUE RECOGNITION POLICY: Revenues from deliveries of electricity and natural
gas, and the storage of natural gas, are recognized as services are provided.
Therefore, revenues include the accrual of electricity or gas consumed and/or
delivered, but not billed at month-end.

ACCRETION INCOME AND EXPENSE: In 1991, the MPSC allowed Consumers to recover a
portion of its abandoned Midland investment over a 10-year period, but did not
allow Consumers to earn a return on that amount. Consumers reduced the
recoverable investment to the present value of the future recoveries. During the
recovery period, Consumers adjusts the unrecovered asset to its present value.
It reflects this adjustment as accretion income. In 1992, Consumers recorded a
loss for the present value of its estimated future underrecoveries of power
supply costs resulting from purchases from the MCV Partnership (see Note 2). It
now recognizes accretion expense annually to reflect the time value of money on
the recorded loss. Accretion expense is also recognized for some non-interest
bearing long-term electric option contracts for which Consumers has recorded a
liability at the present value of the contracts.

GAS INVENTORY: Consumers uses the weighted average cost method for valuing
working gas inventory. Beginning October 2000, gas inventory also includes
recoverable cushion gas. Consumers records non-recoverable cushion gas in the
appropriate gas utility plant account. Consumers stores gas inventory in its
underground storage facilities.

PROPERTY, PLANT AND EQUIPMENT: Additions to property, plant and equipment are
recorded at cost when first placed into service. When regulated assets are
retired, or otherwise disposed of in the ordinary course of the business, the
original cost and cost of removal, less salvage, is charged to accumulated
depreciation. With respect to the retirement or disposal of non-regulated
assets the resulting gains or losses are recognized as a component of income.
Consumers is permitted to capitalize an allowance for funds used during
construction on regulated construction projects and to include such amounts in
plant in service.

Property, plant and equipment at December 31, 2002 and 2001, was as follows:


<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                                          Estimated
                                                                         Depreciable
Years Ended December 31                                                 Life in Years          2002          2001
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>          <C>
Electric:
                             Generation                                       13-75            $3,489        $3,368
                             Transmission                                     40-75                 -           450
                             Distribution                                     12-85             3,619         3,448
                             Other                                             5-50               300           288
                             Capital Leases (b)                                                   115           107

Gas:
                             Underground storage facilities (a)               25-55               217           210
                             Transmission                                     15-68               310           303
                             Distribution                                     35-70             1,899         1,807
                             Other                                             5-45               237           220
                             Capital Leases (b)                                                    56            53

 Other:
                             Non-utility property                              7-71                23            23
                             Construction work-in-progress (c)                                    548           480

Less accumulated depreciation, depletion and amortization                                       5,900         5,934
- -------------------------------------------------------------------------------------------------------------------

Net property, plant and equipment                                                              $4,913        $4,823
===================================================================================================================
</TABLE>

(a)  Includes unrecoverable base natural gas in underground storage of $23
     million and $14 million at December 31, 2002 and 2001, respectively, which
     is not subject to depreciation.

(b)  Capital leases presented in this chart are gross amounts. Amortization of
     capital leases in 2002 and 2001 was $96 million and $91 million,
     respectively. Capital leases are amortized over the lease term or the
     service life of the assets in accordance with SFAS No. 13.

(c)  Amount includes construction costs at December 31, 2002 and 2001 of $54
     million and $16 million, respectively, relating to the capital lease of
     Consumers main headquarters.

MAINTENANCE, DEPRECIATION, DEPLETION AND AMORTIZATION: Consumers charges
property repairs and minor property replacements to maintenance expense.
Depreciable property retired or sold, plus cost of removal (net of salvage
credits), is charged to accumulated depreciation. Consumers bases depreciation
provisions for utility


                                      -59-
<PAGE>


                                                        Consumers Energy Company

property on straight-line and units-of-production rates approved by the MPSC.
For 2002, 2001 and 2000, the composite depreciation rate for electric utility
property was 3.1 percent annually. For 2002, 2001 and 2000, the composite rate
for gas utility property was 4.5 percent, 4.4 percent and 4.4 percent,
respectively. For 2002, 2001 and 2000, the composite rate for other property was
7.2 percent, 11.2 percent and 10.7 percent, respectively.

FINANCIAL INSTRUMENTS: Consumers accounts for its debt and equity investment
securities in accordance with SFAS No. 115. As such, debt and equity securities
can be classified into one of three categories: held-to-maturity, trading, or
available-for-sale securities. Consumers' investments in equity securities,
including its investment in CMS Energy Common Stock, are classified as
available-for-sale securities. They are reported at fair value, with any
unrealized gains or losses from changes in fair value reported in equity as part
of other comprehensive income and excluded from earnings, unless such changes in
fair value are other than temporary. In 2002, Consumers determined that the
decline in value related to its investment in CMS Energy Common Stock was other
than temporary as the fair value was below the cost basis for a period greater
than six months. As a result, Consumers recognized a loss on its investment in
CMS Energy Common Stock through earnings of $12 million in the fourth quarter of
2002. As of December 31, 2002, Consumers held 2.4 million shares of CMS Energy
Common Stock with a fair value of $22 million; as of March 14, 2003 the value
was $8 million. Unrealized gains or losses from changes in the fair value of
Consumers' nuclear decommissioning investments are reported in accumulated
depreciation. The fair value of these investments is determined from quoted
market prices.

NUCLEAR FUEL COST: Consumers amortizes nuclear fuel cost to fuel expense based
on the quantity of heat produced for electric generation. Through November 2001,
Consumers expensed the interest on leased nuclear fuel as it was incurred.
Effective December 2001, Consumers no longer leases its nuclear fuel.

For nuclear fuel used after April 6, 1983, Consumers charges disposal costs to
nuclear fuel expense, recovers these costs through electric rates, and then
remits them to the DOE quarterly. Consumers elected to defer payment for
disposal of spent nuclear fuel burned before April 7, 1983. As of December 31,
2002, Consumers has a recorded liability to the DOE of $138 million, including
interest, which is payable upon the first delivery of spent nuclear fuel to the
DOE. Consumers recovered through electric rates the amount of this liability,
excluding a portion of interest.

NUCLEAR PLANT DECOMMISSIONING: In 2002, Consumers collected $6 million from its
electric customers for the decommissioning of its Palisades nuclear plant.
Amounts collected from electric retail customers and deposited in trusts
(including trust earnings) are credited to accumulated depreciation. In March
2001, Consumers filed updated decommissioning cost estimates for Big Rock and
Palisades that were $349 million and $739 million in 2000 dollars, respectively.
Using the inflation factors presented in the filing to the MPSC, the Palisades
estimated decommissioning cost in 2002 dollars is $809 million. The Big Rock
decommissioning cost in 2002 dollars is $327 million. Consumers' site-specific
decommissioning cost estimates for Big Rock and Palisades assume that each plant
site will eventually be restored to conform to the adjacent landscape, and all
contaminated equipment will be disassembled and disposed of in a licensed burial
facility. On December 31, 2000, Big Rock trusts were fully funded per the March
22, 1999 MPSC order and Consumers discontinued depositing funds in the trust. In
December 2000, the NRC extended the Palisades operating license to March 2011
and the impact of this extension was included as part of Consumers' March 2001
filing with the MPSC. Consumers is required to file the next "Report on the
Adequacy of the Existing Annual Provision for Nuclear Plant Decommissioning"
(Report) with the MPSC by March 31, 2004.

In 1997, Big Rock closed permanently and plant decommissioning began. Consumers
estimates that the Big Rock site will be returned to a natural state by the end
of 2012 if the DOE begins removing the spent nuclear fuel by 2010. In 2002,
Consumers incurred costs of $28 million that were charged to the accumulated
depreciation reserve for decommissioning and withdrew $30 million from the Big
Rock nuclear


                                      -60-
<PAGE>

                                                        Consumers Energy Company

decommissioning trust fund. In total, Consumers has incurred costs of $218
million that have been charged to the accumulated depreciation reserve for
decommissioning and withdrew $209 million from the Big Rock nuclear
decommissioning trust fund. These activities had no material impact on net
income. At December 31, 2002, Consumers is the beneficiary of the investment in
nuclear decommissioning trust funds of $110 million for Big Rock.

After retirement of Palisades, Consumers plans to maintain the facility in
protective storage if radioactive waste disposal facilities are not available.
Consumers will incur most of the Palisades decommissioning costs after the
plant's NRC operating license expires. Palisades' current NRC license will
expire in 2011 and the trust funds were estimated to have accumulated $921
million by that time, assuming currently approved MPSC surcharge levels.
Consumers estimates that at the time Palisades is fully decommissioned in the
year 2049, the trust funds will have provided $2.5 billion, including trust
earnings, to pay for the anticipated expenditures over the entire
decommissioning period. At December 31, 2002, Consumers is the beneficiary of
the investment in the MPSC nuclear decommissioning trust funds of $416 million
for Palisades. In addition, at December 31, 2002, Consumers has a FERC
decommissioning trust fund with a balance of approximately $9 million.

UNAMORTIZED DEBT PREMIUM, DISCOUNT AND EXPENSE: Consumers amortizes premiums,
discounts and expenses incurred in connection with the issuance of presently
outstanding long-term debt over the terms of the respective issues. For the
regulated portions of our businesses, if debt is refinanced, Consumers amortizes
any unamortized premiums, discounts and expenses over the term of the new debt,
as allowed under regulated utility accounting.

RECLASSIFICATIONS: Consumers reclassified certain prior year amounts for
comparative purposes. These reclassifications did not affect consolidated net
income for the years presented.

RELATED-PARTY TRANSACTIONS: Consumers completed a five-year redemption of its
investment of $250 million in ten shares of Enterprises' preferred stock in
2001. The balances as of December 31, 2002, 2001 and 2000 were $0, $0 and $50
million, respectively. Consumers has an investment in 2.4 million shares of CMS
Energy Common Stock with a fair value totaling $22 million at December 31, 2002,
see Note 5. In 2002, 2001 and 2000, Consumers received dividends from these two
investments totaling $3 million, $6 million, and $10 million, respectively. In
2002, 2001, and 2000, Consumers paid parent company overhead costs to CMS Energy
of $18 million, $11 million and $1 million, respectively. Such overhead costs
were allocated to Consumers using the Massachusetts Formula.

In 2002, 2001 and 2000, Consumers paid $49 million, $55 million and $51 million,
respectively, for electric generating capacity and energy from affiliates of
Enterprises. From time to time, Consumers purchased a portion of its gas from
CMS Oil and Gas and CMS MST. In both 2002 and 2001, Consumers did not make a
purchase from CMS Oil and Gas. In 2000, Consumers purchased $3 million. In 2002,
2001 and 2000, Consumers' gas purchases from CMS MST were $127 million, $120
million and $95 million, respectively. Consumers pays a portion of its gas
transportation costs to Panhandle and its subsidiary Trunkline. In 2002, 2001
and 2000 transportation fees paid were $22 million, $21 million and $38 million,
respectively. In 2002, 2001 and 2000, Consumers paid $4 million, $4 million and
$1 million, respectively, for gas transportation from CMS Bay Area Pipeline,
L.L.C. In 2002, 2001 and 2000, Consumers and its subsidiaries sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling $27 million, $27 million and $26 million, respectively. For additional
discussion of related-party transactions with the MCV Partnership and the FMLP,
see Notes 2 and 11. Other related-party transactions are immaterial.

UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility accounting standard SFAS No. 71. As a result, the actions
of regulators affect when Consumers recognizes revenues, expenses, assets and
liabilities.




                                      -61-
<PAGE>

                                                        Consumers Energy Company

In March 1999, Consumers received MPSC electric restructuring orders, which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market based rates for its electric customers.
Discontinuation of SFAS No. 71 for the energy supply portion of Consumers'
business resulted in Consumers reducing the carrying value of its Palisades
plant-related assets, in 1999, by approximately $535 million and establishing a
regulatory asset for a corresponding amount. As of December 31, 2002, Consumers
had a net investment in energy supply facilities of $1.475 billion included in
electric plant and property.

Since 1999, there has been a significant legislative and regulatory change in
Michigan that has resulted in: 1) electric supply customers of utilities
remaining on cost-based rates and 2) utilities being given the ability to
recover Stranded Costs associated with electric restructuring, from customers
who choose an alternative electric supplier. During 2002, Consumers re-evaluated
the criteria used to determine if an entity or a segment of an entity meets the
requirements to apply regulated utility accounting, and determined that the
energy supply portion of its business could meet the criteria if certain
regulatory events occurred. In December 2002, Consumers received a MPSC Stranded
Cost order that allowed Consumers to re-apply regulatory accounting standard
SFAS No. 71 to the energy supply portion of its business. Re-application of SFAS
No. 71 had no effect on the prior discontinuation accounting, but will allow
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business on a prospective basis, including regulatory accounting
treatment of costs required to be recognized in accordance with SFAS No. 143.
See Note 2, Uncertainties, "Electric Rate Matters -- Electric Restructuring.

SFAS No. 144 imposes strict criteria for retention of regulatory-created assets
by requiring that such assets be probable of future recovery at each balance
sheet date. Management believes these assets are probable of future recovery.

The following regulatory assets (liabilities), which include both current and
non-current amounts, are reflected in the Consolidated Balance Sheets. These
costs are expected to be recovered through rates over periods of up to 14 years.
Consumers recognized an OPEB transition obligation in accordance with SFAS No.
106 and established a regulatory asset for this amount, which it expects to
recover in rates over the next ten years.

<TABLE>
<CAPTION>
                                                                                                    In Millions
- ---------------------------------------------------------------------------------------------------------------
December 31                                                                              2002              2001
- ---------------------------------------------------------------------------------------------------------------

<S>                                                                                   <C>            <C>
Securitized costs (Note 2)                                                             $  689            $  717
Postretirement benefits (Note 7)                                                          204               228
Electric Restructuring Implementation Plan (Note 2)                                        83                82
Manufactured gas plant sites (Note 2)                                                      69                70
Abandoned Midland project                                                                  11                12
Income taxes (Note 4)                                                                       -                 6
Other                                                                                      16                15
                                                                                      --------------------------

Total regulatory assets                                                                $1,072            $1,130
================================================================================================================

Income taxes (Note 4)                                                                  $ (297)           $ (282)
GCR over recovery                                                                         (11)               (9)
Other                                                                                      (5)                -
                                                                                      -------------------------

Total regulatory liabilities                                                           $ (313)           $ (291)
===============================================================================================================
</TABLE>

In October 2000, Consumers received an MPSC order authorizing Consumers to
securitize certain regulatory assets up to $469 million, net of tax, see Note 2,
Uncertainties, "Electric Rate Matters -- Electric Restructuring". Accordingly,
in December 2000, Consumers established a regulatory asset for securitized costs
of $709 million, before tax, that had previously been recorded in other
regulatory asset accounts. In order to prepare for the financing of the
securitization assets and the subsequent retirement of debt with securitization
proceeds, issuance fees of $1 million, $10 million and $1 million were incurred
in 2002, 2001 and 2000, respectively, and capitalized as a part of
securitization costs. These issuance costs are amortized each month


                                      -62-
<PAGE>
                                                        Consumers Energy Company

for up to fourteen years. Amortization of the Securitized assets approximated
$29 million and $2 million in 2002 and 2001, respectively for accumulated
Securitized cost amortization of $31 million. The components of the unamortized
Securitized costs are illustrated below.

<TABLE>
<CAPTION>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
December 31                                                                              2002               2001
- ----------------------------------------------------------------------------------------------------------------

<S>                                                                               <C>               <C>
Unamortized nuclear costs                                                                $405              $405
Postretirement benefits                                                                    84                84
Income taxes                                                                              203               203
Uranium enrichment facility                                                                16                16
Accumulated Securitization cost amortization                                              (31)               (2)
Other                                                                                      12                11
                                                                                        -----------------------

Total unamortized securitized costs                                                      $689              $717
===============================================================================================================
</TABLE>

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS:

SFAS NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS: This Standard issued in July
2001, requires that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment. Effective January 1, 2002, the provisions of SFAS No.
142 had no impact on Consumers' consolidated results of operations or financial
position.

SFAS NO. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS:
This new standard was issued by the FASB in October 2001, and supersedes SFAS
No. 121, and APB Opinion No. 30. SFAS No. 144 requires long-lived assets to be
measured at the lower of either the carrying amount or of the fair value less
the cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS No. 144 also broadens the reporting of discontinued operations to
include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The adoption of SFAS No.
144, effective January 1, 2002, results in Consumers accounting for any
impairment or disposal of long-lived assets under the provisions of SFAS No. 144
subsequent to January 1, 2002, but will not change the accounting used for
previous asset impairments or disposals.

SFAS NO. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS: Issued by the FASB in April 2002,
this standard rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishment of Debt Made to Satisfy
Sinking-Fund Requirements. As a result, any gain or loss on extinguishment of
debt should be classified as an extraordinary item only if it meets the criteria
set forth in APB Opinion No. 30. The provisions of this section are applicable
to fiscal years beginning 2003, but may be adopted early. Consumers has adopted
this provision early, with no material affect to its income statement. SFAS No.
145 amends SFAS No. 13 to require sale-leaseback accounting for certain lease
modifications that have similar economic impacts to sale-leaseback transactions.
This provision is effective for transactions occurring after May 15, 2002.
Finally, SFAS No. 145 amends other existing authoritative pronouncements to make
various technical corrections and rescinds SFAS No. 44, Accounting for
Intangible Assets of Motor Carriers. These provisions are effective for
financial statements issued on or after May 15, 2002. Upon adoption of the
standard, there was no impact on Consumers' financial statements.

SFAS NO. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION -- TRANSITION AND
DISCLOSURE: Issued by the FASB in December 2002, this standard provides for
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, the
statement amends the disclosure requirements of SFAS No. 123 to require more
prominent and more frequent


                                      -63-
<PAGE>
Consumers Energy Company

disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of the
statement are effective as of December 31, 2002 and interim disclosure
provisions are effective for interim financial reports starting in 2003.
Consumers decided to voluntarily adopt the fair value based method of accounting
for stock-based employee compensation effective December 31, 2002, applying the
prospective method of adoption which requires recognition of all employee awards
granted, modified, or settled after the beginning of the year in which the
recognition provisions are first applied. Therefore, Consumers recorded $1.7
million in expense for the fair value of stock options issued in 2002.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

SFAS NO. 143, ACCOUNTING FOR ASSETS RETIREMENT OBLIGATIONS: Beginning January 1,
2003, companies must comply with SFAS No. 143. The standard requires companies
to record the fair value of the legal obligations related to an asset retirement
in the period in which it is incurred. Consumers has determined that it has
legal asset retirement obligations, particularly in regard to its nuclear
plants, but has not yet finalized its assessment of the obligation. However,
upon initial adoption of the standard, Consumers expects to record a regulatory
liability, as well as an asset retirement obligation, as required by SFAS No.
71. The regulatory liability recognizes the difference between the cost of
removal included in the reserve for accumulated depreciation for assets within
the scope of SFAS No. 143 and the accretion expense of the asset retirement
obligation and the depreciation expense of the asset retirement obligation asset
from when the obligation was initially incurred through December 2002. When the
asset retirement obligation liability is initially recorded, the company would
capitalize an offsetting amount by increasing the carrying amount of the related
long-lived asset. Over time, the initial liability would be accreted to its
present value each period and the capitalized cost would be depreciated over the
related asset's useful life.

SFAS NO. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
Issued by the FASB in July 2002, this standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard is
effective for exit or disposal activities initiated after December 31, 2002.
Consumers does not expect the adoption of SFAS No. 146 to have a material impact
on its financial position or results of operations.

FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENT
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS:
Effective January 2003, this interpretation elaborates on the disclosure to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It also requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provision of this
interpretation does not apply to certain guarantee contracts, such as
warranties, derivatives, or guarantees between either parent and subsidiaries or
corporations under common control, although disclosure of such guarantees is
required. For contracts that are within the initial recognition and measurement
provision of this interpretation, the provisions are to be applied to guarantees
issued or modified after December 31, 2002; no cumulative effect adjustments are
required.

Following is a general description of Consumers' guarantees as required by this
Interpretation:

<TABLE>
<CAPTION>
December 31, 2002                                                                                      In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                     Issue   Expiration      Maximum     Carrying         Recourse
Guarantee Description                                 Date         Date   Obligation       Amount     Provision(a)
- ------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>       <C>         <C>            <C>
Standby letters of credit                          Various      Various       $    7       $    -            $   -
Surety bonds                                       Various      Various            9            -                -
Nuclear insurance retrospective premiums           Various      Various          120            -                -

==================================================================================================================
</TABLE>

(a) Recourse provision indicates the approximate recovery from third parties
including assets held as collateral.

                                      -64-
<PAGE>

                                                        Consumers Energy Company

Following is additional information regarding Consumers' guarantees:

<TABLE>
<CAPTION>
December 31, 2002
- ---------------------------------------------------------------------------------------------------------------------
                                                                                                    Events That Would
Guarantee Description                               How Guarantee Arose                           Require Performance
- ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                     <C>
Standby letters of credit                           Normal operations of                          Non-compliance with
                                                      coal power plants                     environmental regulations
                                                    Self insurance requirement                        Non-performance
Surety bonds                                        Normal operating activity,                        Non-performance
                                                      permits and license
Nuclear insurance retrospective premiums            Normal operations of                             Call by NEIL and
                                                      nuclear plants                               Price-Anderson Act
                                                                                                 for nuclear incident
</TABLE>

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Consumers, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Consumers will be required to
consolidate any entities that meet the requirements of the interpretation.
Consumers is in the process of studying the interpretation, and has yet to
determine the effects, if any, on its consolidated financial statements.

OTHER: For significant accounting policies regarding income taxes, see Note 4;
for derivatives, see Note 5; for executive incentive compensation, see Note 6;
for pensions and other postretirement benefits, see Note 7; and for leases, see
Note 8.

2: UNCERTAINTIES

Several business trends or uncertainties may affect Consumers' financial results
and condition. These trends or uncertainties have, or Consumers reasonably
expects could have, a material impact on net sales, revenues, or income from
continuing electric operations. Such trends and uncertainties are discussed in
detail below and include: 1) pending litigation and government investigations;
2) the need to make additional capital expenditures and increase operating
expenses for Clean Air Act compliance; 3) environmental liabilities arising from
various federal, state and local environmental laws and regulations, including
potential liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Acts and Superfund; 4) electric industry restructuring
issues; 5) Consumers' ability to meet peak electric demand requirements at a
reasonable cost, without market disruption, and successfully implement
initiatives to reduce exposure to purchased power price increases; 6) the
recovery of electric restructuring implementation costs; 7) Consumers new status
as an electric transmission customer and not as an electric transmission
owner/operator; 8) sufficient reserves for OATT rate refunds; 9) uncertainties
relating to the storage and ultimate disposal of spent nuclear fuel and the
successful operation of Palisades by NMC; 10) the effects of derivative
accounting and potential earnings volatility; 11) potential environmental costs
at a number of sites, including sites formerly housing manufactured gas plant
facilities; 12) future gas industry restructuring initiatives; 13) any
initiatives undertaken to protect customers against gas price increases; 14) an
inadequate regulatory response to applications for


                                      -65-
<PAGE>

                                                        Consumers Energy Company

requested rate increases; 15) market and regulatory responses to increases in
gas costs, including a reduced average use per residential customer; 16)
Consumers' continuing ability to raise funds at reasonable rates in order to
meet the cash requirements of its electric and gas business.

SEC AND OTHER INVESTIGATIONS: As a result of the round-trip trading transactions
at CMS MST, CMS Energy's Board of Directors established a Special Committee of
independent directors to investigate matters surrounding the transactions and
retained outside counsel to assist in the investigation. The Special Committee
completed its investigation and reported its findings to the Board of Directors
in October 2002. The Special Committee concluded, based on an extensive
investigation, that the round-trip trades were undertaken to raise CMS MST's
profile as an energy marketer with the goal of enhancing its ability to promote
its services to new customers. The Special Committee found no apparent effort to
manipulate the price of CMS Energy Common Stock or affect energy prices. The
Special Committee also made recommendations designed to prevent any reoccurrence
of this practice, most of which have already been implemented. Previously, CMS
Energy terminated its speculative trading business and revised its risk
management policy. The Board of Directors adopted, and CMS Energy has begun
implementing, the remaining recommendations of the Special Committee.

CMS Energy is cooperating with other investigations concerning round-trip
trading, including an investigation by the SEC regarding round-trip trades and
CMS Energy's financial statements, accounting policies and controls, and
investigations by the United States Department of Justice, the Commodity Futures
Trading Commission and the FERC. CMS Energy has also received subpoenas from
U.S. Attorneys Offices regarding investigations of those trades. CMS Energy is
unable to predict the outcome of these matters, and Consumers is unable to
predict what effect, if any, these investigations will have on its business.

SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints have been filed against CMS Energy,
Consumers, and certain officers and directors of CMS Energy and its affiliates.
The complaints have been filed in the United States District Court for the
Eastern District of Michigan as purported class actions by individuals who
allege that they purchased CMS Energy's securities during a purported class
period. At least two of the complaints contain purported class periods beginning
on August 3, 2000 and running through May 10, 2002 or May 14, 2002. These
complaints generally seek unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about the company's business and
financial condition. The cases have been consolidated into a single lawsuit and
an amended and consolidated complaint is due to be filed by May 1, 2003. CMS
Energy and Consumers intend to vigorously defend against this action. Consumers
cannot predict the outcome of this litigation.

ERISA CASES: Consumers is a named defendant, along with CMS Energy, CMS MST and
certain named and unnamed officers and directors in two lawsuits brought as
purported class actions on behalf of participants and beneficiaries of the
401(k) plan. The two cases, filed in July 2002 in the United States District
Court for the Eastern District of Michigan, were consolidated by the trial judge
and an amended and consolidated complaint has been filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
plan with respect to a decline in value of the shares of CMS Energy Common Stock
held in the plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be vigorously defended. Consumers cannot predict the outcome of
this litigation.

ELECTRIC CONTINGENCIES

ELECTRIC ENVIRONMENTAL MATTERS: Consumers is subject to costly and increasingly
stringent environmental regulations. Consumers expects that the cost of future
environmental compliance, especially compliance with clean air laws, will be
significant.

Clean Air -- In 1998, the EPA issued final regulations requiring the state of
Michigan to further limit nitrogen


                                      -66-
<PAGE>

                                                        Consumers Energy Company

oxide emissions. The Michigan Department of Environmental Quality finalized
rules to comply with the EPA final regulations in December 2002 and submitted
these rules for approval to the EPA in the first quarter of 2003. In addition,
the EPA has also issued additional final regulations regarding nitrogen oxide
emissions that require certain generators, including some of Consumers' electric
generating facilities, to achieve the same emissions rate as that required by
the 1998 regulations. The EPA and the state final regulations will require
Consumers to make significant capital expenditures estimated to be $770 million.
As of December 31, 2002, Consumers has incurred $405 million in capital
expenditures to comply with the EPA final regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009.
Additionally, Consumers currently expects to supplement its compliance plan with
the purchase of nitrogen oxide emissions credits for years 2005 through 2008.
The cost of these credits based on the current market is estimated to average $6
million per year, however, the market for nitrogen oxide emissions credits is
volatile and the price could change significantly. At some point, if new
environmental standards become effective, Consumers may need additional capital
expenditures to comply with the future standards. Based on the Customer Choice
Act, beginning January 2004, an annual return of and on these types of capital
expenditures, to the extent they are above depreciation levels, is expected to
be recoverable from customers, subject to an MPSC prudency hearing.

These and other required environmental expenditures, if not recovered from
customers in Consumers' rates, may have a material adverse effect upon
Consumers' financial condition and results of operations.

Cleanup and Solid Waste - Under the Michigan Natural Resources and Environmental
Protection Act, Consumers expects that it will ultimately incur investigation
and remedial action costs at a number of sites. Consumers believes that these
costs will be recoverable in rates under current ratemaking policies.

Consumers is a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several. Along
with Consumers, many other creditworthy, potentially responsible parties with
substantial assets cooperate with respect to the individual sites. Based upon
past negotiations, Consumers estimates that its share of the total liability for
the known Superfund sites will be between $1 million and $9 million. As of
December 31, 2002, Consumers had accrued the minimum amount of the range for its
estimated Superfund liability.

During routine maintenance activities, Consumers identified PCB as a component
in certain paint, grout and sealant materials at the Ludington Pumped Storage
facility. Consumers removed and replaced part of the PCB material. Consumers has
proposed a plan to deal with the remaining materials and is awaiting a response
from the EPA.

ELECTRIC RATE MATTERS

ELECTRIC RESTRUCTURING: In June 2000, the Michigan legislature passed electric
utility restructuring legislation known as the Customer Choice Act. This act: 1)
permits all customers to choose their electric generation supplier beginning
January 1, 2002; 2) cut residential electric rates by five percent; 3) freezes
all electric rates through December 31, 2003, and establishes a rate cap for
residential customers through at least December 31, 2005, and a rate cap for
small commercial and industrial customers through at least December 31, 2004; 4)
allows for the use of low-cost Securitization bonds to refinance qualified
costs, as defined by the act; 5) establishes a market power supply test that may
require transferring control of generation resources in excess of that required
to serve firm retail sales requirements (a requirement Consumers believes itself
to be in compliance with at this time); 6) requires Michigan utilities to join a
FERC-approved RTO or divest their interest in transmission facilities to an
independent transmission owner (Consumers has sold its interest in its
transmission facilities to an independent transmission owner, see "Transmission"
below); 7) requires Consumers, Detroit Edison and American Electric Power to
jointly expand their available transmission capability by at least 2,000 MW; 8)
allows deferred recovery of an annual return of and on capital expenditures


                                      -67-
<PAGE>
                                                        Consumers Energy Company

in excess of depreciation levels incurred during and before the rate freeze/cap
period; and 9) allows recovery of "net" Stranded Costs and implementation costs
incurred as a result of the passage of the act. In July 2002, the MPSC issued an
order approving the plan to achieve the increased transmission capacity.
Consumers has completed the transmission capacity projects identified in the
plan and has submitted verification of this fact to the MPSC. Consumers believes
it is in full compliance with item 7 above. Consumers is also highly confident
that it will meet the conditions contained in item 5 above, prior to the
earliest rate cap termination dates specified in the act. Failure to do so,
however, could result in an extension of the rate caps to as late as December
31, 2013.

In 1998, Consumers submitted a plan for electric retail open access to the MPSC.
In March 1999, the MPSC issued orders generally supporting the plan. The
Customer Choice Act states that the MPSC orders issued before June 2000 are in
compliance with this act and enforceable by the MPSC. Those MPSC orders: 1)
allow electric customers to choose their supplier; 2) authorize recovery of
"net" Stranded Costs and implementation costs; and 3) confirm any voluntary
commitments of electric utilities. In September 2000, as required by the MPSC,
Consumers once again filed tariffs governing its retail open access program and
made revisions to comply with the Customer Choice Act. In December 2001, the
MPSC approved revised retail open access tariffs. The revised tariffs establish
the rates, terms, and conditions under which retail customers will be permitted
to choose an alternative electric supplier. The tariffs, effective January 1,
2002, did not require significant modifications in the existing retail open
access program. The tariff terms allow retail open access customers, upon as
little as 30 days notice to Consumers, to return to Consumers' generation
service at current tariff rates. If any class of customers' (residential,
commercial, or industrial) retail open access load reaches 10 percent of
Consumers' total load for that class of customers, then returning retail open
access customers for that class must give 60 days notice to return to Consumers'
generation service at current tariff rates. However, Consumers may not have
sufficient, reasonably priced, capacity to meet the additional demand of
returning retail open access customers, and may be forced to purchase
electricity on the spot market at higher prices than it could recover from its
customers. Consumers cannot predict the total amount of electric supply load
that may be lost to competitor suppliers, nor whether the stranded cost recovery
method adopted by the MPSC will be applied in a manner that will fully offset
any associated margin loss.

SECURITIZATION: In October 2000 and January 2001, the MPSC issued orders
authorizing Consumers to issue Securitization bonds. Securitization typically
involves issuing asset-backed bonds with a higher credit rating than
conventional utility corporate financing. The orders authorized Consumers to
securitize approximately $469 million in qualified costs, which were primarily
regulatory assets plus recovery of the Securitization expenses. Securitization
resulted in lower interest costs and a longer amortization period for the
securitized assets, and offset the majority of the impact of the required
residential rate reduction (approximately $22 million in 2000 and $49 million
annually thereafter). The orders directed Consumers to apply any cost savings in
excess of the five percent residential rate reduction to rate reductions for
non-residential customers and reductions in Stranded Costs for retail open
access customers after the bonds are sold. Excess savings are approximately $12
million annually.

In November 2001, Consumers Funding issued $469 million of Securitization bonds,
Series 2001-1. The Securitization bonds mature at different times over a period
of up to 14 years, with an average interest rate of 5.3 percent. The last
expected maturity date is October 20, 2015. Net proceeds from the sale of the
Securitization bonds, after issuance expenses, were approximately $460 million.
Consumers used the net proceeds to retire $164 million of its common equity from
its parent, CMS Energy. CMS Energy used the $164 million from Consumers to pay
down its own short-term debt. From December 2001 through March 2002, the
remainder of these proceeds were used to pay down Consumers' long-term debt and
Trust Preferred Securities. CMS Energy used the $164 million from Consumers to
pay down its own short-term debt.

Consumers and Consumers Funding will recover the repayment of principal,
interest and other expenses relating to the bond issuance through a
securitization charge and a tax charge that began in December 2001.


                                      -68-
<PAGE>

                                                        Consumers Energy Company

These charges are subject to an annual true-up until one year prior to the last
expected bond maturity date, and no more than quarterly thereafter. The first
true-up occurred in November 2002, and prospectively modified the total
securitization and related tax charges from 1.677 mills per kWh to 1.746 mills
per kWh. Current electric rate design covers these charges, and there will be no
rate impact for most Consumers electric customers until the Customer Choice Act
rate freeze expires. Securitization charge collections, $52 million in 2002, are
remitted to a trustee for the Securitization bonds. Securitization charge
collections are dedicated for the repayment of the principle and interest on the
Securitization bonds and payment of the ongoing expenses of Consumers Funding
and can only be used for those purposes. Consumers Funding is legally separate
from Consumers. The assets and income of Consumers Funding, including without
limitation, the securitized property, are not available to creditors of
Consumers or CMS Energy.

Regulatory assets are normally amortized over their period of regulated
recovery. Beginning January 1, 2001, the amortization was deferred for the
approved regulatory assets being securitized, which effectively offset the loss
in revenue in 2001 resulting from the five percent residential rate reduction.
In December 2001, after the Securitization bonds were sold, the amortization was
re-established, based on a schedule that is the same as the recovery of the
principal amounts of the securitized qualified costs. In 2002, the accumulated
amortization amount was approximately $31 million and the securitized assets
will be fully amortized by the end of 2015.

On March 4, 2003, Consumers filed an application with the MPSC seeking approval
to issue Securitization bonds in the amount of approximately $1.084 billion. If
approved, this would allow the recovery of costs associated with Clean Air Act
expenditures, post-2000 Palisades expenditures, and retail open access
implementation costs, through December 31, 2003 and certain pension fund
expenses, and expenses associated with the issuance of the bonds.

TRANSMISSION: In 1999, the FERC issued Order No. 2000, strongly encouraging
electric utilities to transfer operating control of their electric transmission
system to an RTO, or sell the facilities to an independent company. In addition,
in June 2000, the Michigan legislature passed Michigan's Customer Choice Act,
which also requires utilities to divest or transfer the operating authority of
transmission facilities to an independent company. Consumers chose to offer its
electric transmission system for sale rather than own and invest in an asset
that it could not control. In May 2002, Consumers sold its electric transmission
system (METC) for approximately $290 million in cash to MTH, a non-affiliated
limited partnership whose general partner is a subsidiary of Trans-Elect Inc.

Trans-Elect, Inc. submitted the winning bid through a competitive bidding
process, and various federal agencies approved the transaction. Consumers did
not provide any financial or credit support to Trans-Elect, Inc. Certain of
Trans-Elect's officers and directors are former officers and directors of CMS
Energy, Consumers and their subsidiaries. None of them were employed by CMS
Energy, Consumers, or their affiliates when the transaction was discussed
internally and negotiated with purchasers. As a result of the sale, Consumers
experienced an after-tax earnings increase of approximately $17 million in 2002,
due to the recognition of a $26 million gain on the sale of the electric
transmission system. This gain from the sale is offset by a loss of revenue from
wholesale and retail open access customers who will buy services directly from
MTH, including the loss of a return on the sold electric transmission system.
Consumers anticipates that the future impact of the loss of revenue from
wholesale and retail open access customers who will buy services directly from
MTH and the loss of a return on the sold electric transmission system on its
after-tax earnings will be a decrease of $15 million in 2003, and a decrease of
approximately $14 million annually for the next three years.

Under the agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH. Effective April 30, 2002, Consumers and METC withdrew from the Alliance
RTO, and MTH (METC) has joined the MISO RTO.




                                      -69-
<PAGE>

                                                        Consumers Energy Company

When IPPs connect to transmission systems, they pay transmission companies the
capital costs incurred to connect the IPP to the transmission system and make
system upgrades needed for the interconnection. It is the FERC's policy that the
system upgrade portion of these IPP payments be credited against transmission
service charges over time as transmission service is taken. METC recorded a $35
million liability for IPP credits. Subsequently, MTH assumed this liability as
part of its purchase of the electric transmission system. Several months after
METC started operation, the FERC changed its policy to provide for interest on
IPP payments that are to be credited. The $35 million liability for IPP credits
does not include interest since the associated interconnection agreements do not
at this time provide for interest. MTH has asserted that Consumers may be liable
for interest on the IPP payments to be credited if interest provisions are added
to these agreements. Consumers believes that any potential liability would not
have a material adverse affect on its financial condition.

POWER SUPPLY COSTS: During periods when electric demand is high, the cost of
purchasing electricity on the spot market can be substantial. To reduce
Consumers' exposure to the fluctuating cost of electricity, and to ensure
adequate supply to meet demand, Consumers intends to maintain sufficient
generation and to purchase electricity from others to create a power supply
reserve, also called a reserve margin. The reserve margin provides additional
power supply capability above Consumers' anticipated peak power supply demands.
It also allows Consumers to provide reliable service to its electric service
customers and to protect itself against unscheduled plant outages and
unanticipated demand. In recent years, Consumers has planned for a reserve
margin of approximately 15 percent from a combination of its owned electric
generating plants and electricity purchase contracts or options, as well as
other arrangements. However, in light of various factors, including the addition
of new generating capacity in Michigan and throughout the Midwest region and
additional transmission import capability, Consumers is continuing to evaluate
the appropriate reserve margin for 2003 and beyond. Currently, Consumers has an
estimated reserve margin of approximately 11 percent for summer 2003, or 111
percent of projected summer peak load. Of the 111 percent, approximately 101
percent is met from owned electric generating plants and long-term power
purchase contracts and 10 percent from short-term contracts and options for
physical deliveries and other agreements. The ultimate use of the reserve margin
needed will depend primarily on summer weather conditions, the level of retail
open access requirements being served by others during the summer, and any
unscheduled plant outages. As of mid-March 2003, alternative electric suppliers
are providing 516 MW of generation supply to ROA customers. Consumers' reserve
margin does not include generation being supplied by other alternative electric
suppliers under the ROA program.

To reduce the risk of high electric prices during peak demand periods and to
achieve its reserve margin target, Consumers employs a strategy of purchasing
electric call option and capacity contracts for the physical delivery of
electricity primarily in the summer months and to a lesser degree in the winter
months. As of December 31, 2002, Consumers had purchased or had commitments to
purchase electric call option and capacity contracts partially covering the
estimated reserve margin requirements for 2003 through 2007. As a result
Consumers has a recognized asset of $30 million for unexpired call options and
capacity contracts. The total cost of electricity call option and capacity
contracts for 2002 was $13 million.

Prior to 1998, the PSCR process provided for the reconciliation of actual power
supply costs with power supply revenues. This process assured recovery of all
reasonable and prudent power supply costs actually incurred by Consumers,
including the actual cost for fuel, and purchased and interchange power. In
1998, as part of the electric restructuring efforts, the MPSC suspended the PSCR
process, and would not grant adjustment of customer rates through 2001. As a
result of the rate freeze imposed by the Customer Choice Act, the current rates
will remain in effect until at least December 31, 2003 and, therefore, the PSCR
process remains suspended. Therefore, changes in power supply costs as a result
of fluctuating electricity prices will not be reflected in rates charged to
Consumers' customers during the rate freeze period.

ELECTRIC PROCEEDINGS: The Customer Choice Act allows electric utilities to
recover the act's implementation costs and "net" Stranded Costs (without
defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue


                                      -70-
<PAGE>
                                                        Consumers Energy Company

required to cover the costs associated with fixed generation assets,
generation-related regulatory assets, and capacity payments associated with
purchase power agreements, and (b) the revenues received from customers under
existing rates available to cover the revenue requirement. The MPSC authorized
Consumers to use deferred accounting to recognize the future recovery of costs
determined to be stranded. Consumers has initiated an appeal at the Michigan
Court of Appeals related to the MPSC's December 2001 "net" Stranded Cost order.

According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million and $43
million for 2000 and 2001, respectively. In the same filing, Consumers estimated
that it would experience "net" Stranded Costs of $126 million for 2002.
Consumers in its hearing brief, filed in August 2002, revised its request for
Stranded Costs to $7 million and $4 million for 2000 and 2001, respectively, and
an estimated $73 million for 2002. The single largest reason for the difference
in the filing was the exclusion, as ordered by the MPSC, of all costs associated
with expenditures required by the Clean Air Act.

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant a rehearing and revise certain features of the order. Several other
parties also filed rehearing petitions with the MPSC. As noted above, Consumers
has filed a request with the MPSC for authority to issue securitization bonds
that would allow recovery of the Clean Air Act expenditures and post-2000
Palisades expenditures that were excluded from the Stranded Cost calculation.

On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs incurred in 2002, and for approval of a "net" Stranded
Cost recovery charge. In the application, Consumers indicated that if Consumers'
proposal to securitize Clean Air Act expenditures and post-2000 Palisades'
expenditures were approved as proposed in its securitization case as discussed
above, then Consumers' "net" Stranded Costs incurred in 2002 are approximately
$35 million. If the proposal to securitize those costs is not approved, then
Consumers indicated that the costs would be properly included in the 2002 "net"
Stranded Cost calculation, which would increase Consumers' 2002 "net" Stranded
Costs to approximately $103 million. Consumers cannot predict the recoverability
of Stranded Costs, and therefore has not recorded any regulatory assets to
recognize the future recovery of such costs.

The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers intends to participate in this collaborative process.

Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.



                                      -71-
<PAGE>


<TABLE>
<CAPTION>
                                                                                         Consumers Energy Company


                                                                                                   In Millions
- --------------------------------------------------------------------------------------------------------------
Year Filed          Year Incurred         Requested         Pending              Allowed            Disallowed
- --------------------------------------------------------------------------------------------------------------

<S>                <C>                    <C>             <C>                  <C>                <C>
1999                  1997 & 1998              $ 20            $  -                 $ 15                   $ 5
2000                         1999                30               -                   25                     5
2001                         2000                25               -                   20                     5
2002                         2001                 8               8                    -                     -
2003                         2002                 2               2                    -                     -
==============================================================================================================
</TABLE>


The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs incremental to costs already reflected in electric rates. In
the orders received for the years 1997 through 2000, the MPSC also reserved the
right to review again the total implementation costs depending upon the progress
and success of the retail open access program, and ruled that due to the rate
freeze imposed by the Customer Choice Act, it was premature to establish a cost
recovery method for the allowable implementation costs. In addition to the
amounts shown above, as of December 2002, Consumers incurred and deferred as a
regulatory asset, $1 million of additional implementation costs and has also
recorded as a regulatory asset $13 million for the cost of money associated with
total implementation costs. Consumers believes the implementation costs and the
associated cost of money are fully recoverable in accordance with the Customer
Choice Act. Cash recovery from customers will probably begin after the rate
freeze or rate cap period has expired. Consumers cannot predict the amounts the
MPSC will approve as allowable costs.

Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.

In 1996, Consumers filed new OATT transmission rates with the FERC for approval.
Interveners contested these rates, and hearings were held before an ALJ in 1998.
In 1999, the ALJ made an initial decision that was largely upheld by the FERC in
March 2002, which requires Consumers to refund, with interest, over-collections
for past services as measured by the FERC's finally approved OATT rates. Since
the initial decision, Consumers has been reserving a portion of revenues billed
to customers under the filed 1996 OATT rates. Consumers submitted revised rates
to comply with the FERC final order in June 2002. Those revised rates were
accepted by the FERC in August 2002 and Consumers is in the process of computing
refund amounts for individual customers. Consumers believes its reserve is
sufficient to satisfy its estimated refund obligation. As of December 2002,
Consumers had paid $17 million in refunds.

In November 2002, the MPSC, upon its own motion, commenced a contested
proceeding requiring each utility to give reason as to why its rates should not
be reduced to reflect new personal property multiplier tables, and why it should
not refund any amounts that it receives as refunds from local governments as
they implement the new multiplier tables. Consumers responded to the MPSC that
it believes that refunds would be inconsistent with the electric rate freeze
that is currently in effect, and may otherwise be unlawful. Consumers is unable
to predict the outcome of this matter.




                                      -72-
<PAGE>

                                                        Consumers Energy Company

OTHER ELECTRIC UNCERTAINTIES

THE MIDLAND COGENERATION VENTURE: The MCV Partnership, which leases and operates
the MCV Facility, contracted to sell electricity to Consumers for a 35-year
period beginning in 1990 and to supply electricity and steam to Dow. Consumers,
through two wholly owned subsidiaries, holds the following assets related to the
MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings holds,
through FMLP, a 35 percent lessor interest in the MCV Facility.

Consumers' consolidated retained earnings include undistributed earnings from
the MCV Partnership for the years 2002, 2001 and 2000 of $226 million, $184
million, and $168 million, respectively.

Summarized Statements of Income for CMS Midland and CMS Holdings

<TABLE>
<CAPTION>
                                                                                                       In Millions

Years Ended December 31                                                2002               2001                2000
- ------------------------------------------------------------------------------------------------------------------

<S>                                                                <C>                <C>                 <C>
Operating income                                                        $52                $36                 $56
Income taxes and other                                                   18                 11                  18
Cumulative effect of a change in accounting for derivatives,
  net of $10 million tax expense (Note 11)                               18                 --                  --
- ------------------------------------------------------------------------------------------------------------------

Net income                                                              $52                $25                 $38
==================================================================================================================
</TABLE>

Power Supply Purchases from the MCV Partnership - Consumers' annual obligation
to purchase capacity from the MCV Partnership is 1,240 MW through the
termination of the PPA in 2025. The PPA requires Consumers to pay, based on the
MCV Facility's availability, a levelized average capacity charge of 3.77 cents
per kWh, a fixed energy charge, and a variable energy charge based primarily on
Consumers' average cost of coal consumed for all kWh delivered. Since January 1,
1993, the MPSC has permitted Consumers to recover capacity charges averaging
3.62 cents per kWh for 915 MW, plus a substantial portion of the fixed and
variable energy charges. Since January 1, 1996, the MPSC has also permitted
Consumers to recover capacity charges for the remaining 325 MW of contract
capacity with an initial average charge of 2.86 cents per kWh increasing
periodically to an eventual 3.62 cents per kWh by 2004 and thereafter. However,
due to the current freeze of Consumers' retail rates that the Customer Choice
Act requires, the capacity charge for the 325 MW is now frozen at 3.17 cents per
kWh. Recovery of both the 915 MW and 325 MW portions of the PPA are subject to
certain limitations discussed below. After September 2007, the PPA's terms
obligate Consumers to pay the MCV Partnership only those capacity and energy
charges that the MPSC has authorized for recovery from electric customers.

In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At December 31, 2002, 2001 and 2000, the remaining after-tax
present value of the estimated future PPA liability associated with the loss
totaled $34 million, $50 million and $64 respectively. The PPA liability is
expected to be depleted in late 2004. For further discussion on the impact of
the frozen PSCR, see "Electric Rate Matters" in this Note.

In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1, 1999, that addressed, among other things, the ability of
the MCV Partnership to count modifications increasing the capacity of the
existing MCV Facility for purposes of computing the availability of contract
capacity under the PPA for billing purposes. That settlement agreement capped
availability payments that may be billed by the MCV Partnership at a 98.5
percent level.

When Consumers returns, as expected, to unfrozen rates beginning in 2004,
Consumers will recover from customers, on-peak and off-peak capacity, so long as
availability does not exceed an average 88.7% percent established in previous
MPSC orders. For availability payments billed by the MCV Partnership after
September 15, 2007, and not recovered from customers, Consumers would expect to
claim a regulatory out under the PPA. If the MCV Facility's generating
availability remains at the maximum 98.5 percent level during the next five
years, Consumers' after-tax cash underrecoveries associated with the PPA could
be as follows:


                                      -73-
<PAGE>

                                                        Consumers Energy Company


<TABLE>
<CAPTION>
                                                                                                      In Millions
- -----------------------------------------------------------------------------------------------------------------
                                                                      2003      2004     2005      2006      2007
- -----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>       <C>      <C>       <C>       <C>
Estimated cash underrecoveries at 98.5%, net of tax                   $37       $36       $36      $36       $25
================================================================================================================
</TABLE>

It is currently estimated that 51 percent of the actual cash underrecoveries for
the years 2003 and 2004 will be charged to the PPA liability, with the remaining
portion charged to operating expense as a result of Consumers' 49 percent
ownership in the MCV Partnership. All cash underrecoveries will be expensed
directly to income once the PPA liability is depleted.

In February 1998, the MCV Partnership appealed the January 1998 and February
1998 MPSC orders related to electric utility restructuring. At the same time,
MCV Partnership filed suit in the United States District Court in Grand Rapids
seeking a declaration that the MPSC's failure to provide Consumers and MCV
Partnership a certain source of recovery of capacity payments after 2007
deprived MCV Partnership of its rights under the Public Utilities Regulatory
Policies Act of 1978. In July 1999, the District Court granted MCV Partnership's
motion for summary judgment. The Court permanently prohibited enforcement of the
restructuring orders in any manner that denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or that
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the Court's order to the 6th Circuit Court of Appeals in Cincinnati. In
June 2001, the 6th Circuit overturned the lower court's order and dismissed the
case against the MPSC. The appellate court determined that the case was
premature and concluded that the qualifying facilities needed to wait until 2008
for an actual factual record to develop before bringing claims against the MPSC
in federal court.

NUCLEAR MATTERS: Throughout 2002, Big Rock, currently in decommissioning,
progressed on plan with building and equipment dismantlement to return the site
to a natural setting free for any future use. Periodic NRC inspection reports
continued to reflect positively on Big Rock project performance. The NRC found
all decommissioning activities were performed in accordance with applicable
regulatory and license conditions.

In February 2003, the NRC completed its end-of-cycle plant performance
assessment of Palisades. The end-of-cycle review for Palisades covered the 2002
calendar year. The NRC determined that Palisades was operated in a manner that
preserved public health and safety and fully met all cornerstone objectives.
Based on the plant's performance, only regularly scheduled inspections are
planned through March 2004. The NRC noted that they are planning inspections of
the new independent spent fuel storage facility as needed during construction
activities along with routine inspections for the new security requirements.


Spent Nuclear Fuel Storage: During the fourth quarter of 2002, equipment
fabrication, assembly and testing was completed at Big Rock on NRC approved
transportable steel and concrete canisters or vaults, commonly known as
"dry-casks" for temporary onsite storage of spent fuel and movement of fuel from
the fuel pool to dry casks began. As of March 2003, all of the seven dry casks
had been loaded with spent fuel. These transportable dry casks will remain
onsite until the DOE moves the material to a permanent national fuel repository.

At Palisades, the amount of spent nuclear fuel discharged from the reactor to
date exceeds Palisades' temporary on-site storage pool capacity. Consequently,
Consumers is using NRC-approved steel and concrete vaults, "dry casks", for
temporary on-site storage. As of December 31, 2002, Consumers had loaded 18 dry
casks with spent nuclear fuel at Palisades. Palisades will need to load
additional dry casks by the fall of 2004 in order to continue operation.
Palisades currently has three empty storage-only dry casks on-site, with storage
pad capacity for up to seven additional loaded dry casks. Consumers anticipates
that licensed transportable dry




                                      -74-
<PAGE>
                                                        Consumers Energy Company


casks for additional storage, along with more storage pad capacity, will be
available prior to 2004.

In 1997, a federal court decision has confirmed that the DOE was to begin
accepting deliveries of spent nuclear fuel for disposal by January 31, 1998.
Subsequent litigation in which Consumers and certain other utilities
participated has not been successful in producing more specific relief for the
DOE's failure to comply.

In July 2000, the DOE reached a settlement agreement with one utility to address
the DOE's delay in accepting spent fuel. The DOE may use that settlement
agreement as a framework that it could apply to other nuclear power plants.
However, certain other utilities challenged the validity of the mechanism for
funding the settlement in an appeal, and recently the reviewing court sustained
their challenge. Additionally, there are two court decisions that support the
right of utilities to pursue damage claims in the United States Court of Claims
against the DOE for failure to take delivery of spent fuel. A number of
utilities have commenced litigation in the Court of Claims. If the litigation,
that was commenced in the fourth quarter of 2002, against the DOE is successful,
Consumers anticipates future recoveries from the DOE to defray the significant
costs it will incur for the storage of spent fuel until the DOE takes possession
as required by law.

On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumer Federation filed a
complaint with the MPSC that asks the MPSC to commence a generic investigation
and contested case to review all facts and issues concerning the recovery of
costs associated with spent nuclear fuel storage and disposal. The complaint
alleges that the rates of Consumers Energy, The Detroit Edison Company, Indiana
& Michigan Electric Company, Wisconsin Electric Power Company and Wisconsin
Public Service Corporation are unjust and unreasonable with respect to the
recovery of costs associated with spent nuclear fuel storage and disposal. The
complaint seeks a variety of relief, including the establishing of external
trusts to which amounts collected in electric rates for spent nuclear fuel
storage and disposal should be transferred, and the adoption of additional
measures to assure that adequate funds are available for the storage and
disposal of spent nuclear fuel. Consumers has not had an opportunity to review
the complaint in detail.

In July 2002, Congress approved and the President signed a bill designating the
site at Yucca Mountain, Nevada, for the development of a repository for the
disposal of high-level radioactive waste and spent nuclear fuel. The next step
will be for the DOE to submit an application to the NRC for a license to begin
construction of the repository. The application and review process is estimated
to take several years.

Palisades Plant Operations: In December 2000, the NRC issued an amendment
revising the operating license for Palisades to extend its expiration date to
March 2011, with no restrictions related to reactor vessel embrittlement.

In 2000, Consumers made an equity investment and entered into an operating
agreement with NMC. NMC was formed in 1999 by four utilities to operate and
manage the nuclear generating plants owned by these utilities. Consumers
benefits by consolidating expertise, cost control and resources among all of the
nuclear plants being operated on behalf of the NMC member companies.

In November 2000, Consumers requested approval from the NRC to transfer
operating authority for Palisades to NMC and the request was granted in April
2001. The formal transfer of authority from Consumers to NMC took place in May
2001. Consumers retains ownership of Palisades, its 789 MW output, the current
and future spent fuel on-site, and ultimate responsibility for the safe
operation, maintenance and decommissioning of the plant. Under the agreement
that transferred operating authority of the plant to NMC, salaried Palisades'
employees became NMC employees on July 1, 2001. Union employees work under the
supervision of NMC pursuant to their existing labor contract as Consumers'
employees. NMC currently has responsibility for operating eight units with 4,500
MW of generating capacity in Wisconsin, Minnesota, Iowa and Michigan.

Following a refueling outage in April 2001, the Palisades reactor was shut down
on June 20, 2001 so technicians could inspect a small steam leak on a control
rod drive assembly. There was no risk to the public or workers. In August 2001,
Consumers completed an expanded inspection that included all similar control rod
drive assemblies and elected to completely replace all the components.
Installation of the new components was completed in December 2001. The plant was
returned to service on January 21, 2002 and has been in continuous operation
with the exception of three days in December 2002 when there was a transmission
line related outage. Consumers' capital expenditures for the components and
their installation was approximately $31 million.

From the start of the June 20th outage through the end of 2001, the impact on
net income of replacement power supply costs associated with the outage was
approximately $59 million. Subsequently, in January 2002,



                                      -75-
<PAGE>
                                                        Consumers Energy Company


the impact on 2002 net income was $5 million.

Insurance: Consumers maintains primary and excess nuclear property insurance
from NEIL, totaling $2.7 billion in recoverable limits for the Palisades nuclear
plant. Consumers also procures coverage from NEIL that would partially cover the
cost of replacement power during certain prolonged accidental outages at
Palisades. NEIL's policies include coverage for acts of terrorism.

Consumers retains the risk of loss to the extent of the insurance deductibles
and to the extent that its loss exceeds its policy limits. Because NEIL is a
mutual insurance company, Consumers could be subject to assessments from NEIL up
to $25.8 million in any policy year if insured losses in excess of NEIL's
maximum policyholders surplus occur at its, or any other member's nuclear
facility.

Consumers maintains nuclear liability insurance for injuries and off-site
property damage resulting from the nuclear hazard at Palisades for up to
approximately $9.5 billion, the maximum insurance liability limits established
by the Price-Anderson Act. Congress enacted the Price-Anderson Act to provide
financial protection for persons who may be liable for a nuclear accident or
incident and persons who may be injured by a nuclear incident. The
Price-Anderson Act was recently extended to December 31, 2003. Part of the
Price-Anderson Act's financial protection consists of a mandatory industry-wide
program under which owners of nuclear generating facilities could be assessed if
a nuclear incident occurs at any of such facilities. The maximum assessment
against Consumers could be $88 million per occurrence, limited to maximum annual
installment payments of $10 million. Consumers also maintains insurance under a
master worker program that covers tort claims for bodily injury to workers
caused by nuclear hazards. The policy contains a $300 million nuclear industry
aggregate limit. Under a previous insurance program providing coverage for
claims brought by nuclear workers, Consumers remains responsible for a maximum
assessment of up to $6.3 million. The Big Rock plant remains insured for nuclear
liability by a combination of insurance and United States government indemnity
totaling $544 million.

Insurance policy terms, limits and conditions are subject to change during the
year as Consumers renews its policies.

CAPITAL EXPENDITURES: In 2003, 2004, and 2005, Consumers estimates electric
capital expenditures, including new lease commitments and environmental costs
under the Clean Air Act, of $341 million, $408 million, and $385 million,
respectively.

COMMITMENTS FOR FUTURE PURCHASES: Consumers enters into a number of
unconditional purchase obligations that represent normal business operating
contracts. These contracts are used to assure an adequate supply of goods and
services necessary for the operation of its business and to minimize exposure to
market price fluctuations. Consumers believes that these future costs are
prudent and reasonably assured of recovery in future rates.

Coal Supply: Consumers has entered into coal supply contracts with various
suppliers for its coal-fired generating stations. Under the terms of these
agreements, Consumers is obligated to take physical delivery of the coal and
make payment based upon the contract terms. Consumers' current contracts have
expiration dates that range from 2003 to 2005, and total an estimated $276
million. Long-term coal supply contracts account for approximately 60 to 90
percent of Consumers annual coal requirements. In 2002, coal purchases totaled
$247 million of which $224 million (88 percent of the tonnage requirement) was
under long-term contract. Consumers supplements its long-term contracts with
spot-market purchases.

Power Supply, Capacity and Transmission: As of December 31, 2002, Consumers had
future unrecognized commitments to purchase power supply and transmission
services under fixed price forward contracts for the years 2003 and 2004
totaling $15 million. Consumers also had commitments to purchase capacity and
energy



                                      -76-
<PAGE>
                                                        Consumers Energy Company


under long-term power purchase agreements with various generating plants
including the MCV Facility. These contracts require monthly capacity payments
based on the plants' availability or deliverability. These payments for the
years 2003 through 2030 total an estimated $16 billion, undiscounted, which
includes $12 billion related to the MCV Facility. This amount may vary depending
upon plant availability and fuel costs. If a plant were not available to deliver
electricity to Consumers, then Consumers would not be obligated to make the
capacity payment until the plant could deliver. For further information, see
Note 2, Uncertainties, "The Midland Cogeneration Venture" for information
concerning power purchases from the MCV Facility.

GAS CONTINGENCIES

GAS ENVIRONMENTAL MATTERS: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. These include 23
former manufactured gas plant facilities, which were operated by Consumers for
some part of their operating lives, including sites in which it has a partial or
no current ownership interest. Consumers has completed initial investigations at
the 23 sites. For sites where Consumers has received site-wide study plan
approvals, it will continue to implement these plans. It will also work toward
closure of environmental issues at sites as studies are completed. Consumers has
estimated its costs related to further investigation and remedial action for all
23 sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic
Cost Model. The estimated total costs are between $82 million and $113 million;
these estimates are based on discounted 2001 costs and follow EPA recommended
use of discount rates between three and seven percent for this type of activity.
Consumers expects to recover a significant portion of these costs through
insurance proceeds and through MPSC approved rates charged to its customers. As
of December 31, 2002, Consumers has an accrued liability of $51 million, net of
$31 million of expenditures incurred to date, and a regulatory asset of $70
million. Any significant change in assumptions, such as an increase in the
number of sites, different remediation techniques, nature and extent of
contamination, and legal and regulatory requirements, could affect Consumers'
estimate of remedial action costs.

The MPSC, in its November 7, 2002, gas distribution rate order, authorized
Consumers to continue to recover approximately $1 million of manufactured gas
plant facilities environmental clean-up costs annually. Consumers defers and
amortizes, over a period of 10 years, manufactured gas plant facilities
environmental clean-up costs above the amount currently being recovered in
rates. Additional rate recognition of amortization expense cannot begin until
after a prudency review in a gas rate case. The annual amount that the MPSC
authorized Consumers to recover in rates will continue to be offset by $2
million to reflect amounts recovered from all other sources.

GAS RATE MATTERS

GAS RESTRUCTURING: From April 1, 1998 to March 31, 2001, Consumers conducted an
experimental gas customer choice pilot program that froze gas distribution and
GCR rates through the period. On April 1, 2001, a permanent gas customer choice
program commenced under which Consumers returned to a GCR mechanism that allows
it to recover from its bundled sales customers all prudently incurred costs to
purchase the natural gas commodity and transport it to Consumers for ultimate
distribution to customers.

GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation process with the MPSC, Consumers expects to collect all of its
incurred gas costs. Under an order issued by the MPSC on March 12, 2003,
Consumers is allowed to increase its maximum GCR factor in May 2003, based on a
formula that tracks increases in NYMEX prices.

2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. On November 7, 2002, the MPSC
issued a final order approving a $56 million annual gas distribution service
rate increase, which includes the $15 million interim increase, with an 11.4
percent



                                      -77-
<PAGE>
                                                        Consumers Energy Company


authorized return on equity, effective for service November 8, 2002. As part of
this order, the MPSC approved Consumers' proposal to absorb the assets and
liabilities of Michigan Gas Storage Company into Consumers' rate base and rates.
This has occurred through a statutory merger of Michigan Gas Storage Company
into Consumers and this is not expected to have an impact on Consumers'
consolidated financial statements.

2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which includes a 13.5 percent authorized return on equity, based on a
2004 test year. If approved, the request would add about $6.40 per month, or
about 9 percent, to the typical residential customer's average monthly
distribution bill. Contemporaneously with this filing, Consumers has requested
interim rate relief in the same amount.

In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.

In November 2002, the MPSC upon its own motion commenced a contested proceeding
requiring each utility to give reason as to why its rates should not be reduced
to reflect new personal property multiplier tables, and why it should not refund
any amounts that it receives as refunds from local governments as they implement
the new multiplier tables. Consumers responded to the MPSC that it believes that
refunds would be inconsistent with the November 7, 2002 gas rate order in case
U-13000, with the Customer Choice Act, and may otherwise be unlawful. Consumers
is unable to predict the outcome of this matter.

OTHER GAS UNCERTAINTIES

CAPITAL EXPENDITURES: In 2003, 2004, and 2005, Consumers estimates gas capital
expenditures, including new lease commitments, of $144 million, $167 million,
and $225 million, respectively.

COMMITMENTS FOR GAS SUPPLIES: Consumers contracts to purchase gas and
transportation from various suppliers for its natural gas business. These
contracts have expiration dates that range from 2003 to 2005. Consumers' 2002
gas requirements totaled 199 bcf at a cost of $727 million. As of the end of
2002, Consumers' expected gas requirements for 2003 are 231 bcf of which 38
percent is covered by existing contracts.

OTHER UNCERTAINTIES

COLLECTIVE BARGAINING AGREEMENT: As of December 31, 2002, 44 percent of
Consumers workforce was represented by the Utility Workers Union of America.
Consumers and the Union negotiated a collective bargaining agreement that became
effective as of June 1, 2000, and will continue in full force and effect until
June 1, 2005. Consumers is currently negotiating with the Union for a collective
bargaining agreement for its Call Center employees.


                                      -78-
<PAGE>
                                                        Consumers Energy Company

DERIVATIVE ACTIVITIES: Consumers uses a variety of contracts to protect against
commodity price and interest rate risk. Some of these contracts may be subject
to derivative accounting, which requires that the value of the contracts to be
adjusted fair value through earnings or equity depending upon certain criteria.
Such adjustments to fair value could cause earnings volatility. For further
information about derivative activities, see Note 5, Financial and Derivative
Instruments.

In addition to the matters disclosed in this note, Consumers and certain of its
subsidiaries are parties to certain lawsuits and administrative proceedings
before various courts and governmental agencies arising from the ordinary course
of business. These lawsuits and proceedings may involve personal injury,
property damage, contractual matters, environmental issues, federal and state
taxes, rates, licensing and other matters.

Consumers has accrued estimated losses for certain contingencies discussed in
this note. Resolution of these contingencies is not expected to have a material
adverse impact on Consumers' financial position, liquidity, or results of
operations.

3: FINANCINGS AND CAPITALIZATION

REGULATORY AUTHORIZATION FOR FINANCINGS: At December 31, 2002, Consumers had
FERC authorization to issue or guarantee through June 2004, up to $1.1 billion
of short-term securities outstanding at any one time. Consumers also had
remaining FERC authorization to issue through June 2004 up to $500 million of
long-term securities for refinancing or refunding purposes, $677 million for
general corporate purposes, and $900 million of first mortgage bonds to be
issued solely as security for the long-term securities. On October 10, 2002,
FERC granted a waiver of its competitive bid/negotiated placement requirements
applicable to the remaining long-term securities authorization indicated above.

SHORT-TERM FINANCINGS: At December 31, 2002, a total of $457 million was
outstanding at a weighted average interest rate of 4.5 percent, compared with
$416 million outstanding on a revolving credit facility and unsecured lines of
credit at December 31, 2001, at a weighted average interest rate of 2.7 percent.

On July 12, 2002, Consumers entered into two credit facilities as follows: a
$250 million revolving credit facility maturing July 11, 2003 and a $300 million
term loan maturing July 11, 2003. In September 2002, the term loan maturity was
extended by one year at Consumers' option and now has a maturity date of July
11, 2004. These two facilities aggregating $550 million replace a $300 million
revolving credit facility that matured July 14, 2002 as well as various credit
lines aggregating $200 million. At December 31, 2002, a total of $550 million
was outstanding under the revolver and term loan, of which $250 million was
included in notes payable and $300 million was included in long-term debt
maturing in 2004. The prior credit facilities and lines were unsecured. The two
new credit facilities are secured with Consumers' first mortgage bonds and are
available to finance seasonal working capital requirements and to pay for
capital expenditures between long-term financings.



                                      -79-
<PAGE>
                                                        Consumers Energy Company


Consumers $250 million revolving credit facility had, as of December 31, 2002,
an effective interest rate of 5.9 percent, although the rate may fluctuate
depending on the rating of Consumers' first mortgage bonds or changes in the
base LIBOR rate. The effective interest rate on the $300 million term loan was
8.9 percent as of December 31, 2002. The rate may fluctuate depending on the
rating of Consumers' first mortgage bonds or changes in the base LIBOR rate.
Consumers bank and legal fees associated with arranging the facilities in July
2002 was $6 million.

The two credit facilities have contractual restrictions that require Consumers
to maintain, as of the last day of each fiscal quarter, the following:

<TABLE>
<CAPTION>
                                                   Limitation                          Ratio at December 31, 2002
=================================================================================================================
<S>                                          <C>                                       <C>
Debt to Capital Ratio (a)(b)                 Not more than 0.65 to 1.00                           0.55 to 1.00
Interest Coverage Ratio (a)(b)                 Not less than 2.0 to 1.0                            4.00 to 1.0
=================================================================================================================
</TABLE>

(a) Violation of this ratio would constitute an event of default under the
facility which provides the lender, among other remedies, the right to declare
the principal and interest immediately due and payable.

(b) The terms of the credit facilities provide for the exclusion of
securitization bonds in the calculation of the debt to capital ratio.

In March 2003, Consumers obtained a replacement revolving credit facility in the
amount of $250 million, secured by first mortgage bonds. The cost of the
facility is LIBOR plus 350 basis points. The new credit facility matures in
March 2004 with two annual extensions at Consumers' option, which would extend
the maturity to March 2006. The prior facility was due to expire in July 2003.

Under the provisions of its articles of incorporation, Consumers had $394
million of unrestricted retained earnings available to pay common dividends at
December 31, 2002. However, pursuant to restrictive covenants in its facilities,
Consumers is limited to common stock dividend payments that will not exceed $300
million in any calendar year. Consumers paid $231 million and $190 million in
common stock dividends to CMS Energy in 2002 and 2001, respectively. In January
2003, Consumers declared and paid a $78 million common dividend.

In July 2002, the credit rating of the publicly traded securities of Consumers
was downgraded by the major rating agencies. As a result of certain of these
downgrades, certain commodity suppliers to Consumers have requested advance
payments or other forms of assurances in connection with maintenance of ongoing
deliveries of gas and electricity. Consumers is addressing these issues as
required.

In October 2002, Consumers simultaneously entered into a new term loan agreement
collateralized by first mortgage bonds and a new gas inventory term loan
agreement collateralized by Consumers' natural gas in storage. These agreements
contain complementary collateral packages that provide Consumers, as additional
first mortgage bonds become available, borrowing capacity of up to $225 million,
of which $207 million was outstanding at December 31, 2002 with an effective
interest rate of 6.3 percent. The bank and legal fees associated with the
agreements were $2 million. The first amortization payment under these
agreements occurred in December 2002 with monthly amortization payments
scheduled until full repayment is completed in mid-April of 2003. The loan
amortization also reduces the bank's loan commitment to the amount of loan
outstanding which was $207 million as of December 31, 2002.

LONG-TERM FINANCINGS: In March 2002, Consumers sold $300 million principal
amount of 6 percent senior notes, maturing in March 2005. Net proceeds from the
sale were $299 million. Consumers used the net proceeds to replace a first
mortgage bond that was to mature in 2003.

In March 2003, Consumers entered into a $140 million term loan, secured by
first mortgage bonds, with a private investor bank. This loan has a term of six
years, at a cost of LIBOR plus 475 basis points. Also in March 2003, Consumers
entered into a $150 million term loan, secured by first mortgage bonds. This
term loan has a three year maturity, at a cost of LIBOR plus 450 basis points.

FIRST MORTGAGE BONDS: Consumers secures its first mortgage bonds by a mortgage
and lien on substantially all of its property. Consumers' ability to issue and
sell securities is restricted by certain provisions in its first mortgage bond
Indenture, its articles of incorporation and the need for regulatory approvals
to meet appropriate federal law.




                                      -80-
<PAGE>
                                                        Consumers Energy Company


MANDATORILY REDEEMABLE PREFERRED SECURITIES: Consumers has wholly owned
statutory business trusts that are consolidated within its financial statements.
Consumers created these trusts for the sole purpose of issuing Trust Preferred
Securities. The primary asset of the trusts is a note or debenture of Consumers.
The terms of the Trust Preferred Security parallel the terms of the related
Consumers' note or debenture. The term, rights and obligations of the Trust
Preferred Security and related note or debenture are also defined in the related
indenture through which the note or debenture was issued, Consumers' guarantee
of the related Trust Preferred Security and the declaration of trust for the
particular trust. All of these documents together with their related note or
debenture and Trust Preferred Security constitute a full and unconditional
guarantee by Consumers of the trust's obligations under the Trust Preferred
Security. In addition to the similar provisions previously discussed, specific
terms of the securities follow.

<TABLE>
<CAPTION>
                                                                                                       In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                                                                          Earliest
Trust and Securities                              Rate           Amount Outstanding         Maturity    Redemption
- -------------------------------------------------------------------------------------------------------------------
December 31                                                  2002        2001       2000                       Year
- -------------------------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>         <C>        <C>     <C>        <C>
Consumers Power Company Financing I,
  Trust Originated Preferred Securities           8.36%      $ 70        $100       $100      2015            2000
Consumers Energy Company Financing II,
  Trust Originated Preferred Securities           8.20%       120         120        120      2027            2002
Consumers Energy Company Financing III,
  Trust Originated Preferred Securities           9.25%       175         175        175      2029            2004
Consumers Energy Company Financing IV,
  Trust Preferred Securities                      9.00%       125         125          -      2031            2006
                                                             ---------------------------

Total                                                        $490        $520       $395
==================================================================================================================
</TABLE>

In March 2002, Consumers reduced its' outstanding debt to Consumers Power
Company Financing I, Trust Originated Preferred Securities by $30 million.

OTHER: Consumers has a total of $126 million of long-term pollution control
revenue bonds outstanding, secured by first mortgage bonds and insurance
policies. These bonds had a weighted average interest rate of 2.7 percent at
December 31, 2002.

On April 1, 2002, Consumers established a new subsidiary, Consumers Receivables
Funding. This consolidated subsidiary was established as a special purpose
entity to properly reflect the sale of trade receivables from Consumers to the
purchaser, an unrelated third party under a trade receivables sale agreement.
Prior to the establishment of Consumers Receivables Funding, Consumers sold its
accounts receivable directly to the purchaser. At December 31, 2002 and 2001,
the receivables sold under the program were $325 million and $334 million,
respectively. Accounts receivable and accrued revenue in the Consolidated
Balance Sheets have been reduced to reflect receivables sold.

Under the program discussed above, during 2002 and 2001, Consumers sold accounts
receivable but retained servicing responsibility. Consumers is responsible for
the collectability of the accounts receivable sold, however, the purchaser of
sale of accounts receivable have no recourse to Consumers' other assets for
failure of debtors to pay when due and there are no restrictions on accounts
receivables not sold. No gain or loss has



                                      -81-
<PAGE>
                                                        Consumers Energy Company


been recorded on the sale of accounts receivable and Consumers retains no
interest in the receivables sold. The average annual discount rate was 2.05
percent and 4.37 percent for 2002 and 2001, respectively.

4: INCOME TAXES

Consumers and its subsidiaries file a consolidated federal income
tax return with CMS Energy. Income taxes are generally allocated based on each
company's separate taxable income. As of December 31, 2002, 2001, 2000,
Consumers had tax related receivables (payables) from CMS Energy of $44
million, $27 million and ($12) million, respectively.

The Job Creation and Worker Assistance Act of 2002 provided to corporate
taxpayers a 5-year carryback of tax losses incurred in 2001 and 2002. As a
result of this legislation, CMS Energy was able to carry back consolidated 2001
and 2002 tax losses to tax years 1996 through 1999 to obtain refunds of prior
years tax payments totaling $250 million. The tax loss carryback, however,
resulted in a reduction in AMT credit carryforwards that previously had been
recorded by CMS Energy as deferred tax assets in the amount of $47 million. This
non-cash reduction in AMT credit carryforwards has been reflected in the tax
provisions of CMS Energy and allocated to each of its consolidated subsidiaries,
according to their contributions to the consolidated CMS Energy tax loss, under
the CMS Energy tax sharing agreement. Based on the final allocation, Consumers'
allocable share, $25 million, has been reflected as a dividend paid by Consumers
to CMS Energy.

Consumers practices deferred tax accounting for temporary differences in
accordance with SFAS No. 109. Consumers uses ITC to reduce current income taxes
payable, and defers and amortizes ITC over the life of the related property. AMT
paid generally becomes a tax credit that Consumers can carry forward
indefinitely to reduce regular tax liabilities in future periods when regular
taxes paid exceed the tax calculated for AMT. At December 31, 2002, Consumers
had tax loss carryforwards in the amount of $43 million that expire in 2021.

The significant components of income tax expense (benefit) consisted of:

<TABLE>
<CAPTION>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31                                                2002              2001               2000
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Current federal income taxes                                           $(97)             $(39)             $149
Deferred income taxes                                                   283               143                (4)
Deferred ITC, net                                                        (6)               (7)               (8)
                                                                      -------------------------------------------

                                                                       $180               $97              $137
=================================================================================================================
</TABLE>



                                      -82-
<PAGE>
                                                        Consumers Energy Company


The principal components of Consumers' deferred tax assets (liabilities)
recognized in the balance sheet are as follows:

<TABLE>
<CAPTION>
                                                                                                      In Millions
- -----------------------------------------------------------------------------------------------------------------
December 31                                                                             2002                 2001
- -----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                  <C>
Property                                                                              $  (789)          $   (557)
Unconsolidated investments                                                               (223)              (211)
Securitization costs (Note 2)                                                            (192)              (194)
Postretirement benefits (Note 7)                                                          (72)               (76)
Gas inventories                                                                           (74)               (57)
Employee benefit obligations, includes (OPEB) of $94
  and $103 and 2002 includes $100 for minimum pension
  liability (Note 7)                                                                      208                123
FAS 109 regulatory liability                                                              115                117
Power purchases (Note 2)                                                                   18                 28
Tax loss carryforward                                                                      15                  -
AMT credit carryforward                                                                     7                 30
Other, net                                                                                 13                  1
                                                                                 --------------------------------

                                                                                      $  (974)          $   (796)
=================================================================================================================

Deferred tax liabilities                                                              $(1,528)          $ (1,270)
Deferred tax assets                                                                       554                474
                                                                                 --------------------------------

                                                                                      $  (974)          $   (796)
=================================================================================================================
</TABLE>

The actual income tax expense differs from the amount computed by applying the
statutory federal tax rate to income before income taxes as follows:




                                      -83-
<PAGE>
                                                        Consumers Energy Company

<TABLE>
<CAPTION>
                                                                                                      In Millions
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31                                            2002                 2001                 2000
- -----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                  <C>                 <C>
Income before cumulative effect of change in
  accounting principle                                            $ 363                $ 199               $ 284
Income taxes                                                        180                   97                 137
Preferred securities distributions                                  (44)                 (41)                (34)
                                                                  -----------------------------------------------

Pretax income                                                       499                  255                 387
Statutory federal income tax rate                                  x 35%                x 35%               x 35%
                                                                  -----------------------------------------------

Expected income tax expense                                         174                   89                 136
Increase (decrease) in taxes from:
  Property differences not previously deferred                       14                   17                  16
  Loss on investment in CMS Energy Common Stock                       4                    -                   -
  Gain on sale of METC                                               (5)                   -                   -
  ITC amortization/adjustments                                       (6)                  (7)                 (9)
  Affiliated companies' dividends                                    (1)                  (2)                 (3)
  Other, net                                                          -                    -                  (3)
                                                                   ---------------------------------------------

Actual income tax expense                                         $ 180                $  97               $ 137
================================================================================================================

Effective tax rate                                                 36.0%                38.0%               35.4%
================================================================================================================
</TABLE>

5: FINANCIAL AND DERIVATIVE INSTRUMENTS

FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term investments and
current liabilities approximate their fair values due to their short-term
nature. Consumers estimates the fair values of long-term investments based on
quoted market prices or, in the absence of specific market prices, on quoted
market prices of similar investments or other valuation techniques. The carrying
amounts of all long-term investments, except as shown below, approximate fair
value.




                                      -84-
<PAGE>
                                                        Consumers Energy Company


<TABLE>
<CAPTION>
                                                                                                    In Millions
- ---------------------------------------------------------------------------------------------------------------
December 31                                           2002                                  2001
- ---------------------------------------------------------------------------------------------------------------
                                                      Fair     Unrealized                   Fair     Unrealized
Available-for-sale securities               Cost     Value        Gain            Cost     Value           Gain
- ---------------------------------------------------------------------------------------------------------------
<S>                                        <C>       <C>      <C>                <C>       <C>      <C>
Common stock of CMS Energy (a)             $  22      $ 22           $  -        $  35      $ 57          $  22
SERP                                          18        19              1           22        24              2
Nuclear decommissioning
 investments (b)                             458       536             78          467       581            114
===============================================================================================================
</TABLE>

(a) Consumers recognized a $12 million loss on this investment in 2002 because
the loss was other than temporary, as the fair value was below the cost basis
for a period greater than six months. As of December 31, 2002, Consumers held
2.4 million shares of CMS Energy Common Stock with a fair value of $22 million;
as of March 14, 2003 the value was $8 million.

(b) Consumers classifies its unrealized gains and losses on nuclear
decommissioning investments in accumulated depreciation.

At December 31, 2002, the carrying amount of long-term debt was $2.4 billion and
at December 31, 2001, $2.5 billion, and the fair values were $2.2 billion and
$2.5 billion, respectively. For held-to-maturity securities and related-party
financial instruments, see Note 1.

RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS: Consumers is exposed to
market risks including, but not limited to, changes in interest rates, commodity
prices, and equity security prices. Consumers' market risk, and activities
designed to minimize this risk, are subject to the direction of an executive
oversight committee consisting of designated members of senior management and a
risk committee, consisting of certain business unit managers. The role of the
risk committee is to review the corporate commodity position and ensure that net
corporate exposures are within the economic risk tolerance levels established by
Consumers' Board of Directors. Established policies and procedures are used to
manage the risks associated with market fluctuations.

Consumers uses various contracts, including swaps, options, and forward
contracts to manage its risks associated with the variability in expected future
cash flows attributable to fluctuations in interest rates and commodity prices.
When management uses these instruments, it intends that an opposite movement in
the value of the at risk item would offset any losses incurred on the contracts.
Consumers enters into all risk management contracts for purposes other than
trading.

Contracts used to manage interest rate and commodity price risk may be
considered derivative instruments that are subject to derivative and hedge
accounting in accordance with SFAS No. 133. In order for derivative instruments
to qualify for hedge accounting under SFAS No. 133, the hedging relationship
must be formally documented at inception and be highly effective in achieving
offsetting cash flows or offsetting changes in fair value attributable to the
risk being hedged. If hedging a forecasted transaction, the forecasted
transaction must be probable. If a derivative instrument, used as a cash flow
hedge, is terminated early because it is probable that a forecasted transaction
will not occur, any gain or loss as of such date is immediately recognized in
earnings. If a derivative instrument, used as a cash flow hedge, is terminated
early for other economic reasons, any gain or loss as of the termination date is
deferred and recorded when the forecasted transaction affects earnings.

Consumers adopted SFAS No. 133 on January 1, 2001. This standard requires
Consumers to recognize at fair value all contracts that meet the definition of a
derivative instrument on the balance sheet as either assets or


                                      -85-
<PAGE>
                                                        Consumers Energy Company


liabilities. The standard also requires Consumers to record all changes in fair
value directly in earnings, or other comprehensive income if the derivative
meets certain qualifying hedge criteria. Consumers determines fair value based
upon quoted market prices and mathematical models using current and historical
pricing data. Option models require various inputs, including forward prices,
volatilities, interest rates and exercise periods. Changes in forward prices or
volatilities could significantly change the calculated fair value of the call
option contracts. At December 31, 2002, Consumers assumed a market-based
interest rate of 4.5 percent and a volatility rate of 70 percent in calculating
the fair value of its electric call options. The ineffective portion, if any, of
all hedges is recognized in earnings.

The majority of Consumers' contracts are not subject to derivative accounting
because they qualify for the normal purchases and sales exception of SFAS No.
133. Derivative accounting is required, however, for certain contracts used to
limit Consumers' exposure to electricity and gas commodity price risk and
interest rate risk.

On January 1, 2001, upon initial adoption of the standard, Consumers recorded a
$21 million, net of tax, ($32 million, pretax) cumulative effect transition
adjustment as an unrealized gain increasing accumulated other comprehensive
income. Consumers then reclassified to earnings $12 million as a reduction to
the cost of gas, $1 million as a reduction to the cost of power supply, $2
million as an increase in interest expense, and $8 million as an increase in
other revenue for the twelve months ended December 31, 2001. The remaining $9
million difference between the initial transition adjustment and the amounts
reclassified to earnings has been reduced to zero, decreasing other
comprehensive income, and represents an unrealized loss in the fair value of the
derivative instruments since January 1, 2001. As a result, as of December 31,
2001, there were no amounts remaining in accumulated other comprehensive income
related to the initial transition adjustment.

On January 1, 2001, upon initial adoption of SFAS No. 133, derivative and hedge
accounting for certain utility industry contracts, particularly electric call
option contracts and option-like contracts, and contracts subject to Bookouts
was uncertain. Consumers did not record these contracts on the balance sheet at
fair value, but instead accounted for these types of contracts as derivatives
that qualified for the normal purchase exception of SFAS No. 133. In June and
December 2001, the FASB issued guidance that resolved the accounting for these
contracts. As a result, on July 1, 2001, Consumers recorded a $3 million, net of
tax, cumulative effect adjustment as an unrealized loss, decreasing accumulated
other comprehensive income, and on December 31, 2001, recorded an $11 million,
net of tax, cumulative effect adjustment as a decrease to earnings. These
adjustments relate to the difference between the fair value and the recorded
book value of certain electric call option contracts.

<TABLE>
<CAPTION>
                                                                                                    In Millions
- ------------------------------------------------------------------------------------------------------------------
December 31                                                          2002                                  2001
- ------------------------------------------------------------------------------------------------------------------
                                                                     Fair                                  Fair
Derivative Instruments                                Cost          Value                   Cost          Value
- ------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                    <C>      <C>
Electric contracts                                      $8            $ 1                  $  21            $ 2
Gas contracts                                            -              1                      -              -
Interest rate risk contracts                             -             (1)                     -             (3)
Derivative contracts associated with Consumers'
  equity investment in the MCV Partnership               -             13                      -            (12)
==================================================================================================================
</TABLE>

The fair value of all derivative contracts, except the fair value of derivative
contracts associated with Consumers' equity investment in the MCV Partnership,
is included in either Other Assets or Other Liabilities on the Balance Sheet.
The fair value of derivative contracts associated with Consumers' equity
investment in the MCV Partnership is included in Investments -- Midland
Cogeneration Venture Limited Partnership on the Balance Sheet. April 1, 2002,
the MCV Partnership changed its accounting for derivatives, see Note 11.
Consumers' ownership share of the cumulative effect adjustment to earnings is
reflected as a change in accounting principle on Consumers' Income Statement.

ELECTRIC CONTRACTS: Consumers' electric business uses purchased electric call
option contracts to meet, in part, its regulatory obligation to serve. This
obligation requires Consumers to provide a physical supply of



                                      -86-
<PAGE>
                                                        Consumers Energy Company


electricity to customers, to manage electric costs and to ensure a reliable
source of capacity during peak demand periods. On July 1, 2001, upon initial
adoption of the standard for these contracts, Consumers recorded a $3 million,
net of tax, cumulative effect adjustment as an unrealized loss, decreasing
accumulated other comprehensive income. This adjustment relates to the
difference between the fair value and the recorded book value of these electric
call option contracts. The adjustment to accumulated other comprehensive income
relates to electric call option contracts that qualified for cash flow hedge
accounting prior to the initial adoption of SFAS No. 133. After July 1, 2001,
these contracts did not qualify for hedge accounting under SFAS No. 133 and,
therefore, Consumers records any change in fair value subsequent to July 1, 2001
directly in earnings, which can cause earnings volatility. The initial amount
recorded in other comprehensive income was reclassified to earnings as the
forecasted future transactions occurred or the call options expired. The
majority of these contracts expired in the third quarter 2001 and the remaining
contracts expired in the third quarter of 2002. As of December 31, 2001,
Consumers reclassified from other comprehensive income to earnings, $2 million,
net of tax, as part of the cost of power supply, and the remainder, $1 million,
net of tax, was reclassified from other comprehensive income to earnings in the
third quarter of 2002.

In December 2001, the FASB issued revised guidance regarding derivative
accounting for electric call option contracts and option-like contracts. The
revised guidance amended the criteria used to determine if derivative accounting
is required. In light of the amended criteria, Consumers re-evaluated its
electric call option and option-like contracts, and determined that additional
contracts require derivative accounting. Therefore, as of December 31, 2001,
upon initial adoption of the revised guidance for these contracts, Consumers
recorded an $11 million, net of tax, cumulative effect adjustment as a decrease
to earnings. This adjustment relates to the difference between the fair value
and the recorded book value of these electric call option contracts. Consumers
records any change in fair value subsequent to December 31, 2001, directly
in earnings, which could cause earnings volatility. During 2002, Consumers
recorded, as part of power costs, a $245 thousand unrecognized gain on its
unexpired electric call options contracts. As of December 31, 2002, Consumers
recorded on the balance sheet all of its unexpired purchased electric call
option contracts subject to derivative accounting at a fair value of $1 million.

Consumers believes that certain of its electric capacity and energy contracts
are not derivatives due to the lack of an active energy market, as defined by
SFAS No. 133, in the state of Michigan and the transportation cost to deliver
the power under the contracts to the closest active energy market at the Cinergy
hub in Ohio. If a market develops in the future, Consumers may be required to
account for these contracts as derivatives. The mark-to-market impact in
earnings related to these contracts, particularly related to the PPA could be
material to the financial statements.

During 2002, Consumers' electric business also used gas swap contracts to
protect against price risk due to the fluctuations in the market price of gas
used as fuel for generation of electricity. These gas swaps were financial
contracts that were used to offset increases in the price of probable forecasted
gas purchases. These contracts did not qualify for hedge accounting. Therefore,
Consumers recorded any change in the fair value of these contracts directly in
earnings as part of power supply costs. These contracts expired in December
2002.

As of December 31, 2002, Consumers recorded a total of $8 million, net of tax,
as an unrealized gain in other comprehensive income related to its proportionate
share of the effects of derivative accounting related to its equity investment
in the MCV Partnership. Consumers expects to reclassify this gain, if this value
remains, as an increase to other operating revenue during the next 12 months.

GAS CONTRACTS: Consumers' gas business uses fixed price gas supply contracts,
and fixed price weather-based gas supply call options and fixed price gas supply
put options, and other types of contracts, to meet its regulatory obligation to
provide gas to its customers at a reasonable and prudent cost. During 2002, some
of the fixed price gas supply contracts required derivative accounting because
they contained embedded put options that disqualified the contracts from the
normal purchase exception of SFAS No. 133. These contracts expired in October
2002.



                                      -87-
<PAGE>
                                                        Consumers Energy Company


As of December 31, 2002, weather-based gas call options and gas put options
requiring derivative accounting had a net fair value of $1 million, of which
$600,000, represents a fair value gain on the contracts since the date of
inception. This gain was recorded directly in earnings as part of other income,
and then directly offset and recorded on the balance sheet as a regulatory
liability. Any subsequent changes in fair value will be recorded in a similar
manner.

INTEREST RATE RISK CONTRACTS: Consumers uses interest rate swaps to hedge the
risk associated with forecasted interest payments on variable-rate debt. These
interest rate swaps are designated as cash flow hedges. As such, Consumers will
record any change in the fair value of these contracts in other comprehensive
income unless the swaps are sold. As of December 31, 2002, Consumers had entered
into a swap to fix the interest rate on $75 million of variable-rate debt. This
swap will expire in June 2003. As of December 31, 2002, this interest rate swap
had a negative fair value of $1 million. This amount, if sustained, will be
reclassified to earnings, increasing interest expense when the swap is settled
on a monthly basis. As of December 31, 2001, this interest rate swap had a
negative fair value of $3 million.

Consumers also uses interest rate swaps to hedge the risk associated with the
fair value of its debt. These interest rate swaps are designated as fair value
hedges. In March 2002, Consumers entered into a fair value hedge to hedge the
risk associated with the fair value of $300 million of fixed-rate debt, issued
in March 2002. In June 2002, this swap was terminated and resulted in a $7
million gain that is deferred and recorded as part of the debt. It is
anticipated that this gain will be recognized over the remaining life of the
debt.

In 2001, Consumers had entered into interest rate swaps to hedge the risk
associated with the fair value of $400 million of fixed-rate debt, which expire
in May 2003 and December 2006. In November 2001, these swaps were terminated and
resulted in a $4 million gain that was deferred and recorded as part of the
debt. This gain is being recognized over the remaining life of the debt.

In 2001, Consumers entered into fair value hedges to hedge the risk associated
with the fair value of $250 million of debt. These swaps terminated in the third
quarter 2001, and resulted in a $4 million gain that has been deferred and
recorded as part of the debt. This gain is being recognized over the remaining
life of the debt.

In September 2001, Consumers entered into a cash flow hedge to fix the interest
rate on $100 million of debt to be issued. In September 2001, the swap
terminated and resulted in a $2 million loss that was recorded in other
comprehensive income and will be amortized to interest expense over the life of
the debt using the effective interest method.

Consumers was able to apply the shortcut method to all interest rate hedges,
therefore there was no ineffectiveness associated with these hedges.




                                      -88-
<PAGE>

                                                        Consumers Energy Company

6: EXECUTIVE INCENTIVE COMPENSATION

Consumers participates in CMS Energy's Performance Incentive Stock Plan. Under
the plan, restricted shares of Common Stock of CMS Energy, stock options and
stock appreciation rights related to Common Stock may be granted to key
Consumers' employees based on their contributions to the successful management
of Consumers. The plan reserves for award not more than five percent, as amended
January 1, 1999, of CMS Energy's Common Stock outstanding on January 1 each
year, less (1) the number of shares of restricted Common Stock awarded and (2)
Common Stock subject to options granted under the plan during the immediately
preceding four calendar years. The number of shares of restricted Common Stock
awarded under this plan cannot exceed 20 percent of the aggregate number of
shares reserved for award. Any forfeiture of shares previously awarded will
increase the number of shares available to be awarded under the plan. As of
December 31, 2002, under the plan, awards of up to 1,716,856 shares of CMS
Energy Common Stock may be issued.

Restricted shares of Common Stock are outstanding shares with full voting and
dividend rights. These awards vest over five years at the rate of 25 percent per
year after two years. Some restricted shares are subject to achievement of
specified levels of total shareholder return and are subject to forfeiture if
employment terminates before vesting. If performance objectives are exceeded,
the plan provides for additional awards. Restricted shares vest fully if control
of CMS Energy changes, as defined by the plan. At December 31, 2002, 113,960 of
the 320,720 shares of restricted CMS Energy Common Stock outstanding are subject
to performance objectives.

The plan grants stock options and stock appreciation rights relating to Common
Stock with an exercise price equal to the closing market price on each grant
date. All options may be exercised upon grant. All options expire up to ten
years and one month from date of grant. The status of the restricted stock and
options granted to Consumers' key employees under the Performance Incentive
Stock Plan follows.

<TABLE>
<CAPTION>
                                                  Restricted
                                                       Stock                              Options
- ------------------------------------------------------------------------------------------------------------------
                                                      Number                 Number               Weighted Average
CMS ENERGY COMMON STOCK                            of Shares                 of Shares              Exercise Price
- ------------------------------------------------------------------------------------------------------------------

<S>                                              <C>                       <C>                  <C>
Outstanding at January 1, 2000                       283,057                   693,670                      $34.37
  Granted                                             81,030                   221,900                      $17.00
  Exercised or Issued                                (48,979)                  (43,368)                     $17.48
  Forfeited                                          (55,731)                        -
  Expired                                                  -                   (30,083)                     $31.87
                                                 -----------------------------------------------------------------

Outstanding at December 31, 2000                     259,377                   842,119                      $30.75
  Granted                                             71,930                   294,150                      $30.04
  Exercised or Issued                                (34,704)                  (35,317)                     $19.34
  Forfeited                                          (56,938)                        -
  Expired                                                  -                         -
                                                 -----------------------------------------------------------------

Outstanding at December 31, 2001                     239,665                 1,100,952                      $30.93
  Granted                                            163,890                   490,600                      $14.32
  Exercised or Issued                                (26,663)                   (6,083)                     $17.13
  Forfeited                                          (56,172)                        -
  Expired                                                  -                   (65,080)                     $32.03
                                                 -----------------------------------------------------------------


Outstanding at December 31, 2002                     320,720                 1,520,389                      $25.58
                                                 =================================================================
</TABLE>


                                      -89-
<PAGE>

                                                        Consumers Energy Company


The following table summarizes information about CMS Energy Common Stock options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                                      Number                  Weighted                      Weighted
           Range of                                of Shares                   Average                       Average
    Exercise Prices                              Outstanding            Remaining Life                Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                    <C>                          <C>
CMS Energy Common Stock:

     $8.12 - $17.00                                  445,532                8.73 years                        $11.53
    $20.00 - $30.63                                  419,426                6.47 years                        $24.05
    $31.04 - $39.06                                  552,949                6.93 years                        $34.75
    $43.38 - $43.38                                  102,482                5.57 years                        $43.38
- --------------------------------------------------------------------------------------------------------------------

     $8.12 - $43.38                                1,520,389                7.24 years                        $25.58
====================================================================================================================
</TABLE>

The weighted average fair value of options granted for CMS Energy Common Stock
in February 2002 was $3.79, and in July 2002, $1.40. In 2001 and 2000, the
weighted average fair value of options granted for CMS Energy Common Stock were
$6.37 and $1.91, respectively. Fair value is estimated using the Black-Scholes
model, a mathematical formula used to value options traded on securities
exchanges, with the following assumptions. For 2002 the assumptions listed are
for the February grant, followed by the July grant:

<TABLE>
<CAPTION>
Years Ended December 31                                                  2002              2001                 2000
- --------------------------------------------------------------------------------------------------------------------
CMS ENERGY COMMON STOCK OPTIONS
<S>                                                            <C>                    <C>                  <C>
  Risk-free interest rate                                        4.02%, 3.28%             4.80%                6.56%
  Expected stock price volatility                              31.64%, 39.67%            29.48%               26.53%
  Expected dividend rate                                       $ .365, $.1825            $ .365               $ .365
  Expected option life (years)                                            4.5               4.6                  4.4
====================================================================================================================
</TABLE>

In December 2002, Consumers voluntarily adopted the fair value method of
accounting for stock-based employee compensation, in accordance with SFAS No.
123. To adopt this change, Consumers, in accordance with SFAS No. 148, is
applying the prospective method, which requires fair value treatment of all
awards granted, modified, or settled after the beginning of the fiscal year in
which the recognition provisions are first applied. As a result of these
changes, $1.7 million was recorded as stock-based employee compensation cost for
2002. Previously, Consumers accounted for stock-based compensation under APB
Opinion No. 25, and no stock-based employee compensation cost was reflected in
net income. In 2002, 2001, and 2000, the compensation cost charged against
income for restricted stock was less than $1 million, $3 million, and $1
million, respectively.




                                      -90-
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Consumers Energy Company

                                                                                                In Millions
- ---------------------------------------------------------------------------------------------------------------
Years ended December 31                                             2002               2001              2000
- ---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>               <C>
Net income, as reported                                             $381               $188              $284
Add:  Stock-based employee                                             1                  -                 -
  compensation expense included in
  reported net income, net of related taxes
Deduct:  Total stock-based employee                                   (1)                (1)                -
  compensation expense determined under
  fair value based method for all awards,
  net of related taxes

Pro forma net income                                                 $381               $187             $284
===============================================================================================================
</TABLE>

7: RETIREMENT BENEFITS

Consumers provides retirement benefits under a number of different plans,
including certain health care and life insurance benefits under OPEB, benefits
to certain management employees under SERP and EISP, and benefits to
substantially all its employees under a trusteed, non-contributory, defined
benefit Pension Plan, and a defined contribution 401(k) plan.

<TABLE>
<CAPTION>
Weighted-Average Assumptions
- -------------------------------------------------------------------------------------------------------------------
                                                       Pension & SERP                              OPEB
Years Ended December 31                 2002              2001              2000       2002        2001        2000
- -------------------------------------------------------------------------------------------------------------------

<S>                                    <C>             <C>               <C>          <C>        <C>         <C>
Discount rate                          6.75%             7.25%             7.75%        6.75%     7.25%       7.75%
Expected long-term
 rate of return on
 plan assets                           8.75%             9.75%             9.75%        7.60%     8.30%       7.00%
Rate of compensation increase:
  Pension - to age 45                  3.50%             5.25%             5.25%
        - age 45 to
          assumed retirement           3.50%             3.75%             3.75%
  SERP                                 5.50%             5.50%             5.50%
===================================================================================================================
</TABLE>

Retiree health care costs at December 31, 2002 are based on the assumption that
costs would increase at a slower rate from the 2002 trend rate of 8.5 percent to
5.5 percent in 2010 and thereafter.




                                      -91-
<PAGE>

                                                        Consumers Energy Company

Consumers Energy's Net Pension Plan, Consumers' SERP, Consumers' EISP, and OPEB
benefit costs are shown below:

Amounts presented below for the Pension Plan include amounts for employees of
CMS Energy and non-utility affiliates, which were not distinguishable from the
plan's total assets.

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                             Pension, SERP & EISP                   OPEB
Years Ended December 31                                     2002     2001     2000          2002    2001       2000
- -------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>      <C>      <C>           <C>     <C>        <C>
Service cost                                                $ 40     $ 37     $ 31          $ 16    $ 13       $ 11
Interest expense                                              86       84       79            63      57         52
Expected return on plan assets                              (103)     (99)     (92)          (40)    (40)       (34)
Amortization of unrecognized transition (asset)                -       (5)      (5)            -       -          -
Plan amendments                                                4        -        -             -       -          -
Amortization of:
 Net (gain) or loss                                            -        -        -             8       -         (1)
 Prior service cost                                            8        8        4            (1)     (1)         -
                                                           --------------------------------------------------------

Net periodic pension and
 postretirement benefit cost (a)                            $ 35     $ 25     $ 17          $ 46    $ 29       $ 28
===================================================================================================================
</TABLE>

The health care cost trend rate assumption significantly affects the amounts
reported. A one percentage point change in the assumed health care cost trend
assumption would have the following effects:

<TABLE>
<CAPTION>

                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                                          One Percentage             One Percentage
                                                                          Point Increase             Point Decrease
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                       <C>
Effect on total service and interest cost component                                 $ 13                      $ (11)
Effect on postretirement benefit obligation                                         $121                      $(101)
====================================================================================================================
</TABLE>



                                      -92-
<PAGE>


                                                        Consumers Energy Company

The funded status of the Consumers Energy Pension Plan, Consumers' SERP and OPEB
is reconciled with the liability recorded at December 31 as follows:

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                         Pension Plan             SERP                   OPEB
                                                        2002      2001        2002    2001          2002       2001
- -------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>      <C>           <C>     <C>          <C>        <C>
Benefit obligation January 1                          $1,195   $ 1,081       $  19    $ 18         $ 876      $ 754
Service cost                                              40        36           1       1            16         13
Interest cost                                             84        83           2       1            63         57
Plan amendment                                             3         -           -       -           (57)       (16)
Actuarial loss                                            72        96           -       -            31        102
Benefits paid                                           (138)     (101)         (1)     (1)          (39)       (34)
                                                     --------------------------------------------------------------
Benefit obligation December 31                         1,256     1,195          21      19           890        876
                                                     --------------------------------------------------------------

Plan assets at fair value at January 1                   845       994           -       -           475        450
Actual return on plan assets                            (164)     (113)          -       -           (44)       (23)
Company contribution                                      64        65           -       -            73         48
Actual benefits paid                                    (138)     (101)          -       -           (39)         -
                                                     --------------------------------------------------------------
Plan assets at fair
 value at December 31(a)                                 607       845           -       -           465        475
                                                     --------------------------------------------------------------
Benefit obligation less than
 (in excess of) plan assets                             (649)     (350)        (21)    (21)         (425)      (401)
Unrecognized net loss from
 experience different than assumed                       573       235           3       3           282        176
Unrecognized prior service cost                           60        68           -       1           (70)       (15)
Panhandle adjustment                                      (7)       (7)          -       -             -          -
                                                     --------------------------------------------------------------
Net Balance Sheet Liability                           $  (23)  $   (54)      $ (18)   $(17)        $(213)     $(240)


Additional minimum liability adjustment (b)             (426)        -           -       -             -          -
                                                     --------------------------------------------------------------

Total Net Balance Sheet Liability                     $ (449)  $   (54)      $ (18)   $(17)        $(213)     $(240)
===================================================================================================================
</TABLE>

(a) Primarily stocks and bonds, including 5,241,656 and 141,000 shares of CMS
Energy Common Stock in the Pension Plan assets and OPEB plan assets,
respectively, with fair values of $49 million and $1.3 million at December 31,
2002. Fair values at December 31, 2001 were $126 million and $3 million in the
Pension Plan assets and OPEB plan assets, respectively.

(b) The Pension Plan's Accumulated Benefits Obligation of $1.055 billion
exceeded the value of the Pension Plan assets and Net balance sheet liability at
December 31, 2002. As a result, an additional minimum liability was recorded.
The adjustment includes $53 million of intangible asset, and $373 million of
accumulated other comprehensive income, of which $40 million and $285 million
($185 million after-tax) were allocated to Consumers.

SERP benefits are paid from a trust established in 1988. SERP is not a qualified
plan under the Internal Revenue Code, and as such, earnings of the trust are
taxable and trust assets are included in consolidated assets. At December 31,
2002 and 2001, trust assets were $19 million and $24 million, respectively, and
were classified as other non-current assets. In 2002 and 2001, the Accumulated
Benefit Obligation for SERP was $17 million and $16 million, respectively.


                                      -93-
<PAGE>


                                                        Consumers Energy Company

The Executive Incentive Separation Plan (EISP) was established to provide
flexibility in separation of employment by officers, a select group of
management, or other highly compensated employees. Terms of the plan may include
payment of a lump sum, payment of monthly benefits for life, payment of premium
for continuation of health care, or any other legally permissible term deemed to
be in the best interest of Consumers to offer. As of December 31, 2002, the
Accumulated Benefit Obligation of the EISP was $1.7 million. Consumers portion
of the EISP was approximately $250,000.

The Pension Plan includes amounts for employees of CMS Energy and non-utility
affiliates, including Panhandle, which were not distinguishable from the Pension
Plan's total assets. On December 21, 2002, a definitive agreement was executed
to sell Panhandle. The sale is expected to close in 2003. No portion of the
Pension Plan will be transferred with the sale of Panhandle. At the closing of
the sale, none of the employees of Panhandle will be eligible to accrue
additional benefits. The Pension Plan will retain pension payment obligations
under the Pension Plan for Panhandle employees that are vested under the Pension
Plan. Consumers does not expect the impact to be material.

Contributions to the 401(k) plan are invested in CMS Energy Common Stock.
Amounts charged to expense for this plan were $8 million in 2002, and $20
million in 2001. Effective September 1, 2002, the employer's match for the
401(k) plan was suspended until January 1, 2005.

In 1992, Consumers adopted the required accounting for postretirement benefits
and recorded a liability of $466 million for the accumulated transition
obligation and a corresponding regulatory asset for anticipated recovery in
utility rates (see Note 1, Corporate Structure and Summary of Significant
Accounting Policies, "Utility Regulation"). The MPSC authorized recovery of the
electric utility portion of these costs in 1994 over 18 years and the gas
utility portion in 1996 over 16 years.

8: LEASES

Consumers leases various assets, including vehicles, railcars, construction
equipment, computer equipment, and buildings. Consumers has both full-service
and net leases, the latter of which requires Consumers to pay for taxes,
maintenance, operating costs, and insurance.




                                      -94-
<PAGE>

                                                        Consumers Energy Company

Minimum rental commitments under Consumers' non-cancelable leases at December
31, 2002, were:

<TABLE>
<CAPTION>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
                                                                  Capital Leases                Operating Leases
- ----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                             <C>
2003                                                                         $21                             $13
2004                                                                          20                              10
2005                                                                          18                               8
2006                                                                          17                               7
2007                                                                          16                               6
2008 and thereafter                                                           71                              34
                                                                            ------------------------------------
Total minimum lease payments                                                 163                             $78
                                                                                                             ===
Less imputed interest                                                         28
                                                                            ----
Present value of net minimum lease payments                                  135
Less current portion                                                          13
Less non-current portion of off-balance sheet lease payments                   6
                                                                             ---
Non-current portion                                                         $116
================================================================================================================
</TABLE>

Consumers recovers lease charges from customers and accordingly charges payments
for its capital and operating leases to operating expense. For the years ended
December 31, 2002, 2001 and 2000, operating lease charges, including charges to
clearing and other accounts, were $13 million, $15 million, and $16 million,
respectively. In November 2001, Consumers' nuclear fuel capital leasing
arrangement expired upon mutual agreement by the lessor and Consumers. At
termination of the lease, Consumers paid the lessor $48 million, which was the
lessor's remaining investment at that time.

For the years ended December 31, 2002, 2001 and 2000, capital lease expenses
were $20 million, $26 million, and $41 million, respectively. Included in these
amounts, for the years ended 2002, 2001 and 2000, are nuclear fuel lease
expenses of $- million, $7 million and $22 million, respectively.

In April 2001, Consumers Campus Holdings entered into a lease agreement for the
construction of an office building to be used as the main headquarters for
Consumers in Jackson, Michigan. The new office-building lessor has committed to
fund up to $65 million for construction of the building and has appointed
Consumers the construction agent for the project. Consumers' balance sheet as of
December 31, 2002, reflects a capital lease asset and an offsetting non-current
liability equivalent to the cost of construction at that date of $54 million.
The agreement is a seven-year lease term with payments commencing upon
completion of construction, which occurred in March 2003. Total construction
costs amounted to $60 million. Consumers Campus Holdings has the right to
acquire the property at any time during the life of the agreement. At the end of
the lease term, Consumers Campus Holdings has the option to renew the lease,
purchase the property, or return the property and assist the lessor in the sale
of the building. The return option obligates Consumers Campus Holdings to pay
the lessor an amount equal to the outstanding debt associated with the building.
The estimated annual lease payments, based on the total construction cost of $60
million and LIBOR rates ranging upwards to four percent, would be $4 million
beginning on April 1, 2003 plus a termination payment of $54 million at the end
of the lease term. Actual lease payments will depend on the LIBOR rates in
effect for the period being paid.




                                      -95-
<PAGE>

                                                        Consumers Energy Company

9: JOINTLY OWNED UTILITY FACILITIES

Consumers is responsible for providing its share of financing for the jointly
owned utility facilities. Consumers includes in operating expenses the direct
expenses of the joint plants. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:

<TABLE>
<CAPTION>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                      Net Investment                      Accumulated Depreciation
December 31                                       2002              2001                  2002                2001
- ------------------------------------------------------------------------------------------------------------------

<S>                                             <C>               <C>                   <C>                 <C>
Campbell Unit 3 - 93.3 percent                    $299              $279                  $312                $312
Ludington - 51 percent                              75                76                    94                  88
Transmission facilities - various                    -                37                     -                  40
Distribution lines - various                        13                10                     1                   -
==================================================================================================================
</TABLE>

10: REPORTABLE SEGMENTS

Consumers has two reportable segments: electric and gas. The electric segment
consists of regulated activities associated with the generation and distribution
of electricity. The gas segment consists of regulated activities associated with
the transportation, storage and distribution of natural gas. Consumers'
reportable segments are domestic business units organized and managed by the
nature of the product and service each provides. The accounting policies of the
segments are the same as those Consumers describes in the summary of significant
accounting policies. Where appropriate, the financial statements reflect the
assets, liabilities, revenues and expenses directly related to the electric and
gas reportable segments. However, in instances where common accounts were not
readily attributable to a single business segment, Consumers allocated the
accounts between the electric and gas segment. The allocations are based on
certain measures of business activities, such as revenue, labor dollars,
customers, other operation and maintenance and construction expense, leased
property, taxes, or functional surveys. For example, customer receivables are
allocated based on revenue; pension provisions are allocated based on labor
dollars; and common property is allocated based on other operation and
maintenance and construction expense.

Consumers' management has changed its evaluation of the performance of the
electric and gas segments from pretax operating income to net income available
to common stockholder. The Consolidated Statements of Income show operating
revenue and pretax operating income by reportable segment. For 2002, 2001 and
2000, the amounts included in earnings from investments accounted for by the
equity method of $53 million, $38 million and $57 million, respectively. For
2002, 2001 and 2000, Consumers had investments accounted for by the equity
method of $645 million, $555 million and $535 million, respectively. Consumers
accounts for intersegment sales and transfers at current market prices and
eliminates them in consolidated net income available to common stockholder by
segment. Consumers classifies its equity investments as a part of the other
business unit. The other business unit also includes Consumers' consolidated
statutory business trusts, which were created to issue preferred securities and
Consumers' consolidated special purpose entity for the sale of trade
receivables. Additional segment information follows:




                                      -96-
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Consumers Energy Company
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                             2002                  2001                2000
- ------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>                 <C>
Depreciation, depletion and amortization
  Electric                                                     $     228              $    219            $    311
  Gas                                                                118                   118                 113
  Other                                                                2                     2                   2
                                                               ---------------------------------------------------

Total Consolidated                                             $     348              $    339            $    426
==================================================================================================================

Interest Charges
  Electric                                                     $     144              $    153            $    145
  Gas                                                                 47                    50                  48
  Other                                                               21                    21                  27
                                                               ---------------------------------------------------
  Subtotal                                                           212                   224                 220
  Eliminations                                                       (44)                  (38)                (37)
                                                               ---------------------------------------------------

Total Consolidated                                             $     168              $    186            $    183
==================================================================================================================

Income Taxes
  Electric                                                     $     138              $     69            $    123
  Gas                                                                 33                    25                  24
  Other                                                                9                     3                 (10)
                                                               ---------------------------------------------------

Total Consolidated (a)                                         $     180              $     97            $    137
==================================================================================================================

Net Income Available to Common Stockholder
  Electric                                                     $     264              $    109                 199
  Gas                                                                 46                    21                  18
  Other                                                               25                    15                  31
                                                               ---------------------------------------------------

Total Consolidated                                             $     335              $    145            $    248
==================================================================================================================

Total assets
  Electric (b)                                                 $   5,744              $  5,454            $  5,230
  Gas (b)                                                          2,002                 2,194               1,776
  Other                                                            1,398                 1,142               1,124
                                                               ---------------------------------------------------
  Subtotal                                                         9,144                 8,790               8,130
  Eliminations                                                      (444)                 (469)               (354)
                                                               ---------------------------------------------------

Total Consolidated                                             $   8,700              $  8,321            $  7,776
==================================================================================================================

Capital expenditures (c)
  Electric                                                     $     437              $    623            $    430
  Gas                                                                181                   145                 120
                                                               ---------------------------------------------------

Total                                                          $     618              $    768            $    550
==================================================================================================================
</TABLE>

(a) In 2002 and 2001, amounts exclude the $10 million tax expense and $6
million tax benefit, respectively, due to the change in accounting for
derivative instruments.

(b) Amounts include an attributed portion of Consumers' other common assets to
both the electric and gas utility businesses.

(c) Includes electric restructuring implementation plan, capital leases for
nuclear fuel, purchase of nuclear fuel and other assets and electric DSM costs.
Amounts also include an attributed portion of Consumers' capital expenditures
for plant and equipment common to both the electric and gas utility businesses.


                                      -97-
<PAGE>

                                                        Consumers Energy Company

11: SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT RELATED ENERGY SUPPLIER

Under the PPA with the MCV Partnership discussed in Note 2, Consumers' 2002
obligation to purchase electric capacity from the MCV Partnership provided 15.1
percent of Consumers' owned and contracted electric generating capacity.
Summarized financial information of the MCV Partnership follows:

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                                       2002           2001              2000
- -------------------------------------------------------------------------------------------------------------------

<S>                                                                           <C>            <C>               <C>
Operating revenue (a)                                                         $597           $611              $604
Operating expenses                                                             409            453               392
                                                                              -------------------------------------

Operating income                                                               188            158               212
Other expense, net                                                             114            110               122
                                                                              -------------------------------------

Net income before cumulative
  effect of accounting change                                                   74             48                90

Cumulative effect of change in method of
  accounting for derivative options contracts (April 1, 2002) (b)               58              -                 -
                                                                              -------------------------------------

Net income                                                                    $132           $ 48              $ 90
===================================================================================================================
</TABLE>

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
December 31                     2002         2001                                                2002          2001
- -------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>                                                  <C>           <C>
ASSETS                                                        LIABILITIES AND EQUITY

  Current assets (c)          $  356      $   341              Current liabilities             $  209        $  320
  Plant, net                   1,550        1,610              Non-current liabilities (d)      1,155         1,245
  Other assets                   192          166              Partners' equity (e)               734           552
                             --------------------                                            ----------------------

                              $2,098       $2,117                                              $2,098        $2,117
===================================================================================================================
</TABLE>

(a) For 2002, 2001, and 2000, revenue from Consumers totaled $557 million, $550
million and $569 million, respectively.

(b) On April 1, 2002, the MCV Partnership implemented Derivative Implementation
Group Issue C-16, an interpretation of SFAS No. 133. The MCV Partnership began
accounting for several natural gas contracts containing an option component at
fair value. As a result, a $58 million cumulative effect adjustment for the
change in accounting principle was recorded as an increase to earnings. CMS
Midland's 49 percent ownership share was $28 million ($18 million after-tax),
which is reflected as a change in accounting principle on Consumers' Income
Statement.

(c) At December 31, 2002 and 2001, receivables from Consumers totaled $44 and
$49 million, respectively.

(d) FMLP is the sole beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership. CMS Holdings
holds a 46.4 percent ownership interest in FMLP. At December 31, 2002 and 2001,
the MCV Partnership owed lease obligations of $975 million and $1.11 billion,
respectively, to the owner trust. CMS Holdings' share of the interest and
principal portion for the 2002 lease payments was $34 million and $65 million,
respectively, and for the 2001 lease payments was $36 million and $54 million,
respectively. As of December 31, 2002 and 2001, the lease payments service $449
million and $597 million in non-recourse debt outstanding, respectively, of the
owner trust. The MCV Partnership's lease obligations,


                                      -98-

<PAGE>


                                                        Consumers Energy Company

assets, and operating revenues secures FMLP's debt. For 2002 and 2001, the
owner trust made debt payments (including interest) of $370 million and $217
million, respectively. FMLP's earnings for 2002, 2001, and 2000 were $38
million, $30 million, and $30 million, respectively.

(e) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which Consumers is amortizing to expense over the life of
its investment in the MCV Partnership. Covenants contained in financing
agreements prohibit the MCV Partnership from paying distributions until it meets
certain financial test requirements. Consumers does not anticipate receiving a
cash distribution in the near future.






                                      -99-

<PAGE>
                         Report of Independent Auditors

The Board of Directors and Stockholders
Consumers Energy Company


We have audited the accompanying consolidated balance sheets and consolidated
statements of long-term debt and preferred stock of Consumers Energy Company (a
Michigan corporation and wholly-owned subsidiary of CMS Energy Corporation) and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of income, common stockholders' equity and cash flows for each of
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The financial statements of Midland
Cogeneration Venture Limited Partnership (a limited partnership in which
Consumers Energy Company and subsidiaries has a 49% interest), have been audited
by other auditors (the other auditors for 2001 and 2000 for Midland Cogeneration
Venture Limited Partnership have ceased operations) whose reports have been
furnished to us; insofar as our opinion on the consolidated financial statements
relates to the amounts included for Midland Cogeneration Venture Limited
Partnership, it is based solely on their report.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the 2002
and 2001 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Consumers Energy Company and
subsidiaries at December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 5 to the consolidated financial statements, in 2001
Consumers Energy Company, and in 2002, Midland Cogeneration Venture Limited
Partnership changed their method of accounting related to derivatives and
hedging activities. Also, in 2002 as discussed in Note 1 to the consolidated
financial statements, Consumers Energy Company changed its method of accounting
for stock-based compensation.


                                                /s/ Ernst & Young LLP



Detroit, Michigan
March 14, 2003, except for Note 3
  as to which the date is March 28, 2003


                                     -100-
<PAGE>
                           PRICEWATERHOUSECOOPERS LLP


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners and the Management Committee of the
Midland Cogeneration Venture Limited Partnership:

In our opinion, the accompanying consolidated balance sheet as of December 31,
2002 and the related consolidated statements of operations, partners' equity and
cash flows present fairly, in all material respects, the financial position of
the Midland Cogeneration Venture Limited Partnership (a Michigan limited
partnership) and subsidiaries (MCV) at December 31, 2002 and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of MCV's Management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. The financial statements of MCV as of December
31, 2001 and for each of the two years in the period ended December 31, 2001,
were audited by other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on those financial
statements in their report dated January 18, 2002.

As explained in Note 2 to the financial statements, effective April 1, 2002,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting for derivative and hedging activities in accordance with Derivative
Implementation Group ("DIG") Issue C-16.


                                              /s/   PricewaterhouseCoopers LLP



    Detroit, Michigan,
    January 17, 2003



                                     -101-
<PAGE>
              THIS REPORT IS A COPY OF THE PREVIOUSLY ISSUED ARTHUR
             ANDERSEN REPORT AND THIS REPORT HAS NOT BEEN REISSUED
                             BY ARTHUR ANDERSEN LLP



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners and the Management Committee of the
Midland Cogeneration Venture Limited Partnership:


We have audited the accompanying consolidated balance sheets of the MIDLAND
COGENERATION VENTURE LIMITED PARTNERSHIP (a Michigan limited partnership) and
subsidiaries (MCV) as of December 31, 2001 and 2000, and the related
consolidated statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of MCV's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Midland
Cogeneration Venture Limited Partnership and subsidiaries as of December 31,
2001 and 2000, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1, 2001,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting related to derivatives and hedging activities.



/s/Arthur Andersen LLP




Detroit, Michigan,
January 18, 2002


                                     -102-
<PAGE>
                            CONSUMERS ENERGY COMPANY

                         QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                 2002 (UNAUDITED)                                    2001 (UNAUDITED)
                                --------------------------------------------------  ----------------------------------------------
QUARTERS ENDED                    MARCH 31      JUNE 30      SEPT. 30      DEC. 31    MARCH 31   JUNE 30   SEPT. 30      DEC. 31
- ----------------------------------------------------------------------------------  ----------------------------------------------

<S>                             <C>           <C>           <C>          <C>        <C>          <C>       <C>         <C>
Operating revenue(a)              $1,236         $901          $919       $1,166      $1,219      $873       $900       $1,022

Operating income(a)                 $188         $152          $168         $181        $216      $112        $77          $76

Income before
cumulative effect of change
 in accounting principle(a)          $92         $107           $84          $80        $108       $45        $23          $23

Cumulative effect of change
 in accounting for derivative
 instruments, net of $10 tax
 expense in 2002 and $6 tax
 benefit in 2001(a)                   -           $17            $1            -           -         -          -         ($11)

Net income                           $92         $124           $85          $80        $108       $45        $23          $12

Preferred stock dividends             -            -             -            $2          -         $1         -            $1

Preferred securities
 distributions                       $11          $11           $11          $11          $9        $9        $12          $11

Net income available to
 common stockholder                  $81         $113           $74          $67         $99       $35        $11           --

</TABLE>

(a) Consumers reclassified $28 million ($18 million after tax) reducing June
and September 2002 operating amounts to reflect the MCV Partnership's change in
accounting for derivative instruments as a separate item. See Note 11 in the
Notes to the Consolidated Financial Statements.

                                      -103-

<PAGE>

              ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE



               In April 2002, Consumers' Board of Directors, upon the
recommendation of the Audit Committee of the Board, voted to discontinue using
Arthur Andersen to audit Consumers' financial statements for the year ending
December 31, 2002. Consumers had previously retained Arthur Andersen to review
its financial statements for the quarter ended March 31, 2002. In May 2002,
Consumers' Board of Directors engaged Ernst & Young to audit its financial
statements for the year ending December 31, 2002. Ernst & Young audited 2000,
2001 and 2002. As a result, Consumers restated its 2000 and 2001 financial
statements. An amended Form 10-K/A and Form 10-Q/A were filed in February 2003
and March 2003, respectively.


                                     -104-

<PAGE>
                                    PART III

                           ITEMS 10., 11., 12. and 13.

    Consumers' definitive information statement, except for the Organization and
Compensation Committee Report and the Audit Committee Report contained therein,
is incorporated by reference herein. See also ITEM 1. BUSINESS for information
pursuant to ITEM 10.


                        ITEM 14. CONTROLS AND PROCEDURES

    Consumers' CEO and CFO are responsible for establishing and maintaining
Consumers' disclosure controls and procedures. Management, under the direction
of Consumers' principal executive and financial officers, has evaluated the
effectiveness of Consumers' disclosure controls and procedures as of a date
within 90 days of the filing of this annual report on Form 10-K. Based on this
evaluation, Consumers' CEO and CFO have concluded that Consumers' disclosure
controls and procedures are effective to ensure that material information was
presented to them. There have been no significant changes in Consumers' internal
controls or in other factors that could significantly affect internal controls
subsequent to such evaluation.





                                     -105-


<PAGE>
                                     PART IV

                ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                            AND REPORTS ON FORM 8-K.

(a)(1)     Financial Statements and Reports of Independent Auditors for
           Consumers are listed in ITEM 8. FINANCIAL STATEMENTS AND
           SUPPLEMENTARY DATA and are incorporated by reference herein.

(a)(2)     Financial Statement Schedules and Reports of Independent Auditors for
           Consumers are listed after the Exhibits in the Index to Financial
           Statement Schedules, and are incorporated by reference herein.

(a)(3)     Exhibits for Consumers are listed after Item (c) below and are
           incorporated by reference herein.

(b)        Reports on Form 8-K for Consumers

           During the fourth quarter of 2002, Consumers filed no Current
           Reports on Form 8-K.

(c)        Exhibits, including those incorporated by reference (see also Exhibit
           volume).





                                     -106-
<PAGE>

                               CONSUMERS EXHIBITS

<TABLE>
<CAPTION>
                             PREVIOUSLY FILED
                   ----------------------------------
                      WITH FILE         AS EXHIBIT
 EXHIBITS              NUMBER            NUMBER               DESCRIPTION
- ----------         ---------------  -----------------         -----------
<S>                <C>              <C>                <C>    <C>
  (3)(a)                  1-5611            (3)(c)     --     Restated Articles of Incorporation dated May 26, 2000, of Consumers
                                                              (2000 Form 10-K)
  (3)(b)                  1-5611            (3)(d)     --     By-Laws of Consumers. (1999 Form 10-K)
  (4)(a)                 2-65973         (b)(1)-4      --     Indenture dated as of September 1, 1945, between Consumers
                                                              and Chemical Bank (successor to Manufacturers Hanover Trust Company),
                                                              as Trustee, including therein indentures supplemental thereto through
                                                              the Forty-third Supplemental Indenture dated as of May 1, 1979.
                                                       --     Indentures Supplemental thereto:
                        33-41126            (4)(c)     --     68th dated as of 06/15/93
                          1-5611            (4)        --     69th dated as of 09/15/93 (Form 8-K dated Sep. 21, 1993)
                          1-5611            (4)(a)     --     70th dated as of 02/01/98 (1997 Form 10-K)
                          1-5611            (4)(a)     --     71st dated as of 03/06/98 (1997 Form 10-K)
                          1-5611            (4)(b)     --     72nd dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
                       333-58943            (4)(d)     --     73rd dated as of 06/15/98 (Form S-4 dated July 13, 1998)
                          1-5611            (4)(b)     --     74th dated as of 10/29/98 (3rd Qtr. 1998 Form 10-Q)
                          1-5611            (4)(b)     --     75th dated as of 10/1/99 (1999 Form 10-K)
                          1-5611            (4)(d)     --     77th dated as of 10/1/99 (1999 Form 10-K)
                          1-5611             4(b)      --     79th dated as of 9/26/01 (3rd qtr 2001 10-Q)
                          1-5611             4(a)(i)   --     80th dated as of 3/22/02 (2001 Form 10-K)
                          1-5611             4.6       --     81st dated as of 7/12/02 (Form 8-K dated July 30, 2002)
                          1-5611             4.7       --     82nd dated as of 7/12/02 (Form 8-K dated July 30, 2002)
4(a)(i)                                                --     83rd dated as of 9/26/02
4(a)(ii)                                               --     84th dated as of 12/11/02
4(a)(iii)                                              --     85th dated as of 10/17/02
4(a)(iv)                                               --     86th dated as of 11/25/02
  (4)(b)                  1-5611            (4)(b)     --     Indenture dated as of January 1, 1996 between Consumers and The Bank
                                                              of New York, as Trustee. (1995 Form 10-K)
                                                       --     Indentures Supplemental thereto:
                          1-5611            (4)(b)     --     1st dated as of 01/18/96 (1995 Form 10-K)
                          1-5611            (4)(a)     --     2nd dated as of 09/04/97 (3rd qtr 1997 Form 10-Q)
                          1-9513            (4)(a)     --     3rd 11/04/99 (3rd qtr 1999 Form 10-Q)
  (4)(c)                  1-5611            (4)(c)     --     Indenture dated as of February 1, 1998 between Consumers and JPMorgan
                                                              Chase (formerly "The Chase Manhattan Bank"), as Trustee. (1997 Form
                                                              10-K)
                          1-5611            (4)(a)     --     1st dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
                       333-58943            (4)(b)     --     2nd dated as of 06/15/98
                          1-5611            (4)(a)     --     3rd 10/29/98 (3rd Qtr. 1998 Form 10-Q)
  (4)(d)                  1-5611             4.4       --     $250 million Revolving Credit Facility dated July 12, 2002 among
                                                              Consumers, the Banks, and the Agent, all as defined therein (Form 8-K
                                                              filed July 30, 2002)
  (4)(e)                                               --     $155 million Term Loan Agreement dated October 17, 2002 among
                                                              Consumers Energy, the Banks, the Administrative Agent and the
                                                              Syndication Agent, all as defined therein.
  (4)(f)                                               --     $300 million Amended and Restated Term Loan Agreement dated September
                                                              26, 2002 among Consumers, the Banks and the Agent, all as defined
                                                              therein.
 (10)(a)                  1-9513           (10)(b)     --     Form of Employment Agreement entered into by CMS Energy's
                                                              and Consumers' executive officers. (1999 Form 10-K)
 (10)(b)                  1-9513           (10)(a)     --     Acknowledgement of Resignation between Tamela W. Pallas and CMS
                                                              Energy Corporation (3rd qtr 2002 Form 10-Q)
 (10)(c)                  1-5611           (10)(g)     --     Consumers' Executive Stock Option and Stock Appreciation
                                                              Rights Plan effective December 1, 1989. (1990 Form 10-K)
 (10)(d)                  1-9513           (10)(b)     --     Employment, Separation and General Release Agreement between William
                                                              T. McCormick and CMS Energy Corporation (3rd qtr 2002 Form 10-Q)
 (10)(e)                  1-9513           (10)(d)     --     CMS Energy's Performance Incentive Stock Plan effective
                                                              February 3, 1988, as amended December 3, 1999. (1999 Form 10-K)
 (10)(f)                  1-9513           (10)(c)     --     Employment, Separation and General Release Agreement between Alan M.
                                                              Wright and CMS Energy Corporation (3rd qtr 2002 Form 10-Q)
 (10)(g)                                               --     Employment Agreement dated as of June 1, 2002 between Kenneth Whipple
                                                              and CMS Energy Corporation
 (10)(h)                  1-9513           (10)(m)     --     CMS Deferred Salary Savings Plan effective January 1, 1994.
                                                              (1993 Form 10-K)
</TABLE>


                                     -107-
<PAGE>
<TABLE>
<CAPTION>
                             PREVIOUSLY FILED
                   ----------------------------------
                      WITH FILE         AS EXHIBIT
 EXHIBITS              NUMBER            NUMBER               DESCRIPTION
- ----------         ---------------  -----------------         -----------
<S>                <C>              <C>                <C>    <C>
 (10)(i)                  1-9513           (10)(n)     --     CMS Energy and Consumers Annual Executive Incentive
                                                              Compensation Plan effective January 1, 1986, as amended January 1995.
                                                              (1995 Form 10-K)
 (10)(j)                  1-9513           (10)(h)     --     Supplemental Executive Retirement Plan for Employees of CMS
                                                              Energy/Consumers Energy Company effective January 1, 1982, as amended
                                                              December 3, 1999. (1999 Form 10-K)
 (10)(k)                33-37977           4.1         --     Senior Trust Indenture, Leasehold Mortgage and Security Agreement
                                                              dated as of June 1, 1990 between The Connecticut National Bank and
                                                              United States Trust Company of New York.
                                                              (MCV Partnership)
                                                              Indenture Supplemental thereto:
                        33-37977           4.2         --     Supplement No. 1 dated as of June 1, 1990. (MCV Partnership)
 (10)(l)                  1-9513           (28)(b)     --     Collateral Trust Indenture dated as of June 1, 1990 among Midland
                                                              Funding Corporation I, MCV Partnership and United States Trust Company
                                                              of New York, Trustee. (3rd qtr 1990 Form 10-Q)
                                                              Indenture Supplemental thereto:
                        33-37977           4.4         --     Supplement No. 1 dated as of June 1, 1990. (MCV Partnership)
 (10)(m)                  1-9513           (10)(v)     --     Amended and Restated Investor Partner Tax Indemnification Agreement
                                                              dated as of June 1, 1990 among Investor Partners, CMS Midland as
                                                              Indemnitor and CMS Energy as Guarantor. (1990 Form 10-K)
 (10)(n)                  1-9513           (19)(d)**   --     Environmental Agreement dated as of June 1, 1990 made by CMS Energy to
                                                              The Connecticut National Bank and Others. (1990 Form 10-K)
 (10)(o)                  1-9513           (10)(z)**   --     Indemnity Agreement dated as of June 1, 1990 made by CMS Energy to
                                                              Midland Cogeneration Venture Limited Partnership.
                                                              (1990 Form 10-K)
 (10)(p)                  1-9513           (10)(aa)**  --     Environmental Agreement dated as of June 1, 1990 made by CMS Energy to
                                                              United States Trust Company of New York, Meridian Trust Company, each
                                                              Subordinated Collateral Trust Trustee and Holders from time to time of
                                                              Senior Bonds and Subordinated Bonds and Participants from time to time
                                                              in Senior Bonds and Subordinated Bonds. (1990 Form 10-K)
 (10)(q)                33-37977          10.4         --     Amended and Restated Participation Agreement dated as of June 1, 1990
                                                              among MCV Partnership, Owner Participant, The Connecticut National
                                                              Bank, United States Trust Company, Meridian Trust Company, Midland
                                                              Funding Corporation I, Midland Funding Corporation II, MEC Development
                                                              Corporation and Institutional Senior Bond Purchasers.
                                                              (MCV Partnership)
 (10)(r)                 33-3797          10.4         --     Power Purchase Agreement dated as of July 17, 1986 between MCV
                                                              Partnership and Consumers. (MCV Partnership)
                                                              Amendments thereto:
                        33-37977          10.5         --     Amendment No. 1 dated September 10, 1987. (MCV Partnership)
                        33-37977          10.6         --     Amendment No. 2 dated March 18, 1988. (MCV Partnership)
                        33-37977          10.7         --     Amendment No. 3 dated August 28, 1989. (MCV Partnership)
                        33-37977          10.8         --     Amendment No. 4A dated May 25, 1989. (MCV Partnership)
 (10)(s)                  1-5611           (10)(y)     --     Unwind Agreement dated as of December 10, 1991 by and among CMS
                                                              Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC
                                                              Development Corp. and CMS Midland Holdings Company. (1991 Form 10-K)
 (10)(t)                  1-5611           (10)(z)     --     Stipulated AGE Release Amount Payment Agreement dated as of June 1,
                                                              1990, among CMS Energy, Consumers and The Dow Chemical Company.
                                                              (1991 Form 10-K)
 (10)(u)                  1-5611           (10)(aa)**  --     Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each
                                                              of the Owner Trustees, the Indenture Trustees, the Owner Participants
                                                              and the Initial Purchasers of Senior Bonds in the MCV Sale Leaseback
                                                              transaction, and MEC Development. (1991 Form 10-K)
 (10)(v)                  1-8157         10.41         --     Contract for Firm Transportation of Natural Gas between Consumers
                                                              Power Company and Trunkline Gas Company, dated November 1, 1989, and
                                                              Amendment, dated November 1, 1989.
</TABLE>

                                     -108-
<PAGE>

<TABLE>
<CAPTION>
                             PREVIOUSLY FILED
                   ----------------------------------
                      WITH FILE         AS EXHIBIT
 EXHIBITS              NUMBER            NUMBER               DESCRIPTION
- ----------         ---------------  -----------------         -----------
<S>                <C>              <C>                <C>    <C>
                                                              (1989 Form 10-K of PanEnergy Corp.)
 (10)(w)                  1-8157         10.41         --     Contract for Firm Transportation of Natural Gas between Consumers
                                                              Power Company and Trunkline Gas Company, dated November 1, 1989.
                                                              (1991 Form 10-K of PanEnergy Corp.)
 (10)(x)                  1-2921         10.03         --     Contract for Firm Transportation of Natural Gas between Consumers
                                                              Power Company and Trunkline Gas Company, dated September 1, 1993.
                                                              (1993 Form 10-K)
 (12)                                                  --     Statement regarding computation of Consumers Ration of Earnings to
                                                              Fixed Charges and Preferred Securities Dividends and Distributions
 (16)                     1-5611         16.1          --     Letter from Arthur Anderson LLP to the Securities and Exchange
                                                              Commission dated April 29, 2002 regarding change in certifying
                                                              accountant  (Form 8-K filed April 29, 2002)
 (21)                                                  --     Subsidiaries of Consumers. (Form U-3A-2 filed February 25, 2003).
 (23)(a)                                               --     Consent of Ernst & Young LLP
 (23)(b)                                               --     Consent of PricewaterhouseCoopers LLP
 (24)                                                  --     Power of Attorney for Consumers
 (99)                                                  --     Certifications pursuant to Section 906 of the Sarbanes--Oxley Act
                                                              of 2002
</TABLE>
- ----------

**  Obligations of only CMS Holdings and CMS Midland, second tier subsidiaries
    of Consumers, and of CMS Energy but not of Consumers.

    Exhibits listed above which have heretofore been filed with the Securities
and Exchange Commission pursuant to various acts administered by the Commission,
and which were designated as noted above, are hereby incorporated herein by
reference and made a part hereof with the same effect as if filed herewith.



                                     -109-
<PAGE>
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


<TABLE>
<CAPTION>
                                                                                                            Page
<S>                                                                                                         <C>
Schedule II        Valuation and Qualifying Accounts and Reserves
                     2002, 2001 and 2000..................................................................   111

Report of Independent Public Auditors
                   Ernst & Young LLP for 2002, 2001 and 2000..............................................   100
</TABLE>

Schedules other than those listed above are omitted because they are either not
required, not applicable or the required information is shown in the financial
statements or notes thereto.

Columns omitted from schedules filed have been omitted because the information
is not applicable.



                                     -110-
<PAGE>
                            CONSUMERS ENERGY COMPANY
          Schedule II - Valuation and Qualifying Accounts and Reserves
                  Years Ended December 31, 2002, 2001 and 2000
                                  (In Millions)


<TABLE>
<CAPTION>
                                        Balance at        Charged       Charged to                       Balance
                                         Beginning          to             other                         at End
     Description                         of Period        Expense        Accounts      Deductions       of Period
- -----------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>           <C>             <C>              <C>
Accumulated provision for
 uncollectible accounts:

  2002                                         $4            $17               -            $16(a)          $5

  2001                                         $3            $13               -            $12(a)          $4

  2000                                         $4            $10               -            $11(a)          $3
=================================================================================================================
</TABLE>

(a)  Accounts receivable written off including net uncollectible amounts of $14
     in 2002, $10 in 2001 and $9 in 2000 charged directly to operating expense
     and credited to accounts receivable.



                                      -111-
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Consumers Energy Company has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 28th
day of March 2003.


                                           CONSUMERS ENERGY COMPANY

                                           By       /s/ Kenneth Whipple
                                              ----------------------------------
                                                       Kenneth Whipple
                                                  Chairman of the Board and
                                                    Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of Consumers
Energy Company and in the capacities and on the 28th day of March 2003.

<TABLE>
<CAPTION>
                          SIGNATURE                                                    TITLE
                          ---------                                                    -----
<S>   <C>                                                     <C>
(i)   Principal executive officer:

              /s/ KENNETH WHIPPLE                               Chairman of the Board and Chief Executive Officer
- -----------------------------------------------------
                  KENNETH WHIPPLE

(ii)  Principal financial officer:
              /s/ THOMAS J. WEBB                               Executive Vice President and Chief Financial Officer
- -----------------------------------------------------
                  THOMAS J. WEBB

(iii) Controller or principal accounting officer:
              /s/ GLENN P. BARBA                               Vice President, Controller and Chief Accounting Officer
- -----------------------------------------------------
                  GLENN P. BARBA

(iv)  A majority of the Directors including those named
         above:

                                                                                     Director
- -----------------------------------------------------
                  JOHN M. DEUTCH

                James. J Duderstadt*                                                 Director
- -----------------------------------------------------
                JAMES J. DUDERSTADT

                Kathleen R. Flaherty*                                                Director
- -----------------------------------------------------
                KATHLEEN R. FLAHERTY

                                                                                     Director
- -----------------------------------------------------
                  EARL D. HOLTON

                   David W. Joos*                                                    Director
- -----------------------------------------------------
                   DAVID W. JOOS

                Michael T. Monahan*                                                  Director
- -----------------------------------------------------
                MICHAEL T. MONAHAN

               Joseph F. Paquette, Jr.*                                              Director
- -----------------------------------------------------
               JOSEPH F. PAQUETTE, JR.

                                                                                     Director
- -----------------------------------------------------
                  WILLIAM U. PARFET

                  Percy A. Pierre*                                                   Director
- -----------------------------------------------------
                  PERCY A. PIERRE

                S. Kinnie Smith, Jr.*                                                Director
- -----------------------------------------------------
                S. KINNIE SMITH JR.

                  Kenneth L. Way*                                                    Director
- -----------------------------------------------------
                  KENNETH L. WAY

                  Kenneth Whipple*                                                   Director
- -----------------------------------------------------
                  KENNETH WHIPPLE

                  John B. Yasinsky*                                                  Director
- -----------------------------------------------------
                  JOHN B. YASINSKY

 *By:             Thomas J. Webb*
- -----------------------------------------------------
          THOMAS J. WEBB, ATTORNEY-IN-FACT
</TABLE>



                                      -112-
<PAGE>

                        CERTIFICATION OF KENNETH WHIPPLE


I, Kenneth Whipple, certify that:

     1.  I have reviewed this annual report on Form 10-K of Consumers Energy
         Company;

     2.  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operation and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d--14) for the registrant
         and we have:

                  a) Designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this annual report (the "Evaluation Date"); and

                  c) Presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

                  a) All significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and



                                      -113-
<PAGE>

     6.  The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: March 28, 2003                 By:     /s/  Kenneth Whipple
                                            ------------------------------------
                                            Kenneth Whipple
                                            Chairman of the Board and
                                            Chief Executive Officer




                                     -114-
<PAGE>

                         CERTIFICATION OF THOMAS J. WEBB


I, Thomas J. Webb, certify that:

     1.  I have reviewed this annual report on Form 10-K of Consumers Energy
         Company;

     2.  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operation and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d--14) for the registrant
         and we have:

                  a) Designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this annual report (the "Evaluation Date"); and

                  c) Presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

                  a) All significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and



                                     -115-
<PAGE>

     6.  The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: March 28, 2003                 By:     /s/  Thomas J. Webb
                                            ------------------------------------
                                            Thomas J. Webb
                                            Executive Vice President and
                                            Chief Financial Officer




                                     -116-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)(I)
<SEQUENCE>3
<FILENAME>k75486exv4wxayxiy.txt
<DESCRIPTION>INDENTURES SUPPLEMENTAL: 83RD DATED AS OF 9/26/02
<TEXT>
<PAGE>

                                                                 EXHIBIT 4(a)(i)

                       EIGHTY-THIRD SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                           COLLATERAL SERIES DUE 2004

                                 --------------

                         DATED AS OF SEPTEMBER 26, 2002

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 80

<PAGE>

         THIS EIGHTY-THIRD SUPPLEMENTAL INDENTURE, dated as of September 26,
2002 (herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of

                                       -1-

<PAGE>

the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS, the Company has entered into an Amended and Restated Term Loan
Agreement dated as of September 26, 2002 (the "Term Loan Agreement") with
various financial institutions and Citicorp North America, Inc., as
administrative agent (in such capacity, the "Agent") for the Banks (as such term
is defined in the Term Loan Agreement) providing for the making of certain
financial accommodations thereunder, and pursuant to such Term Loan Agreement
the Company has agreed to issue to the Agent, as evidence of and security for
the Obligations (as such term is defined in the Term Loan Agreement), a new
series of bonds under the Indenture; and

         WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2004, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2004
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature July 11, 2004; and

         WHEREAS, each of the registered bonds without coupons of the 2004
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:

                                       -2-

<PAGE>

          [FORM OF REGISTERED BOND OF THE 2004 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2004

         No. 1                                              $300,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Citicorp North
America, Inc., as agent (in such capacity, the "Agent") for the Banks under and
as defined in the Amended and Restated Term Loan Agreement dated as of September
26, 2002 among the Company, the Banks and the Agent (the "Term Loan Agreement"),
or registered assigns, the principal sum of Three Hundred Million Dollars
($300,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on July 11, 2004 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding September 26, 2002. If the Maturity Date falls on a
day which is not a Business Day, as defined below, principal and any interest
and/or fees payable with respect to the Maturity Date will be paid on the
immediately preceding Business Day. The interest payable, and punctually paid or
duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in New York, New York for the conduct of substantially all of their commercial
lending activities and on which interbank wire transfers can be made on the
Fedwire system; (B) "Interest Payment Date" shall mean each date on which
interest and/or fees under the Term Loan Agreement are due and payable from time
to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall mean a
rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of interest and fees due under the Term
Loan Agreement on the applicable Interest Payment Date; and (D) "Record Date"
with respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.

                                       -3-

<PAGE>

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                       CONSUMERS ENERGY COMPANY

Dated:

                                       By:  ____________________________________
                                       Printed:  _______________________________
                                       Title:  _________________________________

Attest:  _________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                   JPMORGAN CHASE BANK, Trustee

                                   By___________________________________________
                                                Authorized Officer

                                       -4-

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2004

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2004 (sometimes herein referred to as the "2004
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2004 Collateral Series Bonds are to be issued and delivered to the
Agent in order evidence and secure the obligation of the Company under the Term
Loan Agreement to make payments to the Banks under the Term Loan Agreement and
to provide the Banks the benefit of the lien of the Indenture with respect to
the 2004 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2004 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2004
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2004 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2004 Collateral Series

                                       -5-

<PAGE>

Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2004 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent pursuant to the Term Loan Agreement, and (iii) the amount of the
arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2004 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2004 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2004 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.

                                       -6-

<PAGE>

         The Company reserves the right, without any consent, vote or other
action by holders of the 2004 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

      [END OF FORM OF REGISTERED BOND OF THE 2004 COLLATERAL SERIES BONDS]

                                       -7-

<PAGE>

         AND WHEREAS all acts and things necessary to make the 2004 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$300,000,000 principal amount of the 2004 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                       -8-

<PAGE>

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2004
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2004 Collateral
Series Bonds shall be issued in the aggregate principal amount of $300,000,000,
shall mature on July 11, 2004 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2004 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2004 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.

         The 2004 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2004 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2004
Collateral Series Bonds shall be deemed discharged in the

                                       -9-

<PAGE>

same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2004 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2004 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2004 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2004 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2004 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2004 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2004 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2004 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2004
Collateral Series Bonds by the Agent to the Trustee, the 2004 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2004 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:

                                      -10-

<PAGE>

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee

                                      -11-

<PAGE>

         for the purpose, for the notation thereon of the fact that the holder
         of such bond has consented to the execution of such supplemental
         indenture, and in such case such notation, in form satisfactory to the
         Trustee, shall be made upon all bonds so submitted, and such bonds
         bearing such notation shall forthwith be returned to the persons
         entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York for
the conduct

                                      -12-

<PAGE>

of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2004 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11.  Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                       II.

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,

                                      -13-

<PAGE>

towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                       IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

   GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
              METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
                                      SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                       VI.

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located

                                      -14-

<PAGE>

in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                      VIII.

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                      -15-

<PAGE>

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
line of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                       XI.

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the line of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
         as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of

                                      -16-

<PAGE>

         beginning of this description, commence at the Southwest corner of said
         section, run thence East along the South line of said section 1243 feet
         to the place of beginning of this description, thence continuing East
         along said South line of said section 66 feet to the West 1/8 line of
         said section, thence N 02 degrees 09' 30" E along the said West 1/8
         line of said section 660 feet, thence West 330 feet, thence S 02
         degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
         09' 30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00"

                                      -17-

<PAGE>

         W, 330.0 feet; thence South parallel with the West line of said
         section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
         West line of said section and the center line of East City Limits Road;
         thence South along the said West line of said section, 50.0 feet to the
         place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point

                                      -18-

<PAGE>

         1278.27 feet distant South of the North quarter post of said section,
         said distance being measured along the North and South quarter line of
         said section, running thence S89 degrees21'E 250 feet, thence North
         along a line parallel with the said North and South quarter line of
         said section 200 feet, thence N89 degrees21'W 250 feet to the North and
         South quarter line of said section, thence South along said North and
         South quarter line of said section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                      -19-

<PAGE>

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37"" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08"" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said

                                      -20-

<PAGE>

         section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
         of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
         described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                      -21-

<PAGE>

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                                      -22-

<PAGE>

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State

                                      -23-

<PAGE>

         Trunkline Highway 414.22 feet to the West line of said section; thence
         N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
         thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
         section; thence S 01 degrees 03' 40" W along the East line of said
         section 250 feet to the place of beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple

                                      -24-

<PAGE>

         River to a point which said point is S 88 degrees 58' 30" W of a point
         on the East bank of the Thornapple River herein designated "Point B",
         said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
         above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
         B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
         of beginning. (Bearings are based on the East line of Section 15, T5N,
         R10W between the East 1/4 corner of said section and the Northeast
         corner of said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                      -25-

<PAGE>

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July [11], 1919 in Liber 88 of Deeds on page 638
         of Manistee County Records.

                                      -26-

<PAGE>

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                      -27-

<PAGE>

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                 MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place

                                      -28-

<PAGE>

         of beginning for this description; thence continuing N 87 degrees 14'
         29" E along said North section line a distance of 75.0 feet to the East
         line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
         Section 8; thence S 02 degrees 37' 09" E along said East line a
         distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
         75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
         the place of beginning.

                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and

                                      -29-

<PAGE>

         South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
         said North and South 1/4 line of said section, 400.00 feet to the point
         of beginning; subject to the use of the N'ly 33.00 feet thereof for
         highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                      -30-

<PAGE>

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8

                                      -31-

<PAGE>

         line of said Section 34 and the place of beginning for this
         description; thence continuing N 18 degrees 11' 50" W a distance of
         349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
         thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
         1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
         South 1/8 line of said section a distance of 294.76 feet to the place
         of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet;

                                      -32-

<PAGE>

         thence easterly parallel with the South line of Section 6 a distance of
         215 feet to the point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting  utility under Section
9401(5) of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as
defined in M.C.L. 440.9105(n).

         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.

                                      -33-

<PAGE>

                                             CONSUMERS ENERGY COMPANY

(SEAL)                                    By /s/ LAURA L. MOUNTCASTLE
                                             ----------------------------
                                             Laura L. Mountcastle
Attest:                                      Vice President and Treasurer

/s/ DON A. FORSBLOM
- ----------------------
Don A. Forsblom
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/s/ KIMBERLY C. WILSON
- ----------------------
Kimberly C. Wilson

Sammie B. Dalton

STATE OF MICHIGAN             )

                               ss.

COUNTY OF JACKSON             )

                  The foregoing instrument was acknowledged before me this 26th
day of September, 2002, by Laura L. Mountcastle, Vice President and Treasurer of
CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

                                       /s/ MARGARET HILLMAN
                                       -------------------------------------
                                       Margaret Hillman, Notary Public
[Seal]                                 Jackson County, Michigan
                                       My Commission Expires:  June 14, 2004

                                       S-1

<PAGE>
                                  JPMORGAN CHASE BANK, AS TRUSTEE

                                       /s/ L. O'BRIEN
                                  By ---------------------
                                          L. O'BRIEN
                                        Vice President



(SEAL)

Attest:

/s/ Nicholas Sberlati
- ------------------------
Nicholas Sberlati
Trust Officer



Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of

/s/ Natalia Rodriguez
- ------------------------
Natalia Rodriguez
Assistant Vice President



William G. Keenan
- ------------------------
William G. Keenan
Assistant Vice President




STATE OF NEW YORK            )
                              ss.
COUNTY OF NEW YORK           )



          The foregoing instrument was acknowledged before me this 26th day of
September, 2002, by L. O'BRIEN, a Vice President of JPMORGAN CHASE BANK,
A New York corporation, on behalf of the corporation.

                                           /s/ Emily Fayan
                                          ----------------------------------
                                                                Notary Public
                                          New York County, New York
                                          My Commission Expires:


                                                        Emily Fayan
                                             Notary Public, State of New York
                                                      No. 24-473706
                                                Qualified in Kings County
                                           Certificate Filed in New York County
                                           Commission Expires December 31, 2005




[Seal]

                                   Prepared by:
                                   Kimberly C. Wilson
                                   212 West Michigan Avenue
                                   Jackson, MI 49201



S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)(II)
<SEQUENCE>4
<FILENAME>k75486exv4wxayxiiy.txt
<DESCRIPTION>INDENTURES SUPPLEMENTAL: 84TH DATED AS OF 12/11/02
<TEXT>
<PAGE>

                                                                EXHIBIT 4(a)(ii)

                      EIGHTY-FOURTH SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                  COLLATERAL SERIES (INTEREST BEARING) DUE 2003

                                 --------------

                          DATED AS OF DECEMBER 11, 2002

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                          Counterpart ____ of 85

<PAGE>

         THIS EIGHTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of December 11,
2002 (herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed

<PAGE>

in the Office of the Secretary of State of the State of Michigan and is of
record in the Office of the Register of Deeds of each county in the State of
Michigan in which this Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS the Company has entered into a 364 Day Credit Agreement dated
as of July 12, 2002 (as amended or otherwise modified from time to time, the
"Credit Agreement") with various financial institutions and Bank One, NA, as
administrative agent (in such capacity, the "Agent") for the Banks (as such term
is defined in the Credit Agreement), providing for the making of certain
financial accommodations thereunder, and pursuant to such Credit Agreement the
Company issued to the Agent, as evidence of and security for the Obligations (as
such term is defined in the Credit Agreement), two series of bonds under the
Indenture; and

         WHEREAS the Company and the Trustee entered into an Eighty-First
Supplemental Indenture dated as of July 12, 2002, which provided for the
issuance of $227,500,000 of First Mortgage Bonds, Collateral Series (Zero Rate)
due 2003 and $22,500,000 of First Mortgage Bonds, Collateral Series (Interest
Bearing) due 2003 (collectively, the "Eighty-First Collateral Bonds"); and

                                       -2-

<PAGE>

         WHEREAS pursuant to the Credit Agreement, the Company may borrow an
additional $15,000,000 upon the issuance of additional bonds in the aggregate
principal amount of $15,000,000; and

         WHEREAS for such purposes the Company desires to issue additional First
Mortgage Bonds, Collateral Series (Interest Bearing) due 2003, each of which
bonds shall also bear the descriptive title "First Mortgage Bond" (hereinafter
provided for and hereinafter sometimes referred to as the "2003 Interest Bearing
Collateral Bonds"), the bonds of which series are to be issued as registered
bonds without coupons and are to bear interest at the rate per annum specified
herein and are to mature July 11, 2003; and

         WHEREAS the original registered bonds without coupons of the 2003
Interest Bearing Collateral Bonds and the Trustee's Authentication Certificate
thereon are substantially in the form set forth in the Eighty-First Supplemental
Indenture, and the additional registered bonds without coupons of the 2003
Interest Bearing Collateral Bonds and the Trustee's Authentication Certificate
thereon to be issued pursuant to this Supplemental Indenture are to be
substantially in the following forms, to wit:

                                       -3-

<PAGE>

                            [FORM OF REGISTERED BOND

                 OF THE 2003 INTEREST BEARING COLLATERAL BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                  COLLATERAL SERIES (INTEREST BEARING) DUE 2003

         No. 2                                          $15,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
364 Day Credit Agreement dated as of July 12, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Credit
Agreement"), or registered assigns, the principal sum of Fifteen Million Dollars
($15,000,000) or such lesser principal amount as shall be equal to the IB
Percentage (as defined below) of the aggregate principal amount of the Loans (as
defined in the Credit Agreement) and Reimbursement Obligations (as defined in
the Credit Agreement) included in the Obligations (as defined in the Credit
Agreement) outstanding on July 11, 2003 (the "Maturity Date"), but not in
excess, however, of the principal amount of this bond, and to pay interest
thereon at the Interest Rate (as defined below) until the principal hereof is
paid or duly made available for payment on the Maturity Date, or, in the event
of redemption of this bond, until the redemption date, or, in the event of
default in the payment of the principal hereof, until the Company's obligations
with respect to the payment of such principal shall be discharged as provided in
the Indenture (as defined on the reverse hereof). Interest on this bond shall be
payable on each Interest Payment Date (as defined below), commencing on the
first Interest Payment Date next succeeding December 11, 2002. If the Maturity
Date falls on a day which is not a Business Day, as defined below, principal and
any interest and/or fees payable with respect to the Maturity Date will be paid
on the immediately preceding Business Day. The interest payable, and punctually
paid or duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "IB Percentage" means the difference between
100% and the ZR Percentage (as defined below); (C) "Interest Payment

                                       -4-

<PAGE>

Date" shall mean each date on which Obligations constituting interest and/or
fees are due and payable from time to time pursuant to the Credit Agreement; (D)
"Interest Rate" shall mean a rate of interest per annum, adjusted as necessary,
to result in an interest payment equal to the aggregate amount of Obligations
constituting interest and fees due under the Credit Agreement on the applicable
Interest Payment Date; (E) "Record Date" with respect to any Interest Payment
Date shall mean the day (whether or not a Business Day) immediately next
preceding such Interest Payment Date; and (F) "ZR Percentage" means the
percentage (rounded, if necessary, to the nearest or, if there is no nearest,
the next higher 1/10 of 1%) which (x) the Discounted Amount (as defined in the
Credit Agreement) of the outstanding Zero Rate Bonds (as defined in the Credit
Agreement) is of (y) the sum of the Discounted Amount of the outstanding Zero
Rate Bonds and the Face Amount (as defined in the Credit Agreement) of the
outstanding aggregate First Mortgage Bonds, Collateral Series (Interest Bearing)
due 2003.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

                                       -5-

<PAGE>

                  IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.

                                         CONSUMERS ENERGY COMPANY

Dated:

                                         By  ___________________________________
                                         Printed _______________________________
                                         Title _________________________________

Attest:  _________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                         JPMORGAN CHASE BANK, Trustee

                                         By ____________________________________
                                                   Authorized Officer

                                       -6-

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                  COLLATERAL SERIES (INTEREST BEARING) DUE 2003

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series (Interest Bearing) due 2003 (sometimes herein referred
to as the "2003 Interest Bearing Collateral Bonds") issued under and in
accordance with and secured by an Indenture dated as of September 1, 1945, given
by the Company (or its predecessor, Consumers Power Company, a Maine
corporation) to City Bank Farmers Trust Company (JPMorgan Chase Bank, successor)
(hereinafter sometimes referred to as the "Trustee"), together with indentures
supplemental thereto, heretofore or hereafter executed, to which indenture and
indentures supplemental thereto (hereinafter referred to collectively as the
"Indenture") reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security and the rights,
duties and immunities thereunder of the Trustee and the rights of the holders of
said bonds and of the Trustee and of the Company in respect of such security,
and the limitations on such rights. By the terms of the Indenture, the bonds to
be secured thereby are issuable in series which may vary as to date, amount,
date of maturity, rate of interest and in other respects as provided in the
Indenture.

         The 2003 Interest Bearing Collateral Bonds are to be issued and
delivered to the Agent in order to evidence and secure the obligation of the
Company under the Credit Agreement to make payments to the Banks under the
Credit Agreement and to provide the Banks the benefit of the lien of the
Indenture with respect to the 2003 Interest Bearing Collateral Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the then due principal of the IB Percentage
of the Loans and/or IB Percentage of the Reimbursement Obligations included in
the IB Percentage of the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations means that if any payment is made on the principal of the IB
Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003 Interest Bearing Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially

                                       -7-

<PAGE>

paid. Satisfaction of any obligation to the extent that payment is made with
respect to the IB Percentage of the interest and/or fees under the Credit
Agreement means that if any payment is made on the interest and/or fees under
the Credit Agreement, a corresponding payment obligation with respect to the
interest on the 2003 Interest Bearing Collateral Bonds shall be deemed
discharged in the same amount as the payment with respect to the IB Percentage
of the Loans and/or the IB Percentage of the Reimbursement Obligations
discharges the outstanding obligation with respect to such IB Percentage of the
Loans and/or IB Percentage of the Reimbursement Obligations.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Interest Bearing Collateral Bonds has not
been made, (ii) that the Company is in arrears as to the payments required to be
made by it to the Agent in connection with the Obligations pursuant to the
Credit Agreement, and (iii) the IB Percentage of the amount of the arrearage.

         If an Event of Default (as defined in the Credit Agreement) with
respect to the payment of the principal of the Loans and/or the Reimbursement
Obligations shall have occurred, it shall be deemed to be a default for purposes
of Section 11.01 of the Indenture in the payment of the principal of the 2003
Interest Bearing Collateral Bonds equal to the IB Percentage of the amount of
such unpaid principal or Reimbursement Obligations (but in no event in excess of
the principal amount of the 2003 Interest Bearing Collateral Bonds). If an Event
of Default (as defined in the Credit Agreement) with respect to the payment of
interest on the Loans and/or the Reimbursement Obligations or any fees shall
have occurred, it shall be deemed to be a default for purposes of Section 11.01
of the Indenture in the payment of the interest on the 2003 Interest Bearing
Collateral Bonds equal to the IB Percentage of the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less

                                       -8-

<PAGE>

than sixty per centum in principal amount of each series affected, to effect, by
an indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Interest Bearing Collateral Bonds or any other
series created after the Sixty-eighth Supplemental Indenture, to amend the
Indenture to reduce the percentage of the principal amount of bonds the holders
of which are required to approve any supplemental indenture (other than any
supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per centum
(including sixty per centum of each series affected) to not less than a majority
in principal amount of the bonds at the time outstanding or (b) in case fewer
than all series are affected, not less than a majority in principal amount of
the bonds of all affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.

                         [END OF FORM OF REGISTERED BOND

                 OF THE 2003 INTEREST BEARING COLLATERAL BONDS]

                                       -9-

<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003 Interest
Bearing Collateral Bonds when duly executed by the Company and authenticated by
the Trustee or its agent and issued as prescribed in the Indenture, as
heretofore supplemented and amended, and this Supplemental Indenture provided,
the valid, binding and legal obligations of the Company, and to constitute the
Indenture, as supplemented and amended as aforesaid, as well as by this
Supplemental Indenture, a valid, binding and legal instrument for the security
thereof, have been done and performed, and the creation, execution and delivery
of this Supplemental Indenture and the creation, execution and issuance of bonds
subject to the terms hereof and of the Indenture, as so supplemented and
amended, have in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$15,000,000 principal amount of the 2003 Interest Bearing Collateral Bonds and
all other bonds which shall be issued under the Indenture, as supplemented and
amended from time to time, and for the purpose of securing the faithful
performance and observance of all covenants and conditions therein, and in any
indenture supplemental thereto, set forth, the Company has given, granted,
bargained, sold, released, transferred, assigned, hypothecated, pledged,
mortgaged, confirmed, set over, warranted, alienated and conveyed and by these
presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed,

                                      -10-

<PAGE>

assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its
successor or successors in trust and their assigns forever;

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. Pursuant to the terms set forth in this Supplemental
Indenture, there are hereby issued additional bonds (the "Collateral Bonds")
designated as hereinabove provided, which shall also bear the descriptive title
"First Mortgage Bond", and the form thereof shall be substantially as
hereinbefore set forth (the "Sample Bond"). The Collateral Bonds shall be issued
in the aggregate principal amount of $15,000,000, shall mature on July 11, 2003
and shall be issued only as registered bonds without coupons in denominations of
$1,000 and any multiple thereof. The serial numbers of the Collateral Bonds
shall be such as may be approved by any officer of the Company, the execution
thereof by any such officer either manually or by facsimile signature to be
conclusive evidence of such approval. The Collateral Bonds are to be issued to
and registered in the name of the Agent under the Credit Agreement (as such
terms are defined in the Sample Bond) to evidence and secure any and all
Obligations (as such term is defined in the Credit Agreement) of the Company
under the Credit Agreement.

         The principal of and the interest on the Collateral Bonds shall be
payable as set forth in the Sample Bond. All payments of interest with respect
to the Obligations shall be applied to the Collateral Bonds according to the IB
Percentage. "IB Percentage" shall have the meaning assigned to such term in the
Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and

                                      -11-

<PAGE>

discharged to the extent that, at the time that any such payment shall be due,
the then due principal of the IB Percentage of the Loans and/or IB Percentage of
the Reimbursement Obligations included in the IB Percentage of the Obligations
shall have been fully or partially paid. Satisfaction of any obligation to the
extent that payment is made with respect to the IB Percentage of the Loans
and/or the IB Percentage of the Reimbursement Obligations means that if any
payment is made on the principal of the IB Percentage of the Loans and/or the IB
Percentage of the Reimbursement Obligations, a corresponding payment obligation
with respect to the principal of the 2003 Interest Bearing Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations discharges the outstanding obligation with respect to such IB
Percentage of the Loans and/or IB Percentage of the Reimbursement Obligations.
No such payment of principal shall reduce the principal amount of the 2003
Interest Bearing Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the interest and/or fees under the Credit Agreement
means that if any payment is made on the interest and/or fees under the Credit
Agreement, a corresponding payment obligation with respect to the interest on
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the Collateral Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged unless and until the Trustee
shall have received a written notice from the Agent stating (i) that timely
payment of principal and interest on the 2003 Interest Bearing Collateral Bonds
has not been made, (ii) that the Company is in arrears as to the payments
required to be made by it to the Agent pursuant to the Credit Agreement, and
(iii) the amount of the arrearage.

         The Collateral Bonds shall be exchangeable for other registered bonds
of the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at the Investor Services Department
of the Company, as transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any registration of
transfer or exchange of bonds of said series other than for any tax or taxes or
other governmental charge required to be paid by the Company.

         SECTION 2. The Collateral Bonds are not redeemable by the operation of
the maintenance and replacement provisions of this Indenture or with the
proceeds of released property.

                                      -12-

<PAGE>

         SECTION 3. Upon the occurrence of an Event of Default under the Credit
Agreement and the acceleration of the Obligations, the Collateral Bonds shall be
redeemable in whole upon receipt by the Trustee of a written demand from the
Agent stating that there has occurred under the Credit Agreement both an Event
of Default and a declaration of acceleration of the Obligations and demanding
redemption of the Collateral Bonds (including a description of the amount of
principal, interest and fees which comprise such Obligations). The Company
waives any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Collateral Bonds together with the Eighty-First
Collateral Bonds (collectively, the "2003 Collateral Bonds") by the Agent to the
Trustee, the 2003 Collateral Bonds shall be redeemed at a redemption price equal
to the aggregate amount of the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the Collateral Bonds or of any subsequent series
of bonds issued under the Indenture, to make such amendments to the Indenture,
as supplemented, as shall be necessary in order to amend Section 17.02 to read
as follows:

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                                      -13-

<PAGE>

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee for the purpose,
         for the notation thereon of the fact that the holder of such bond has
         consented to the execution of such supplemental indenture, and in such
         case such notation, in form satisfactory to the Trustee, shall be made
         upon all bonds so submitted, and such bonds bearing such notation shall
         forthwith be returned to the persons entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument. For avoidance of doubt, the $22,500,000 of First Mortgage
Bonds, Collateral Series (Interest Bearing) due 2003 issued pursuant to the
Eighty-First Supplemental Indenture and the $15,000,000 of First Mortgage Bonds,
Collateral Series (Interest Bearing) due 2003 issued pursuant to this
Supplemental Indenture shall be considered part of the same series in an
aggregate principal of $37,500,000, and nothing set forth herein shall be
construed as a substitution of the 2003 Interest Bearing Collateral Bonds issued
pursuant to the Eighty-First Supplemental Indenture.

                                      -14-

<PAGE>

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Credit Agreement), any right or interest to avail himself of
any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in Chicago, Illinois and
New York, New York for the conduct of substantially all of their commercial
lending activities and on which interbank wire transfers can be made on the
Fedwire system.

         SECTION 10. This Supplemental Indenture and the Collateral Bonds shall
be governed by and deemed to be a contract under, and construed in accordance
with, the laws of the State of Michigan, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.

         SECTION 11.  Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                       II.

                                      -15-

<PAGE>

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards, towers, poles, wires,
insulators, subways, trenches, conduits, manholes, cables, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all real
property, rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation thereof,
through, over, under or upon any private property or any public streets or
highways within as well as without the corporate limits of any municipal
corporation.

                                       IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

                                      -16-

<PAGE>

   GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
           METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                       VI.

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located in the Township of Salem,
Washtenaw County, Township of Lyon, Oakland County, and the Townships of
Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the
Salem Gas Storage Field, located in the Township of Salem, Allegan County, and
in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage
Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in
the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township
of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located
in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas
Storage Field, located in the Townships of Casco, China, Cottrellville and Ira,
St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements,

                                      -17-

<PAGE>

permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation.

                                      VIII.

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                      -18-

<PAGE>

                                       XI.

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the line of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of beginning of this description, commence
         at the Southwest corner of said section, run thence East along the
         South line of said section 1243 feet to the place of beginning of this
         description, thence continuing East along said South line of said
         section 66 feet to the West 1/8 line of said section, thence N 02
         degrees 09' 30" E along the said West 1/8 line of said section 660
         feet, thence West 330 feet, thence S 02 degrees 09' 30" W, 330 feet,
         thence East 264 feet, thence S 02 degrees 09' 30" W, 330 feet to the
         place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
         described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                                      -19-

<PAGE>

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00" W, 330.0 feet; thence South parallel with the West
         line of said section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0
         feet to the West line of said section and the center line of East City
         Limits Road; thence South along the said West line of said section,
         50.0 feet to the place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                      -20-

<PAGE>

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point 1278.27 feet distant South of the North
         quarter post of said section, said distance being measured along the
         North and South quarter line of said section, running thence S89
         degrees21'E 250 feet, thence North along a line parallel with the said
         North and South quarter line of said section 200 feet, thence N89
         degrees21'W 250 feet to the North and South quarter line of said
         section, thence South along said North and South quarter line of said
         section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                      -21-

<PAGE>

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37"" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08"" West along East section line 441.59 feet;
         thence

                                      -22-

<PAGE>

         North 55 degrees 44' 37" West 5,310.48 feet; thence North 55 degrees
         42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the
         place of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

                                      -23-

<PAGE>

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89

                                      -24-

<PAGE>

         degrees34'58" West 660.00 feet; thence North 00 degrees07'20" East
         1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                                      -25-

<PAGE>

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State Trunkline Highway 414.22
         feet to the West line of said section; thence N 00 degrees 55' 10" E
         along the West line of said section 74.35 feet; thence S 89 degrees 32'
         00" E, 5356.02 feet to the East line of said section; thence S 01
         degrees 03' 40" W along the East line of said section 250 feet to the
         place of beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                                      -26-

<PAGE>

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple River to a point which said point is S 88
         degrees 58' 30" W of a point on the East bank of the Thornapple River
         herein designated "Point B", said "Point B" being N 23 degrees 41' 35"
         W 360.75 feet from said above-described "Point A", thence N 88 degrees
         58' 30" E to said "Point B", thence continuing N 88 degrees 58' 30" E
         2650.13 feet to the place of beginning. (Bearings are based on the East
         line of Section 15, T5N, R10W between the East 1/4 corner of said
         section and the Northeast corner of said section assumed as N 0 degrees
         59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                                      -27-

<PAGE>

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the

                                      -28-

<PAGE>

         Southwest corner of said section; run thence East along the South line
         of said section 832.2 feet to the place of beginning of this
         description; thence continuing East along said South line of said
         section 132 feet; thence North 198 feet; thence West 132 feet; thence
         South 198 feet to the place of beginning, excepting therefrom the South
         2 rods thereof which was conveyed to Manistee Township for highway
         purposes by a Quitclaim Deed dated June 13, 1919 and recorded July 11,
         1919 in Liber 88 of Deeds on page 638 of Manistee County Records.

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                                      -29-

<PAGE>

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                 MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
         described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                      -30-

<PAGE>

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place of beginning for this
         description; thence continuing N 87 degrees 14' 29" E along said North
         section line a distance of 75.0 feet to the East line of the West
         526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02
         degrees 37' 09" E along said East line a distance of 160.0 feet; thence
         S 87 degrees 14' 29" W a distance of 75.0 feet; thence N 02 degrees 37'
         09" W a distance of 160.0 feet to the place of beginning.

                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                      -31-

<PAGE>

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and South 1/4 line of said
         section; thence N 00 degrees 28' 43" W along the said North and South
         1/4 line of said section, 400.00 feet to the point of beginning;
         subject to the use of the N'ly 33.00 feet thereof for highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also

                                      -32-

<PAGE>

         being the place of intersection of the West 1/8 line of said section
         with the North line of said section), thence S 01 degrees 01' E along
         said West 1/8 line 132 feet, thence West parallel with the North line
         of said section 132 feet, thence N 01 degrees 01' W parallel with said
         West 1/8 line of said section 132 feet to the North line of said
         section, thence East along the North line of said section 132 feet to
         the place of beginning.

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

                                      -33-

<PAGE>

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8 line of said Section 34 and
         the place of beginning for this description; thence continuing N 18
         degrees 11' 50" W a distance of 349.91 feet; thence N 89 degrees 57'
         01" W a distance of 294.80 feet; thence S 18 degrees 11' 50" E a
         distance of 350.04 feet to the South 1/8 line of said Section 34;
         thence S 89 degrees 58' 29" E along the South 1/8 line of said section
         a distance of 294.76 feet to the place of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

                                      -34-

<PAGE>

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet; thence easterly
         parallel with the South line of Section 6 a distance of 215 feet to the
         point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).

         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.

                                      -35-

<PAGE>

                                      CONSUMERS ENERGY COMPANY

(SEAL)                             By /s/ LAURA L. MOUNTCASTLE
                                     ----------------------------
                                          Laura L. Mountcastle
Attest:                                   Vice President

/s/ DON A. FORSBLOM
- ----------------------------
Don A. Forsblom
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/s/ KIMBERLY C. WILSON
- ----------------------------
Kimberly C. Wilson

/s/ SAMMIE B. DALTON
- ----------------------------
Sammie B. Dalton

STATE OF MICHIGAN            )
                               ss.
COUNTY OF JACKSON            )

                  The foregoing instrument was acknowledged before me this 11th
day of December, 2002, by Laura L. Mountcastle, Vice President of CONSUMERS
ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

                                         /s/ MARGARET HILLMAN
                                         -------------------------------
                                         Margaret Hillman, Notary Public
[Seal]                                   Jackson County, Michigan
                                         My Commission Expires: June 14, 2004

                                      S-1

<PAGE>
                                            JPMORGAN CHASE BANK, AS TRUSTEE


                                                      /s/ L. O'Brien
(SEAL)                                            By --------------------------
                                                     L. O'Brien
Attest:                                              Vice President

/s/ Diane Darconte
- ------------------------
 Diane Darconte
 Trust Officer




Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of

/s/ N. Rodriguez
- ------------------------
 Natalia Rodriguez
 Assistant Vice President



/s/ William G. Keenan
- ------------------------
 William G. Keenan
 Assistant Vice President



STATE OF NEW YORK          )
                              ss.

COUNTY OF NEW YORK         )

          The foregoing instrument was acknowledged before me this 11th day of
December, 2002, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.


                                             /s/  James M. Foley
                                -------------------------------------------
                                                                  Notary Public
[Seal]                            New York County, New York
                                  My Commission Expires:




Prepared by:                      When recorded, return to:
Kimberly C. Wilson                Consumers Energy Company
212 West Michigan Avenue          General Services Real Estate Department
Jackson, MI 49201                 Attn: Nancy P. Fisher, P-21-411
                                  1945 W. Parnall Road
                                  Jackson, MI 49201

                                             JAMES M. FOLEY NO. 01FO6348400
                                             Notary Public State of New York
                                             Qualified in New York County
                                             My Commission Expires Aug. 31, 2006


                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)(III)
<SEQUENCE>5
<FILENAME>k75486exv4wxayxiiiy.txt
<DESCRIPTION>INDENTURES SUPPLEMENTAL: 85TH DATED AS OF 10/17/02
<TEXT>
<PAGE>

                                                               EXHIBIT 4(a)(iii)

                       EIGHTY-FIFTH SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                           COLLATERAL SERIES DUE 2003

                                 --------------

                          DATED AS OF OCTOBER 17, 2002

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 85

<PAGE>

         THIS EIGHTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of October 17, 2002
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of

                                       -1-

<PAGE>

the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS, the Company has entered into a Term Loan Agreement dated as of
October 17, 2002 (as amended or otherwise modified from time to time, the "Term
Loan Agreement") among the Company, various financial institutions and Bank One,
NA (Main Office - Chicago), as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and

         WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2003, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2003
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature April 15, 2003; and

         WHEREAS, each of the registered bonds without coupons of the 2003
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:

                                       -2-

<PAGE>

          [FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         No. 1                                             $70,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Term Loan Agreement dated as of October 17, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Term
Loan Agreement"), or registered assigns, the principal sum of Seventy Million
Dollars ($70,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on April 15, 2003 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding October 17, 2002. If the Maturity Date falls on a
day which is not a Business Day, as defined below, principal and any interest
and/or fees payable with respect to the Maturity Date will be paid on the
immediately preceding Business Day. The interest payable, and punctually paid or
duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "Interest Payment Date" shall mean each date
on which interest and/or fees under the Term Loan Agreement are due and payable
from time to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall
mean a rate of interest per annum, adjusted as necessary, to result in an
interest payment equal to the aggregate amount of interest and fees due under
the Term Loan Agreement on the applicable Interest Payment Date; and (D) "Record
Date" with respect to any Interest Payment Date shall

                                       -3-

<PAGE>

mean the day (whether or not a Business Day) immediately next preceding such
Interest Payment Date.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                                   CONSUMERS ENERGY COMPANY

Dated:
                                                   By: _________________________
                                                   Printed: ____________________
                                                   Title: ______________________

Attest: _________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                            JPMORGAN CHASE BANK, Trustee

                                            By _________________________________
                                                         Authorized Officer

                                       -4-

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2003 (sometimes herein referred to as the "2003
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2003 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2003 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series

                                       -5-

<PAGE>

Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent in connection with the Obligations pursuant to the Term Loan
Agreement, and (iii) the amount of the arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2003 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2003 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2003 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the

                                       -6-

<PAGE>

Indenture, or (c) reduce the percentage of the principal amount of the bonds the
holders of which are required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

      [END OF FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                            - - - - - - - - - - - - -

                                       -7-

<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$70,000,000 principal amount of the 2003 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                       -8-

<PAGE>

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2003
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2003 Collateral
Series Bonds shall be issued in the aggregate principal amount of $70,000,000,
shall mature on April 15, 2003 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2003 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2003 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.

         The 2003 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the

                                       -9-

<PAGE>

same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2003 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2003 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2003 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2003 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2003 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2003 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2003
Collateral Series Bonds by the Agent to the Trustee, the 2003 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2003 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:

                                      -10-

<PAGE>

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee

                                      -11-

<PAGE>

         for the purpose, for the notation thereon of the fact that the holder
         of such bond has consented to the execution of such supplemental
         indenture, and in such case such notation, in form satisfactory to the
         Trustee, shall be made upon all bonds so submitted, and such bonds
         bearing such notation shall forthwith be returned to the persons
         entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in Chicago, Illinois and
New York, New

                                      -12-

<PAGE>

York for the conduct of substantially all of their commercial lending activities
and on which interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2003 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11.  Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                      II.

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,

                                      -13-

<PAGE>

towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                      IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

        GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
        STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
                                     SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                      VI.

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located

                                      -14-

<PAGE>

in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                     VIII.

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                      -15-

<PAGE>

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
line of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                      XI.

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of

                                      -16-

<PAGE>

         beginning of this description, commence at the Southwest corner of said
         section, run thence East along the South line of said section 1243 feet
         to the place of beginning of this description, thence continuing East
         along said South line of said section 66 feet to the West 1/8 line of
         said section, thence N 02 degrees 09' 30" E along the said West 1/8
         line of said section 660 feet, thence West 330 feet, thence S 02
         degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
         09' 30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00"

                                      -17-

<PAGE>

         W, 330.0 feet; thence South parallel with the West line of said
         section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
         West line of said section and the center line of East City Limits Road;
         thence South along the said West line of said section, 50.0 feet to the
         place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point

                                      -18-

<PAGE>

         1278.27 feet distant South of the North quarter post of said section,
         said distance being measured along the North and South quarter line of
         said section, running thence S89 degrees21'E 250 feet, thence North
         along a line parallel with the said North and South quarter line of
         said section 200 feet, thence N89 degrees21'W 250 feet to the North and
         South quarter line of said section, thence South along said North and
         South quarter line of said section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                      -19-

<PAGE>

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said

                                      -20-

<PAGE>

         section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
         of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W' from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                      -21-

<PAGE>

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                                      -22-

<PAGE>

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State

                                      -23-

<PAGE>

         Trunkline Highway 414.22 feet to the West line of said section; thence
         N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
         thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
         section; thence S 01 degrees 03' 40" W along the East line of said
         section 250 feet to the place of beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple

                                      -24-

<PAGE>

         River to a point which said point is S 88 degrees 58' 30" W of a point
         on the East bank of the Thornapple River herein designated "Point B",
         said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
         above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
         B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
         of beginning. (Bearings are based on the East line of Section 15, T5N,
         R10W between the East 1/4 corner of said section and the Northeast
         corner of said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
         Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                      -25-

<PAGE>

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
         Manistee County Records.

                                      -26-

<PAGE>

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                      -27-

<PAGE>

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                 MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
         described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place

                                      -28-

<PAGE>

         of beginning for this description; thence continuing N 87 degrees 14'
         29" E along said North section line a distance of 75.0 feet to the East
         line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
         Section 8; thence S 02 degrees 37' 09" E along said East line a
         distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
         75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
         the place of beginning.

                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and

                                      -29-

<PAGE>

         South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
         said North and South 1/4 line of said section, 400.00 feet to the point
         of beginning; subject to the use of the N'ly 33.00 feet thereof for
         highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                      -30-

<PAGE>

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8

                                      -31-

<PAGE>

         line of said Section 34 and the place of beginning for this
         description; thence continuing N 18 degrees 11' 50" W a distance of
         349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
         thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
         1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
         South 1/8 line of said section a distance of 294.76 feet to the place
         of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet;

                                      -32-

<PAGE>

         thence easterly parallel with the South line of Section 6 a distance of
         215 feet to the point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).

         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.

                                      -33-

<PAGE>

                                      CONSUMERS ENERGY COMPANY

(SEAL)                             By /s/ LAURA L. MOUNTCASTLE
                                   -------------------------------------
                                            Laura L. Mountcastle
Attest:                                     Vice President and Treasurer

/S/ DON A. FORSBLOM
- ----------------------------
Don A. Forsblom
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/S/ KIMBERLY C. WILSON
- ----------------------------
Kimberly C. Wilson

/S/ SAMMIE B. DALTON
- ----------------------------
Sammie B. Dalton

STATE OF MICHIGAN          )
                             ss.
COUNTY OF JACKSON          )

                  The foregoing instrument was acknowledged before me this 17th
day of October, 2002, by Laura L. Mountcastle, Vice President and Treasurer of
CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

                                         /S/ MARGARET HILLMAN
                                         -------------------------------
                                         Margaret Hillman, Notary Public
[Seal]                                   Jackson County, Michigan
                                         My Commission Expires: June 14, 2004

                                      S-1

<PAGE>
                                       JPMORGAN CHASE BANK, AS TRUSTEE


                                               /s/ L. O'Brien
(SEAL)                                     By ---------------------------
                                                L. O'Brien
                                                Vice President
Attest:


/s/ Virginia Dominguez
- ----------------------
VIRGINIA DOMINGUEZ
Trust Officer



Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of


/s/ N. Rodriguez
- ----------------------
Natalia Rodriguez
Assistant Vice President




/s/ Wanda Eiland
- ---------------------
Wanda Eiland
Assistant Vice President


STATE OF NEW YORK       )
                         ss.
COUNTY OF NEW YORK      )


          The foregoing instrument was acknowledged before me this 17th day of
October, 2002, by L. O'Brien a Vice President of JPMORGAN CHASE BANK, a New York
corporation, on behalf of the corporation.


                                        /s/ Emily Fayan
                             --------------------------------------------
                                                            Notary Public

[Seal]                             New York County, New York
                                   My Commission Expires:



                                                   Emily Fayan
                                         Notary Public, State of New York
                                                  No. 24-47305
                                            Qualified in Kings County
                                      Certificate Filed in New York Country
                                      Commission Expires December 31, 2005


Prepared by:                       When recorded, return to:
Kimberly C. Wilson                 Consumers Energy Company
212 West Michigan Avenue           General Services Real Estate Department
Jackson, MI 49201                  Attn: Nancy P. Fisher, P-21-411
                                   1945 W. Parnall Road
                                   Jackson, MI 49201







                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)(IV)
<SEQUENCE>6
<FILENAME>k75486exv4wxayxivy.txt
<DESCRIPTION>INDENTURES SUPPLEMENTAL: 86TH DATED AS OF 11/25/02
<TEXT>
<PAGE>

                                                                EXHIBIT 4(a)(iv)

                       EIGHTY-SIXTH SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                           COLLATERAL SERIES DUE 2003

                                 --------------

                          DATED AS OF NOVEMBER 25, 2002

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 85

<PAGE>

         THIS EIGHTY-SIXTH SUPPLEMENTAL INDENTURE, dated as of November 25, 2002
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of

                                       -1-

<PAGE>

the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS, the Company has entered into a Term Loan Agreement dated as of
October 17, 2002 (as amended or otherwise modified from time to time, the "Term
Loan Agreement") among the Company, various financial institutions and Bank One,
NA (Main Office - Chicago), as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and

         WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2003, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2003
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature April 15, 2003; and

         WHEREAS, each of the registered bonds without coupons of the 2003
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:

                                       -2-

<PAGE>

          [FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         No. 1                                             $85,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Term Loan Agreement dated as of October 17, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Term
Loan Agreement"), or registered assigns, the principal sum of Eighty-Five
Million Dollars ($85,000,000) or such lesser principal amount as shall be equal
to the aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on April 15, 2003 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding November 25, 2002. If the Maturity Date falls on a
day which is not a Business Day, as defined below, principal and any interest
and/or fees payable with respect to the Maturity Date will be paid on the
immediately preceding Business Day. The interest payable, and punctually paid or
duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "Interest Payment Date" shall mean each date
on which interest and/or fees under the Term Loan Agreement are due and payable
from time to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall
mean a rate of interest per annum, adjusted as necessary, to result in an
interest payment equal to the aggregate amount of interest and fees due under
the Term Loan Agreement on the applicable Interest Payment Date; and (D) "Record
Date" with respect to any Interest Payment Date shall

                                       -3-

<PAGE>

mean the day (whether or not a Business Day) immediately next preceding such
Interest Payment Date.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                                   CONSUMERS ENERGY COMPANY

Dated:
                                                   By: _________________________
                                                   Printed: ____________________
                                                   Title: ______________________

Attest: _________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                            JPMORGAN CHASE BANK, Trustee

                                            By _________________________________
                                                         Authorized Officer

                                       -4-

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2003 (sometimes herein referred to as the "2003
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2003 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2003 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series

                                       -5-

<PAGE>

Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent in connection with the Obligations pursuant to the Term Loan
Agreement, and (iii) the amount of the arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2003 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2003 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2003 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the

                                       -6-

<PAGE>

Indenture, or (c) reduce the percentage of the principal amount of the bonds the
holders of which are required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

      [END OF FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                       -7-

<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$85,000,000 principal amount of the 2003 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                       -8-

<PAGE>

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2003
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2003 Collateral
Series Bonds shall be issued in the aggregate principal amount of $85,000,000,
shall mature on April 15, 2003 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2003 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2003 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.

         The 2003 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the

                                       -9-

<PAGE>

same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2003 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2003 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2003 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2003 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2003 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2003 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2003
Collateral Series Bonds by the Agent to the Trustee, the 2003 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2003 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:

                                      -10-

<PAGE>

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee

                                      -11-

<PAGE>

         for the purpose, for the notation thereon of the fact that the holder
         of such bond has consented to the execution of such supplemental
         indenture, and in such case such notation, in form satisfactory to the
         Trustee, shall be made upon all bonds so submitted, and such bonds
         bearing such notation shall forthwith be returned to the persons
         entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in Chicago, Illinois and
New York, New

                                      -12-

<PAGE>

York for the conduct of substantially all of their commercial lending activities
and on which interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2003 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11. Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                      II.

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,

                                      -13-

<PAGE>

towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                      IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

        GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
        STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
                                     SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                      VI.

                               GAS STORAGE FIELDS

The natural gas rights and interests of the Company, including wells and well
lines (but not including natural gas, oil and minerals), the gas gathering
system, the underground gas storage rights, the underground gas storage wells
and injection and withdrawal system used in connection therewith, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture:
In the Overisel Gas Storage Field, located in the Township of Overisel, Allegan
County, and in the Township of Zeeland, Ottawa County, Michigan; in the
Northville Gas Storage Field located

                                      -14-

<PAGE>

in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                     VIII.

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                      -15-

<PAGE>

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
line of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                      XI.

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of

                                      -16-

<PAGE>

         beginning of this description, commence at the Southwest corner of said
         section, run thence East along the South line of said section 1243 feet
         to the place of beginning of this description, thence continuing East
         along said South line of said section 66 feet to the West 1/8 line of
         said section, thence N 02 degrees 09' 30" E along the said West 1/8
         line of said section 660 feet, thence West 330 feet, thence S 02
         degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
         09' 30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00"

                                      -17-

<PAGE>

         W, 330.0 feet; thence South parallel with the West line of said
         section, 260.0 feet; thence S 88 degrees 26' 00"W, 330.0 feet to the
         West line of said section and the center line of East City Limits Road;
         thence South along the said West line of said section, 50.0 feet to the
         place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point

                                      -18-

<PAGE>

         1278.27 feet distant South of the North quarter post of said section,
         said distance being measured along the North and South quarter line of
         said section, running thence S89 degrees21'E 250 feet, thence North
         along a line parallel with the said North and South quarter line of
         said section 200 feet, thence N89 degrees21'W 250 feet to the North and
         South quarter line of said section, thence South along said North and
         South quarter line of said section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                      -19-

<PAGE>

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said

                                      -20-

<PAGE>

         section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
         of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                      -21-

<PAGE>

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                                      -22-

<PAGE>

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State

                                      -23-

<PAGE>

         Trunkline Highway 414.22 feet to the West line of said section; thence
         N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
         thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
         section; thence S 01 degrees 03' 40" W along the East line of said
         section 250 feet to the place of beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple

                                      -24-

<PAGE>

         River to a point which said point is S 88 degrees 58' 30" W of a point
         on the East bank of the Thornapple River herein designated "Point B",
         said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
         above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
         B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
         of beginning. (Bearings are based on the East line of Section 15, T5N,
         R10W between the East 1/4 corner of said section and the Northeast
         corner of said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                      -25-

<PAGE>

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
         Manistee County Records.

                                      -26-

<PAGE>

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                      -27-

<PAGE>

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                 MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place

                                      -28-

<PAGE>

         of beginning for this description; thence continuing N 87 degrees 14'
         29" E along said North section line a distance of 75.0 feet to the East
         line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
         Section 8; thence S 02 degrees 37' 09" E along said East line a
         distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
         75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
         the place of beginning.

                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and

                                      -29-

<PAGE>

         South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
         said North and South 1/4 line of said section, 400.00 feet to the point
         of beginning; subject to the use of the N'ly 33.00 feet thereof for
         highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                      -30-

<PAGE>

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8

                                      -31-

<PAGE>

         line of said Section 34 and the place of beginning for this
         description; thence continuing N 18 degrees 11' 50" W a distance of
         349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
         thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
         1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
         South 1/8 line of said section a distance of 294.76 feet to the place
         of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet;

                                      -32-

<PAGE>

         thence easterly parallel with the South line of Section 6 a distance of
         215 feet to the point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).

         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.

                                      -33-

<PAGE>

                                                     CONSUMERS ENERGY COMPANY

(SEAL)                             By  /s/ Laura L. Mountcastle
                                       ------------------------
                                            Laura L. Mountcastle
Attest:                                     Vice President and Treasurer

/s/ Don A. Forsblom
- ---------------------------
Don A. Forsblom
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/s/ Kimberly C. Wilson
- ---------------------------
Kimberly C. Wilson

/s/ Sammie B. Dalton
- ---------------------------
Sammie B. Dalton

STATE OF MICHIGAN          )
                             ss.
COUNTY OF JACKSON          )

                  The foregoing instrument was acknowledged before me this 25th
day of November, 2002, by Laura L. Mountcastle, Vice President and Treasurer of
CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation.

                                        /s/ Margaret Hillman
                                        ---------------------------
                                        Margaret Hillman, Notary Public
[Seal]                                  Jackson County, Michigan
                                        My Commission Expires:  June 14, 2004

                                      S-1

<PAGE>
                                                 JPMORGAN CHASE BANK, AS TRUSTEE


                                                     /s/ L. O'Brien
(SEAL)                                           By --------------------------
                                                     L. O'Brien
                                                     Vice President
Attest:



/s/ Rosa Garcia
- ------------------------
Rosa Garcia
Trust Officer


Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of


/s/ William G. Keenan
- ------------------------
William G. Keenan
Assistant Vice President




/s/ N. Rodriguez
- -----------------------
Natalia Rodriguez
Assistant Vice President



STATE OF NEW YORK              )
                                 ss.
COUNTY OF NEW YORK             )


          The foregoing instrument was acknowledged before me this 25th day of
November, 2002, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.



                                      /s/  James M. Foley
                                 -----------------------------------------------
                                                                   Notary Public
[Seal]                                 New York County, New York
                                       My Commission Expires:

                                               JAMES M. FOLEY NO. 01FO634840
                                             Notary Public, State of New York
                                               Qualified in New York County
                                            My Commission Expires Aug. 31, 2006



Prepared by:                            When recorded, return to:
Kimberly C. Wilson                      Consumers Energy Company
212 West Michigan Avenue                General Services Real Estate Department
Jackson, MI 49201                       Attn: Nancy P. Fisher, P-21-411
                                        1945 W. Parnall Road
                                        Jackson, MI 49201



                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(E)
<SEQUENCE>7
<FILENAME>k75486exv4wxey.txt
<DESCRIPTION>$155 MILLION TERM LOAN AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 4(e)


================================================================================

                               TERM LOAN AGREEMENT


                          Dated as of October 17, 2002

                                      among

                            CONSUMERS ENERGY COMPANY,
                                as the Borrower,

             THE FINANCIAL INSTITUTIONS NAMED HEREIN, as the Banks,

                     BANK ONE, NA, as Administrative Agent,

                                       and

                     BARCLAYS BANK PLC, as Syndication Agent


================================================================================
               BANC ONE CAPITAL MARKETS, INC. and BARCLAYS CAPITAL
                    as Lead Arrangers and Joint Book Runners
================================================================================


<PAGE>
                                Table of Contents

<Table>
<Caption>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
ARTICLE I:    DEFINITIONS ..............................................................    1
        1.1   Definitions ..............................................................    1
        1.2   Singular and Plural ......................................................   11
        1.3   Accounting Terms .........................................................   11

ARTICLE II:   THE TERM LOANS ...........................................................   11
        2.1   Initial Term Loans .......................................................   11
        2.2   Deferred Draw Term Loans .................................................   11
        2.3   Making of Term Loans .....................................................   12
        2.4   Repayment of Term Loans ..................................................   12
        2.5   Commitment Fee and Reductions of Commitment. .............................   12
        2.6   Optional Principal Payments ..............................................   13
        2.7   Mandatory Prepayments. ...................................................   14
        2.8   Conversion and Continuation of Outstanding Term Loans ....................   14
        2.9   Interest Rates, Interest Payment Dates ...................................   14
        2.10  Rate after Maturity ......................................................   15
        2.11  Method of Payment ........................................................   15
        2.12  Bonds; Record-keeping; Telephonic Notices. ...............................   15
        2.13  Lending Installations ....................................................   16
        2.14  Non-Receipt of Funds by the Agent ........................................   16

ARTICLE III:  [RESERVED] ...............................................................   17

ARTICLE IV:   CHANGE IN CIRCUMSTANCES ..................................................   17
        4.1   Yield Protection .........................................................   17
        4.2   Replacement Bank .........................................................   18
        4.3   Availability of Eurodollar Rate Loans ....................................   18
        4.4   Funding Indemnification ..................................................   18
        4.5   Taxes. ...................................................................   18
        4.6   Bank Certificates, Survival of Indemnity .................................   20

ARTICLE V:    REPRESENTATIONS AND WARRANTIES ...........................................   21
        5.1   Incorporation and Good Standing ..........................................   21
        5.2   Corporate Power and Authority; No Conflicts ..............................   21
        5.3   Governmental Approvals ...................................................   21
        5.4   Legally Enforceable Agreements ...........................................   21
        5.5   Financial Statements .....................................................   21
        5.6   Litigation ...............................................................   22
        5.7   Margin Stock .............................................................   22
        5.8   ERISA ....................................................................   22
</Table>


                                       i
<PAGE>
                                Table of Contents
                                   (continued)


<Table>
<Caption>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
        5.9   Insurance ................................................................   22
        5.10  Taxes ....................................................................   22
        5.11  Investment Company Act ...................................................   22
        5.12  Public Utility Holding Company Act .......................................   22
        5.13  Bonds ....................................................................   22

ARTICLE VI:   AFFIRMATIVE COVENANTS ....................................................   23
        6.1   Payment of Taxes, Etc ....................................................   23
        6.2   Maintenance of Insurance .................................................   23
        6.3   Preservation of Corporate Existence, Etc .................................   23
        6.4   Compliance with Laws, Etc ................................................   23
        6.5   Visitation Rights ........................................................   23
        6.6   Keeping of Books .........................................................   23
        6.7   Reporting Requirements ...................................................   24
        6.8   Use of Proceeds ..........................................................   25
        6.9   Maintenance of Properties, Etc ...........................................   25
        6.10  Bonds ....................................................................   26

ARTICLE VII:  NEGATIVE COVENANTS .......................................................   26
        7.1   Liens ....................................................................   26
        7.2   Sale of Assets ...........................................................   27
        7.3   Mergers, Etc .............................................................   28
        7.4   Compliance with ERISA ....................................................   28
        7.5   Change in Nature of Business .............................................   28
        7.6   Restricted Payments ......................................................   28
        7.7   Off-Balance Sheet Liabilities ............................................   28

ARTICLE VIII: FINANCIAL COVENANTS ......................................................   28
        8.1   Debt to Capital Ratio ....................................................   28
        8.2   Interest Coverage Ratio ..................................................   28

ARTICLE IX:   EVENTS OF DEFAULT ........................................................   29
        9.1   Events of Default ........................................................   29
        9.2   Remedies .................................................................   30

ARTICLE X:    WAIVERS, AMENDMENTS AND REMEDIES .........................................   31
        10.1  Amendments ...............................................................   31
        10.2  Preservation of Rights ...................................................   31

ARTICLE XI:   CONDITIONS PRECEDENT .....................................................   32
        11.1  Initial Term Loan ........................................................   32
</Table>


                                       ii

<PAGE>
                                Table of Contents
                                   (continued)

<Table>
<Caption>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
        11.2   Incremental Deferred Draw Commitment; Deferred Draw Term Loans ............  33
        11.3   Each Term Loan ............................................................  33

ARTICLE XII:   GENERAL PROVISIONS ........................................................  34
        12.1   Successors and Assigns ....................................................  34
        12.2   Survival of Representations ...............................................  36
        12.3   Governmental Regulation ...................................................  36
        12.4   Taxes .....................................................................  36
        12.5   Choice of Law; Waiver of Jury Trial .......................................  36
        12.6   Headings ..................................................................  36
        12.7   Entire Agreement ..........................................................  36
        12.8   Expenses; Indemnification .................................................  36
        12.9   [Intentionally Omitted] ...................................................  37
        12.10  Severability of Provisions ................................................  37
        12.11  Setoff ....................................................................  37
        12.12  Ratable Payments ..........................................................  37
        12.13  Nonliability of Banks .....................................................  37

ARTICLE XIII:  THE AGENT .................................................................  38
        13.1   Appointment ...............................................................  38
        13.2   Powers ....................................................................  38
        13.3   General Immunity ..........................................................  38
        13.4   No Responsibility for Loans, Recitals, Etc ................................  38
        13.5   Action on Instructions of Banks ...........................................  38
        13.6   Employment of Agents and Counsel ..........................................  39
        13.7   Reliance on Documents; Counsel ............................................  39
        13.8   Agent's Reimbursement and Indemnification .................................  39
        13.9   Rights as a Bank ..........................................................  39
        13.10  Bank Credit Decision ......................................................  39
        13.11  Successor Agent ...........................................................  40
        13.12  Agent and Arrangers Fees ..................................................  40

ARTICLE XIV:   NOTICES ...................................................................  40
        14.1   Giving Notice .............................................................  40
        14.2   Change of Address .........................................................  40

ARTICLE XV: COUNTERPARTS .................................................................  41
</Table>


                                       iii


<PAGE>


<Table>
<S>               <C>
SCHEDULES

COMMITMENT SCHEDULE

EXHIBITS

Exhibit A-1       Form of Supplemental Indenture
Exhibit A-2       Form of Incremental Supplemental Indenture
Exhibit B-1       Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2       Required Opinions from Skadden, Arps, Slate, Meagher & Flom, LLP
Exhibit B-3       Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C         Form of Compliance Certificate
Exhibit D         Form of Assignment and Assumption Agreement
Exhibit E         Terms of Subordination (Junior Subordinated Debt)
Exhibit F         Terms of Subordination (Guaranty of Hybrid Preferred Securities)
Exhibit G-1       Form of Bond Delivery Agreement (Supplemental Indenture)
Exhibit G-2       Form of Bond Delivery Agreement (Incremental Supplemental Indenture)
</Table>


<PAGE>
                               TERM LOAN AGREEMENT

         This Term Loan Agreement, dated as of October 17, 2002, is among
Consumers Energy Company, a Michigan corporation (the "Company"), the financial
institutions listed on the signature pages hereof (together with their
respective successors and assigns, the "Banks") and Bank One, NA, a national
banking association having its principal office in Chicago, Illinois, as Agent.


                                   WITNESSETH:

         WHEREAS, the Company has requested, and the Banks have agreed to enter
into, a credit facility providing for (i) an initial Term Loan in an aggregate
amount of $70,000,000 and (ii) subsequent Term Loans up to a maximum aggregate
amount of $5,000,000, or, subject to additional terms and conditions as set
forth herein, $85,000,000;

         NOW THEREFORE, the parties hereto agree as follows:

                             ARTICLE I: DEFINITIONS

                  1.1 Definitions.  As used in this Agreement:

         "Accounting Changes" - see Section 1.3.

         "Agent" means Bank One in its capacity as administrative agent for the
Banks pursuant to Article XIII, and not in its individual capacity as a Bank,
and any successor Agent appointed pursuant to Article XIII.

         "Agreement" means this Term Loan Agreement, as amended from time to
time.

         "Alternate Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds
Effective Rate for such day plus 1/2% per annum.

         "Applicable Margin" means, (i) with respect to Eurodollar Rate Loans at
any time, 3.00% per annum, and (ii) with respect to Floating Rate Loans at any
time, 2.00% per annum; provided, however, that for any period from and after
December 1, 2002 during which the Interest Rate Reduction Conditions shall
remain unsatisfied, the Applicable Margin with respect to Eurodollar Rate Loans
during such period shall be 4.00% per annum, and the Applicable Margin with
respect to Floating Rate Loans during such period shall be 3.00% per annum.

         "Arrangers" - see Section 13.12.

         "Article" means an article of this Agreement unless another document is
specifically referenced.

         "Assignment Agreement" - see Section 12.1(E).

         "Banks" - see the preamble.

                                       1

<PAGE>
         "Bank One" means Bank One, NA (Main Office - Chicago), in its
individual capacity, and its successors and assigns.

         "Base Eurodollar Rate" means, with respect to a Eurodollar Rate Loan
for the relevant Interest Period, the per annum interest rate determined by the
offered rate per annum at which deposits in U.S. dollars, for a period equal or
comparable to such Interest Period, appears on Telerate page 3750 (or any
successor page) as of 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period, or in the event such offered rate is not
available from the Telerate page, the rate offered on deposits in U.S. dollars,
for a period equal or comparable to such Interest Period, by Bank One's London
Office to prime banks in the London interbank market at approximately 11:00 a.m.
(London time), two Business Days prior to the first day of such Interest Period,
and in an amount substantially equal to the amount of Bank One's relevant
Eurodollar Rate Loan for such Interest Period.

         "Bonds" means one or more series of First Mortgage Bonds created under
the Supplemental Indenture and the Incremental Supplemental Indenture issued in
favor of, and in form and substance satisfactory to, the Agent.

         "Bond Delivery Agreement" means a bond delivery agreement whereby the
Agent (x) acknowledges delivery of the applicable Bonds and (y) agrees to hold
the applicable Bonds for the benefit of the Banks and to distribute all payments
made by the Company on account thereof to the Banks, substantially in the form
of Exhibit G-1 with respect to the Bonds issued under the Supplemental Indenture
and substantially in the form of Exhibit G-2 with respect to the Bonds issued
under the Incremental Supplemental Indenture.

         "Borrowing Date" means a date on which a Term Loan is made hereunder.

         "Borrowing Notice" - see Section 2.1.

         "Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Rate Loans, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, Illinois and New York, New York for
the conduct of substantially all of their commercial lending activities,
interbank wire transfers can be made on the Fedwire system and dealings in
United States dollars are carried on in the London interbank market and (ii) for
all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago, Illinois and New York, New York for the conduct
of substantially all of their commercial lending activities and interbank wire
transfers can be made on the Fedwire system.

         "Capital Lease" means any lease which has been or would be capitalized
on the books of the lessee in accordance with GAAP.

         "CMS" means CMS Energy Corporation, a Michigan corporation.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Collateral" means all property and interests in property now owned or
hereafter acquired by the Company or any of its Subsidiaries in or upon which a
security interest, lien or mortgage is granted to the Agent, for the benefit of
the Banks, under the Inventory Security Agreement.

                                       2

<PAGE>
         "Commitments" the Initial Term Loan Commitments, the Deferred Draw Term
Loan Commitments and the Incremental Deferred Draw Commitments.

         "Commitment Fee" - see Section 2.5.

         "Commitment Schedule" means the Schedule identifying each Bank's
Initial Term Loan Commitment, Deferred Draw Term Loan Commitment and Incremental
Deferred Draw Commitment as of the date hereof attached hereto and identified as
such.

         "Company" - see the preamble.

         "Consolidated EBIT" means Consolidated Net Income plus, (i) to the
extent deducted from revenues in determining Consolidated Net Income (without
duplication), (a) Consolidated Interest Expense, (b) expense for taxes paid or
accrued, (c) any non-cash write-offs and write-downs contained in the Company's
Consolidated Net Income, including, without limitation, write-offs or
write-downs related to the sale of assets, impairment of assets and loss on
contracts, and (d) the pre-tax write-off for the fiscal period ending December
31, 2001 in an amount not to exceed $126,000,000 arising from the loss on Power
Purchase Agreement - MCV Partnership, minus, (ii) to the extent included in
Consolidated Net Income, extraordinary gains realized other than in the ordinary
course of business, all calculated for the Company and its Subsidiaries on a
consolidated basis in accordance with GAAP.

         "Consolidated Interest Expense" means with respect to any period for
which the amount thereof is to be determined, an amount equal to interest
expense on Debt, including payments in the nature of interest under Capital
Leases, all calculated for the Company and its Subsidiaries on a consolidated
basis in accordance with GAAP.

         "Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.

         "Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.

         "Conversion/Continuation Notice - see Section 2.8.

         "Credit Documents" means this Agreement, the Inventory Security
Agreement, the Supplemental Indenture, the Incremental Supplemental Indenture
and the Bonds.

         "Debt" means, with respect to any Person, and without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all Unfunded Vested Liabilities of such Person (if such Person is
not the Company, determined in a manner analogous to that of determining
Unfunded Vested Liabilities of the Company), (d) all obligations of such Person
arising under acceptance facilities, (e) all obligations of such Person as
lessee under Capital Leases, (f) all obligations of such Person arising under
any interest rate swap, "cap", "collar" or other hedging agreement; provided
that for purposes of the calculation of Debt for this clause (f) only, the
actual amount of Debt of such Person shall be determined on a net basis to the
extent such

                                       3

<PAGE>
agreements permit such amounts to be calculated on a net basis, and (g) all
guaranties, endorsements (other than for collection in the ordinary course of
business) and other contingent obligations of such Person to assure a creditor
against loss (whether by the purchase of goods or services, the provision of
funds for payment, the supply of funds to invest in any Person or otherwise) in
respect of indebtedness or obligations of any other Person of the kinds referred
to in clauses (a) through (f) above.

         "Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.

         "Deferred Draw Date" means any Business Day on or prior to November 25,
2002, which date shall be the date the Company shall pay the initial installment
of the "Term Loan" under (and as defined in) the Inventory Term Loan Agreement.

         "Deferred Draw Term Loan" - see Section 2.2.

         "Deferred Draw Term Loan Commitment" means, for each Bank, the
obligation of such Bank to make a term loan to the Company on the Deferred Draw
Date in an amount not exceeding the amount set forth on the Commitment Schedule
as its Deferred Draw Term Loan Commitment or as set forth in any Assignment
Agreement that has become effective pursuant to Section 12.1, as such amount may
be modified from time to time.

         "Designated Officer" means the Chief Financial Officer, the Treasurer,
an Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

         "ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

         "Eurodollar Rate" means, with respect to any Interest Period applicable
to a Eurodollar Rate Loan, an interest rate per annum equal to the sum of (i)
the quotient obtained by dividing (a) the Base Eurodollar Rate applicable to
such Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to such Interest Period, plus (ii) the Applicable Margin.

         "Eurodollar Rate Loan" means a Term Loan which bears interest by
reference to the Eurodollar Rate.

         "Event of Default" means an event described in Article IX.

         "Excluded Taxes" means, in the case of each Bank or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Bank or the Agent is incorporated or organized or (ii)

                                       4

<PAGE>

the jurisdiction in which the Agent's or such Bank's principal executive office
or such Bank's applicable Lending Installation is located.

         "Face Amount" means, with respect to any Bond, the face amount of such
Bond.

         "Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.

         "First Mortgage Bonds" means bonds issued by the Company pursuant to
the Indenture.

         "Fitch" means Fitch, Inc. or any successor thereto.

         "Floating Rate" means a rate per annum equal to (i) the Alternate Base
Rate plus (ii) the Applicable Margin, changing when and as the Alternate Base
Rate or the Applicable Margin changes.

         "Floating Rate Loan" means a Term Loan which bears interest at the
Floating Rate.

         "FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.

         "GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except, for purposes of the financial statements required to be
delivered pursuant to Sections 6.7(B) and (C), for changes concurred in by the
Company's independent public accountants).

         "Hybrid Preferred Securities" means any preferred securities issued by
a Hybrid Preferred Securities Subsidiary, where such preferred securities have
the following characteristics:

                  (i) such Hybrid Preferred Securities Subsidiary lends
         substantially all of the proceeds from the issuance of such preferred
         securities to the Company or a wholly-owned direct or indirect
         Subsidiary of the Company in exchange for Junior Subordinated Debt
         issued by the Company or such wholly-owned direct or indirect
         Subsidiary, respectively;

                  (ii) such preferred securities contain terms providing for the
         deferral of interest payments corresponding to provisions providing for
         the deferral of interest payments on the Junior Subordinated Debt; and



                                       5

<PAGE>
                  (iii) the Company or a wholly-owned direct or indirect
         Subsidiary of the Company (as the case may be) makes periodic interest
         payments on the Junior Subordinated Debt, which interest payments are
         in turn used by the Hybrid Preferred Securities Subsidiary to make
         corresponding payments to the holders of the preferred securities.

         "Hybrid Preferred Securities Subsidiary" means any Delaware business
trust (or similar entity) (i) all of the common equity interest of which is
owned (either directly or indirectly through one or more wholly-owned
Subsidiaries of the Company) at all times by the Company or a wholly-owned
direct or indirect Subsidiary of the Company, (ii) that has been formed for the
purpose of issuing Hybrid Preferred Securities and (iii) substantially all of
the assets of which consist at all times solely of Junior Subordinated Debt
issued by the Company or a wholly-owned direct or indirect Subsidiary of the
Company (as the case may be) and payments made from time to time on such Junior
Subordinated Debt.

         "Incremental Deferred Draw Commitment" means, for each Bank, the
obligation of such Bank to make a term loan to the Company on the Deferred Draw
Date, which commitment shall not be effective until, and shall be subject to,
the full satisfaction of the conditions set forth in Section 11.2, in an amount
not exceeding the amount set forth on the Commitment Schedule as its Incremental
Deferred Draw Commitment or as set forth in any Assignment Agreement that has
become effective pursuant to Section 12.1, as such amount may be modified from
time to time.

         "Incremental Supplemental Indenture" means a supplemental indenture
substantially in the form of Exhibit A-2.

         "Indenture" means the Indenture, dated as of September 1, 1945, as
supplemented and amended from time to time, from the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as successor Trustee.

         "Initial Borrowing Date"  means October 17, 2002.

         "Initial Term Loan Commitment" means, for each Bank, the obligation of
such Bank to make a term loan to the Company on the Initial Borrowing Date in an
amount not exceeding the amount set forth on the Commitment Schedule as its
Initial Term Loan Commitment.

         "Interest Period" means, with respect to a Eurodollar Rate Loan, a
period of one, two, three or six months, or such shorter period agreed to by the
Company and the Banks, commencing on a Business Day selected by the Company
pursuant to this Agreement. Such Interest Period shall end on the day which
corresponds numerically to such date one, two, three or six months thereafter
(or such shorter period agreed to by the Company and the Banks; provided such
shorter period shall not exceed ten periods at any time), provided, however,
that if there is no such numerically corresponding day in such next, second,
third or sixth succeeding month (or such shorter period, as applicable), such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month (or such shorter period, as applicable). If an
Interest Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next

                                       6

<PAGE>
succeeding Business Day falls in a new calendar month, such Interest Period
shall end on the immediately preceding Business Day. The Company may not select
any Interest Period that ends after the Maturity Date.

         "Interest Rate Reduction Conditions" means the delivery by the Company
to the Agent and the Banks of (i) restated audited financial statements for CMS
Energy Corporation for the 2000 and 2001 fiscal years, certified by independent
certified public accountants acceptable to the Banks, together with copies of
the certifications thereof executed by the chief executive officer and chief
financial officer of CMS Energy Corporation and delivered to the SEC, and (ii) a
certificate from the chief financial officer of the Company stating that upon
the Agent's request the Company shall promptly deliver a bring-down letter from
independent certified public accountants acceptable to the Agent with respect to
the Company's financial statements for the period since the date of the most
recently delivered and reviewed financial statements of the Company as set forth
in the Company's most recent quarterly report on Form 10-Q filed with the SEC.

         "Inventory Security Agreement" means that certain Security Agreement,
dated as of October 17, 2002, by and between the Company and the Agent, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.

         "Inventory Term Loan Agreement" means the Inventory Term Loan
Agreement, dated as of October 17, 2002, by and among the Company, the various
financial institutions from time to time parties thereto, and Bank One, NA, as
Administrative Agent, as the same may be amended, restated, supplemented or
otherwise modified from time to time.

         "Junior Subordinated Debt" means any unsecured Debt of the Company or a
Subsidiary of the Company (i) issued in exchange for the proceeds of Hybrid
Preferred Securities and (ii) subordinated to the rights of the Banks hereunder
and under the other Credit Documents pursuant to terms of subordination
substantially similar to those set forth in Exhibit E, or pursuant to other
terms and conditions satisfactory to the Majority Banks.

         "Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.

         "Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.

         "Loan" means a Floating Rate Loan or a Eurodollar Rate Loan, as
applicable.

         "Majority Banks" means, as of any date of determination, Banks whose
Pro Rata Shares, in the aggregate, are 66 2/3% or more of the sum of the
aggregate amount of all of the Deferred Draw Term Loan Commitments and
Incremental Deferred Draw Commitments, if any, plus the outstanding principal
balance of all Term Loans as of such date.

         "Material Adverse Change" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, property, financial condition, results of
operations or prospects of the Company and its Subsidiaries, considered as a
whole, (b) the Company's ability to perform its obligations under

                                       7

<PAGE>

this Agreement and the other Credit Documents, (c) the validity or
enforceability of any Credit Document or the rights or remedies of the Agent or
the Banks thereunder, or (d) the perfection or priority of the Agent's Liens
with respect to the Collateral.

         "Maturity Date" means April 15, 2003.

         "Moody's" means Moody's Investors Service, Inc. or any successor
thereto.

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.

         "Net Proceeds" means, with respect to any sale or issuance of
securities or incurrence of Debt by any Person, the excess of (i) the gross cash
proceeds received by or on behalf of such Person in respect of such sale,
issuance or incurrence (as the case may be) over (ii) customary underwriting
commissions, auditing and legal fees, printing costs, rating agency fees and
other customary and reasonable fees and expenses incurred by such Person in
connection therewith.

         "Net Worth" means, with respect to any Person, the excess of such
Person's total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistently applied,
excluding, however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included in clauses
(i) or (ii) above, that are treated as intangibles in conformity with GAAP.

         "Obligations" means all unpaid principal of and accrued and unpaid
interest on the Term Loans, all accrued and unpaid Commitment Fees and all other
obligations of the Company to the Banks or to any Bank, any Arranger or the
Agent arising under the Credit Documents.

         "Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.

         "Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.

         "Other Taxes" - see Section 4.5(B).

         "Payment Date" means the second Business Day of each calendar quarter
occurring after the Initial Borrowing Date.

         "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

                                       8

<PAGE>
         "Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.

         "Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and covered
by Title IV of ERISA.

         "Prime Rate" means a rate per annum equal to the prime rate of interest
announced from time to time by Bank One or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

         "Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.

         "Pro Rata Share" means, with respect to any Bank, at any time, the
percentage obtained by dividing (i) the sum of such Bank's Deferred Draw Term
Loan Commitment and Incremental Deferred Draw Commitment, if any, at such time
plus the outstanding principal balance of such Bank's Term Loans at such time by
(ii) the sum of the aggregate amount of all of the Deferred Draw Term Loan
Commitments and Incremental Deferred Draw Commitments, if any, plus the
outstanding principal balance of all Term Loans.

         "Regulation D" means Regulation D of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to reserve requirements applicable to member
banks of the Federal Reserve System.

         "Regulation U" means Regulation U of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to the extension of credit by banks,
non-banks and non-broker-dealers for the purpose of purchasing or carrying
margin stocks.

         "Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.

         "Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.

         "S&P" means Standard and Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.

         "SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.

         "Section" means a numbered section of this Agreement, unless another
document is specifically referenced.

         "Securitized Bonds" shall mean any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of the Company
which are payable solely from


                                       9

<PAGE>
specialized charges authorized by the utility commission of the relevant state
in connection with the recovery of regulatory assets or other stranded costs.

         "Senior Debt" means the First Mortgage Bonds.

         "Single Employer Plan" means a Plan maintained by the Company or any
ERISA Affiliate for employees of the Company or any ERISA Affiliate.

         "Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership interests
having ordinary voting power (absolutely or contingently) for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by such Person.

         "Supplemental Indenture" means a supplemental indenture substantially
in the form of Exhibit A-1.

         "Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

         "Term Loans" means the Initial Term Loans and the Deferred Draw Term
Loans.

         "Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a) (2) of ERISA, or (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan.

         "Total Consolidated Capitalization" means, at any date of
determination, the sum of (a) Total Consolidated Debt, (b) equity of the common
stockholders of the Company, (c) equity of the preference stockholders of the
Company and (d) equity of the preferred stockholders of the Company, in each
case determined at such date.

         "Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided, that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Credit
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid
Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which


                                       10

<PAGE>
determination shall be based on, among other things, the treatment (if any)
given to such securities by the applicable rating agencies).

         "Type" means, with respect to any Loan, the character of such Loan as a
Eurodollar Rate Loan or a Floating Rate Loan.

         "Unfunded Vested Liabilities" means, (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, and (ii) in the case of Multiemployer
Plans, the withdrawal liability of the Company and its ERISA Affiliates.

                  1.2 Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.

                  1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. If any changes in
generally accepted accounting principles are hereafter required or permitted and
are adopted by the Company or any of its Subsidiaries, or the Company or any of
its Subsidiaries shall change its application of generally accepted accounting
principles with respect to any Off-Balance Sheet Liabilities, in each case with
the agreement of its independent certified public accountants, and such changes
result in a change in the method of calculation of any of the financial
covenants, tests, restrictions or standards herein or in the related definitions
or terms used therein ("Accounting Changes"), the parties hereto agree, at the
Company's request, to enter into negotiations, in good faith, in order to amend
such provisions in a credit neutral manner so as to reflect equitably such
changes with the desired result that the criteria for evaluating the Company's
and its Subsidiaries' financial condition shall be the same after such changes
as if such changes had not been made; provided, however, until such provisions
are amended in a manner reasonably satisfactory to the Agent, the Arrangers and
the Majority Banks, no Accounting Change shall be given effect in such
calculations. In the event such amendment is entered into, all references in
this Agreement to GAAP shall mean generally accepted accounting principles as of
the date of such amendment.

                           ARTICLE II: THE TERM LOANS

                  2.1 Initial Term Loans. Each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to make a term loan to the
Company on the Initial Borrowing Date in an amount equal to such Bank's Initial
Term Loan Commitment (each individually, an "Initial Term Loan" and,
collectively, the "Initial Term Loans"). The Company shall give the Agent
irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m.
(Chicago time) on the Initial Borrowing Date, specifying (i) the Borrowing Date,
which shall be the Initial Borrowing Date, and (ii) the aggregate amount of the
Initial Term Loans. The Initial Term Loans shall initially be Floating Rate
Loans and thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Rate Loans in the manner provided in Section 2.8.

                  2.2 Deferred Draw Term Loans. Each Bank severally agrees, on
the terms and conditions set forth in this Agreement, to make a term loan to the
Company on the Deferred Draw Date in an amount equal to such Bank's Deferred
Draw Term Loan Commitment plus its

                                       11

<PAGE>
then effective Incremental Deferred Draw Commitment, if any (each individually,
a "Deferred Draw Term Loan" and, collectively, the "Deferred Draw Term Loans").
The Company shall give the Agent an irrevocable Borrowing Notice not later than
10:00 a.m. (Chicago time) on the third Business Day prior to the proposed
Borrowing Date, specifying (i) the Borrowing Date, which shall be a Business
Day, (ii) the aggregate amount of the Deferred Draw Term Loans, (iii) whether
the Deferred Draw Term Loans initially will be Floating Rate Loans or Eurodollar
Rate Loans and (iv) in the case of Eurodollar Rate Loans, the initial Interest
Period applicable thereto. If the Deferred Draw Term Loans are not borrowed by
the Company on the Deferred Draw Date, the Deferred Draw Term Loan Commitments
and the Incremental Deferred Draw Commitments, if any, shall terminate on
November 25, 2002 unless earlier terminated by the Company pursuant to Section
2.5(B). The Deferred Draw Term Loans, if requested, shall be drawn in a single
borrowing, and the excess, if any, of the aggregate Deferred Draw Term Loan
Commitments and the Incremental Deferred Draw Commitments on the Borrowing Date
over the aggregate amount of the Deferred Draw Term Loans requested by the
Company on such Borrowing Date shall terminate on such Borrowing Date.

                  2.3 Making of Term Loans. Promptly after receipt thereof, the
Agent will notify each Bank of the contents of each Borrowing Notice. Not later
than 12:00 noon (Chicago time) on each Borrowing Date, each Bank shall make
available its applicable Term Loan in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIV. To the extent funds
are received from the Banks, the Agent will make such funds available to the
Company at the Agent's aforesaid address. No Bank's obligation to make any Term
Loan shall be affected by any other Bank's failure to make any Term Loan.

                  2.4 Repayment of Term Loans. The Term Loans shall be repaid in
four (4) installments, payable on the dates set forth below, commencing on
January 31, 2003 and continuing thereafter until the Maturity Date, and the Term
Loans shall be permanently reduced by the amount of each installment on the date
payment thereof is made hereunder. The installments shall be in the aggregate
amounts set forth below:

<Table>
<Caption>
Installment Date                              Term Loan Installment Amount
- ----------------                              ----------------------------
<S>                                 <C>
January 31, 2003                    $ 29,000,000
February 28, 2003                   $ 45,000,000
March 31, 2003                      $ 36,000,000
April 15, 2003                      $ 45,000,000 (or, if less, the then
                                    outstanding principal balance of the Term Loans)
</Table>

Notwithstanding the foregoing, the final installment shall be in the amount of
the then outstanding principal balance of the Term Loans. No installment of any
Term Loan may be reborrowed once repaid.

                  2.5 Commitment Fee and Reductions of Commitment.

                  (A) The Company agrees to pay to the Agent for the account of
         each Bank according to its Pro Rata Share a commitment fee (the
         "Commitment Fee") at the rate of 0.50% per annum on the aggregate
         Deferred Draw Term Loan Commitments from the

                                       12

<PAGE>
         Initial Borrowing Date to but not including the earlier of (i) the
         Borrowing Date of the Deferred Draw Term Loans and (ii) the date on
         which the Deferred Draw Term Loan Commitments are terminated in full
         (the earlier of such dates being the "Termination Date"). The
         Commitment Fee shall be payable quarterly in arrears on each Payment
         Date (for the quarter then most recently ended) and on the Termination
         Date (for the period then ended for which such fee has not previously
         been paid). The Commitment Fee shall be calculated for actual days
         elapsed on the basis of a 360 day year.

                  (B) The Company may permanently reduce the aggregate Deferred
         Draw Term Loan Commitments and the Incremental Deferred Draw
         Commitments in whole, or in part ratably among the Banks in the minimum
         amount of $5,000,000 (and in multiples of $1,000,000 if in excess
         thereof), upon at least five Business Days' written notice to the
         Agent, which shall specify the amount of any such reduction. All
         accrued Commitment Fees shall be payable on the effective date of any
         termination of the obligation of the Banks to make Deferred Draw Term
         Loans hereunder. Upon any permanent reduction in the aggregate Deferred
         Draw Term Loan Commitments pursuant to the terms of this Section
         2.5(B), the Agent shall, upon request of the Company, promptly
         surrender to or upon the order of the Company one or more Bonds
         specified by the Company; provided that the Company remains in
         compliance with Section 6.10.

                  2.6 Optional Principal Payments. From and after the date that
all of the obligations under the Inventory Term Loan Agreement shall have been
paid in full and the Inventory Term Loan Agreement shall have been terminated,
the Company may, upon at least one (1) Business Days' prior written notice to
the Agent (which the Agent shall promptly transmit to each Bank), without
penalty or premium, prepay the Term Loans which are Floating Rate Loans, in
whole or in part. Term Loans which are Eurodollar Rate Loans may be prepaid in
whole or in part upon at least three (3) Business Days' prior written notice to
the Agent (which the Agent shall promptly transmit to each Bank), (A) on the
expiration date of the then applicable Interest Period therefor, and (B) subject
to the payment of the amounts required by Section 4.4, but otherwise without
penalty or premium, on any other date. Any notice of prepayment given to the
Agent under this Section 2.6 shall specify the date (which shall be a Business
Day) of prepayment, the aggregate principal amount of the prepayment and any
allocation of such amount among the then remaining installments of the Term
Loans and among the Floating Rate Loans and Eurodollar Rate Loans. When notice
of prepayment is delivered as provided herein, the principal amount of the Term
Loans specified in the notice shall become due and payable on the prepayment
date specified in such notice. Unless the aggregate outstanding principal
balance of the Term Loans is to be prepaid in full, voluntary prepayments of the
Term Loans shall be in an aggregate minimum amount of $10,000,000 and integral
multiples of $1,000,000 in excess of that amount. Each voluntary prepayment of
the Term Loans shall be allocated first to Term Loans which are Floating Rate
Loans until paid in full and then to Term Loans which are Eurodollar Rate Loans.
Amounts prepaid hereunder may not be reborrowed. Upon any prepayment of the Term
Loans pursuant to the terms of this Section 2.6, the Agent shall, upon request
of the Company, promptly surrender to or upon the order of the Company one or
more Bonds specified by the Company; provided that the Company remains in
compliance with Section 6.10.



                                       13

<PAGE>

                  2.7 Mandatory Prepayments. Within three Business Days after
the Company's or any of its Subsidiaries' receipt of any Net Proceeds with
respect to any sale or issuance of debt securities by the Company or any of its
Subsidiaries in the capital markets (other than Net Proceeds up to $100,000,000
in the aggregate in respect of debt securities with a maturity date one year or
more from the date of issuance thereof provided that such securities shall not
contain representations, warranties, covenants, events of default and remedies
more restrictive than the terms and conditions set forth in this Agreement), the
Company shall make a mandatory prepayment of the Term Loans and the "Term Loans"
under (and as defined in) the Inventory Term Loan Agreement, ratably, in an
amount equal to 100% of such Net Proceeds. Amounts prepaid hereunder shall be
applied to outstanding accrued interest and then ratably to each of the then
remaining installments payable under the Term Loans and may not be reborrowed.
Upon any prepayment of the Term Loans pursuant to the terms of this Section 2.7,
the Agent shall, upon request of the Company, promptly surrender to or upon the
order of the Company one or more Bonds specified by the Company; provided that
the Company remains in compliance with Section 6.10.

                  2.8 Conversion and Continuation of Outstanding Term Loans.
Floating Rate Loans shall continue as Floating Rate Loans unless and until such
Floating Rate Loans are converted into Eurodollar Rate Loans pursuant to this
Section 2.8 or are repaid in accordance with Sections 2.4 or 2.6. Each
Eurodollar Rate Loan shall continue as a Eurodollar Rate Loan until the end of
the then applicable Interest Period therefor, at which time such Eurodollar Rate
Loan shall be automatically converted into a Floating Rate Loan unless (x) such
Eurodollar Rate Loan is or was repaid in accordance with Sections 2.4 or 2.6 or
(y) the Company shall have given the Agent a Conversion/Continuation Notice (as
defined below) requesting that, at the end of such Interest Period, such
Eurodollar Rate Loan continue as a Eurodollar Rate Loan for the same or another
Interest Period. The Company may elect from time to time to convert all or any
part (in the minimum amount of $10,000,000 and in integral multiples of
$1,000,000 in excess thereof) of a Floating Rate Loan into a Eurodollar Rate
Loan. There shall be no more than ten (10) Interest Periods in effect at any
time. The Company shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Loan
into a Eurodollar Rate Loan or continuation of a Eurodollar Rate Loan not later
than 11:00 a.m. (Chicago time) at least three Business Days prior to the date of
the requested conversion or continuation, specifying:

      (i)         the requested date, which shall be a Business Day, of such
                  conversion or continuation;

      (ii)        the aggregate amount and Type of the Loan which is to be
                  converted or continued; and

      (iii)       the amount of the Loan which is to be converted into or
                  continued as a Eurodollar Rate Loan and the duration of the
                  Interest Period applicable thereto.

                  2.9 Interest Rates, Interest Payment Dates. (A) Subject to
Section 2.10, each Loan shall bear interest as follows:



                                       14

<PAGE>
                  (i) at any time such Loan is a Floating Rate Loan, at a rate
         per annum equal to the Floating Rate from time to time in effect; and

                  (ii) at any time such Loan is a Eurodollar Rate Loan, at a
         rate per annum equal to the Eurodollar Rate for each applicable
         Interest Period therein.

Changes in the rate of interest on that portion of any Term Loan maintained as a
Floating Rate Loan will take effect simultaneously with each change in the
Floating Rate.

                  (B) Interest accrued on each Floating Rate Loan shall be
         payable on each Payment Date and at maturity. Interest accrued on each
         Eurodollar Rate Loan shall be payable on the last day of its applicable
         Interest Period, on any date on which such Eurodollar Rate Loan is
         prepaid and at maturity. Interest accrued on each Eurodollar Rate Loan
         having an Interest Period longer than three months shall also be
         payable on the last day of each three-month interval during such
         Interest Period. All fees hereunder and all interest on all Term Loans
         shall be calculated for actual days elapsed on the basis of a 360-day
         year. Interest on each Term Loan shall accrue from and including the
         date such Term Loan is made to but excluding the date payment thereof
         is received in accordance with Section 2.11. If any payment of
         principal of or interest on an Term Loan shall become due on a day
         which is not a Business Day, such payment shall be made on the next
         succeeding Business Day and, in the case of a principal payment, such
         extension of time shall be included in computing interest in connection
         with such payment.

                  2.10 Rate after Maturity. Any Term Loan not paid by the
Company at maturity, whether by acceleration or otherwise, shall bear interest
until paid in full at a rate per annum equal to the higher of the rate otherwise
applicable thereto plus 1% or the Floating Rate plus 1%.

                  2.11 Method of Payment. All payments of principal, interest
and fees hereunder shall be made in immediately available funds to the Agent at
its address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the Agent to the
Company) not later than noon (Chicago time) on the date when due and shall be
applied ratably by the Agent among the Banks. Funds received after such time
shall be deemed received on the following Business Day unless the Agent shall
have received from, or on behalf of, the Company a Federal Reserve reference
number with respect to such payment before 3:00 p.m. (Chicago time) on the date
of such payment. Each payment delivered to the Agent for the account of any Bank
shall be delivered promptly by the Agent in the same type of funds received by
the Agent to such Bank at the address specified for such Bank on its signature
page to this Agreement or at any Lending Installation specified in a notice
received by the Agent from such Bank. The Agent is hereby authorized to charge
the account of the Company maintained with Bank One, if any, for each payment of
principal, interest, and fees as such payment becomes due hereunder.

                  2.12 Bonds; Record-keeping; Telephonic Notices.

                  (A) The obligation of the Company to repay the Obligations
shall be evidenced by one or more Bonds.

                                       15

<PAGE>
                  (B) Each Bank shall maintain in accordance with its usual
         practice an account or accounts evidencing the indebtedness of the
         Company to such Bank resulting from each Term Loan made by such Bank
         from time to time, including the amounts of principal and interest
         payable and paid to such Bank from time to time hereunder.

                  (C) The Agent shall also maintain accounts in which it will
         record (i) the amount of each Term Loan made hereunder, the Type
         thereof and the Interest Period with respect thereto, (ii) the amount
         of any principal or interest due and payable or to become due and
         payable from the Company to each Bank hereunder, and (iii) the amount
         of any sum received by the Agent hereunder from the Company and each
         Bank's share thereof.

                  (D) The entries maintained in the accounts maintained pursuant
         to paragraphs (B) and (C) above shall be prima facie evidence of the
         existence and amounts of the Obligations therein recorded; provided,
         however, that the failure of the Agent or any Bank to maintain such
         accounts or any error therein shall not in any manner affect the
         obligation of the Company to repay the Obligations in accordance with
         their terms.

                  (E) The Company hereby authorizes the Banks and the Agent to
         make, convert or continue Term Loans based on telephonic notices made
         by any person or persons the Agent or any Bank in good faith believes
         to be acting on behalf of the Company. The Company agrees to deliver
         promptly to the Agent a written confirmation of each telephonic notice
         signed by a Designated Officer. If the written confirmation differs in
         any material respect from the action taken by the Agent and the Banks,
         the records of the Agent and the Banks shall govern absent manifest
         error.

                  2.13 Lending Installations. Subject to the provisions of
Section 4.6, each Bank may book its Term Loans at any Lending Installation
selected by such Bank, and may change its Lending Installation from time to
time. All terms of this Agreement shall apply to any such Lending Installation
and the Term Loans shall be deemed held by the applicable Bank for the benefit
of such Lending Installation. Each Bank may, by written or facsimile notice to
the Company, designate a Lending Installation through which Term Loans will be
made by it and for whose account payments on the Term Loans are to be made.

                  2.14 Non-Receipt of Funds by the Agent. Unless a Bank or the
Company, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Bank, the
proceeds of a Term Loan or (ii) in the case of the Company, a payment of
principal, interest or fees to the Agent for the account of the Banks, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Bank or the Company, as the case may be, has not in fact made such payment
to the Agent, the recipient of such payment shall, on demand by the Agent, repay
to the Agent the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to (i) in the case of payment by a Bank, the Federal Funds
Rate for such day or (ii) in the case of payment by the Company, the interest
rate applicable to the relevant Term Loan.


                                       16

<PAGE>
                             ARTICLE III: [RESERVED]

                       ARTICLE IV: CHANGE IN CIRCUMSTANCES

                  4.1 Yield Protection. (A) If any change in law or any
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law), or any interpretation thereof by any agency or
authority having jurisdiction over any Bank,

                  (i) subjects any Bank or any applicable Lending Installation
         to any increased tax, duty, charge or withholding on or from payments
         due from the Company (excluding taxation measured by or attributable to
         the overall net income of such Bank or applicable Lending Installation,
         whether overall or in any geographic area), or changes the rate of
         taxation of payments to any Bank in respect of its Term Loans or other
         amounts due it hereunder, or

                  (ii) imposes or increases or deems applicable any reserve,
         assessment, insurance charge, special deposit or similar requirement
         against assets of, deposits with or for the account of, or credit
         extended by any Bank or any applicable Lending Installation (including,
         without limitation, any reserve costs under Regulation D with respect
         to Eurocurrency liabilities (as defined in Regulation D)), or

                  (iii) imposes any other condition the result of which is to
         increase the cost to any Bank or any applicable Lending Installation of
         making, funding or maintaining Term Loans, or reduces any amount
         receivable by any Bank or any applicable Lending Installation in
         connection with Term Loans or requires any Bank or any applicable
         Lending Installation to make any payment calculated by reference to its
         outstanding Term Loans or interest received by it, by an amount deemed
         material by such Bank, or

                  (iv) affects the amount of capital required or expected to be
         maintained by any Bank or Lending Installation or any corporation
         controlling any Bank and such Bank determines the amount of capital
         required is increased by or based upon the existence of this Agreement
         or its obligation to make Term Loans hereunder or of commitments of
         this type,

then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1) setting
forth the basis for such determination and the additional amounts reasonably
determined by such Bank for the period of up to 90 days prior to the date on
which such certificate is delivered to the Company and the Agent, to be
sufficient to compensate such Bank in light of such circumstances, the Company
shall within 30 days of such delivery of such certificate pay to the Agent for
the account of such Bank the specified amounts set forth on such certificate.
The affected Bank shall deliver to the Company and the Agent a certificate
setting forth the basis of the claim and specifying in reasonable detail the
calculation of such increased expense, which certificate shall be prima facie
evidence as to such increase and such amounts. An affected Bank may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
may make such reasonable estimates, assumptions, allocations and the like that
such Bank in good faith determines to be

                                       17

<PAGE>
appropriate, and such Bank's selection thereof in accordance with this Section
4.1 shall be conclusive and binding on the Company, absent manifest error.

                  (B) No Bank shall be entitled to demand compensation or be
         compensated hereunder to the extent that such compensation relates to
         any period of time more than 90 days prior to the date upon which such
         Bank first notified the Company of the occurrence of the event
         entitling such Bank to such compensation (unless, and to the extent,
         that any such compensation so demanded shall relate to the retroactive
         application of any event so notified to the Company).

                  4.2 Replacement Bank. If any Bank shall make a demand for
payment under Section 4.1, then within 30 days after such demand, the Company
may, with the approval of the Agent (which approval shall not be unreasonably
withheld) and provided that no Default or Event of Default shall then have
occurred and be continuing, demand that such Bank assign to one or more
financial institutions designated by the Company and approved by the Agent all
(but not less than all) of such Bank's Deferred Draw Term Loan Commitment and
Incremental Deferred Draw Commitment, if any, and outstanding Term Loans within
the period ending on the later of such 30th day and the last day of the longest
of the then current Interest Periods or maturity dates for such outstanding Term
Loans. It is understood that such assignment shall be consummated on terms
satisfactory to the Company, the Agent and the assigning Bank, provided that
such assigning Bank's consent to such an assignment shall not be unreasonably
withheld.

                  4.3 Availability of Eurodollar Rate Loans.  If

                  (A) any Bank determines that maintenance of a Eurodollar Rate
         Loan at a suitable Lending Installation would violate any applicable
         law, rule, regulation or directive, whether or not having the force of
         law, or

                  (B) the Majority Banks determine that (i) deposits of a type
         and maturity appropriate to match fund Eurodollar Rate Loans are not
         available or (ii) the Base Eurodollar Rate does not accurately reflect
         the cost of making or maintaining a Eurodollar Rate Loan,

then the Agent shall suspend the availability of Eurodollar Rate Loans and, in
the case of clause (A), require any Eurodollar Rate Loans to be converted to
Floating Rate Loans on such date as is required by the applicable law, rule,
regulation or directive.

                  4.4 Funding Indemnification. If any payment of a Eurodollar
Rate Loan occurs on a date which is not the last day of an applicable Interest
Period, whether because of prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Company for any reason other than default
by the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Loan; provided that the Company shall not be
liable for any of the foregoing to the extent they arise because of acceleration
by any Bank.

                  4.5 Taxes.


                                       18

<PAGE>
                  (A) All payments by the Company to or for the account of any
         Bank or the Agent hereunder or under any Bond shall be made free and
         clear of and without deduction for any and all Taxes. If the Company
         shall be required by law to deduct any Taxes from or in respect of any
         sum payable hereunder to any Bank or the Agent, (i) the sum payable
         shall be increased as necessary so that after making all required
         deductions (including deductions applicable to additional sums payable
         under this Section 4.5) such Bank or the Agent (as the case may be)
         receives an amount equal to the sum it would have received had no such
         deductions been made, (ii) the Company shall make such deductions,
         (iii) the Company shall pay the full amount deducted to the relevant
         authority in accordance with applicable law and (iv) the Company shall
         furnish to the Agent the original copy of a receipt evidencing payment
         thereof within 30 days after such payment is made.

                  (B) In addition, the Company hereby agrees to pay any present
         or future stamp or documentary taxes and any other excise or property
         taxes, charges or similar levies which arise from any payment made
         hereunder or under any Bond or from the execution or delivery of, or
         otherwise with respect to, this Agreement or any Bond ("Other Taxes").

                  (C) The Company hereby agrees to indemnify the Agent and each
         Bank for the full amount of Taxes or Other Taxes (including, without
         limitation, any Taxes or Other Taxes imposed on amounts payable under
         this Section 3.5) paid by the Agent or such Bank and any liability
         (including penalties, interest and expenses) arising therefrom or with
         respect thereto. Payments due under this indemnification shall be made
         within 30 days of the date the Agent or such Bank makes demand therefor
         pursuant to Section 4.6.

                  (D) Each Bank that is not incorporated under the laws of the
         United States of America or a state thereof (each a "Non-U.S. Bank ")
         agrees that it will, not more than ten Business Days after the date
         hereof, or, if later, not more than ten Business Days after becoming a
         Bank hereunder, (i) deliver to each of the Company and the Agent two
         (2) duly completed copies of United States Internal Revenue Service
         Form W8BEN or W8ECI, certifying in either case that such Bank is
         entitled to receive payments under this Agreement without deduction or
         withholding of any United States federal income taxes, and (ii) deliver
         to each of the Company and the Agent a United States Internal Revenue
         Form W-8 or W-9, as the case may be, and certify that it is entitled to
         an exemption from United States backup withholding tax. Each Non-U.S.
         Bank further undertakes to deliver to each of the Company and the Agent
         (x) renewals or additional copies of such form (or any successor form)
         on or before the date that such form expires or becomes obsolete, and
         (y) after the occurrence of any event requiring a change in the most
         recent forms so delivered by it, such additional forms or amendments
         thereto as may be reasonably requested by the Company or the Agent. All
         forms or amendments described in the preceding sentence shall certify
         that such Bank is entitled to receive payments under this Agreement
         without deduction or withholding of any United States federal income
         taxes, unless an event (including without limitation any change in
         treaty, law or regulation) has occurred prior to the date on which any
         such delivery would otherwise be required which renders all such forms
         inapplicable or which would prevent such Bank from duly completing and
         delivering any such form or amendment with respect to it and such Bank


                                       19

<PAGE>
         advises the Company and the Agent that it is not capable of receiving
         payments without any deduction or withholding of United States federal
         income tax.

                  (E) For any period during which a Non-U.S. Bank has failed to
         provide the Company with an appropriate form pursuant to clause (D),
         above (unless such failure is due to a change in treaty, law or
         regulation, or any change in the interpretation or administration
         thereof by any governmental authority, occurring subsequent to the date
         on which a form originally was required to be provided), such Non-U.S.
         Bank shall not be entitled to indemnification under this Section 4.5
         with respect to Taxes imposed by the United States; provided that,
         should a Non-U.S. Bank which is otherwise exempt from or subject to a
         reduced rate of withholding tax become subject to Taxes because of its
         failure to deliver a form required under clause (D) above, the Company
         shall take such steps as such Non-U.S. Bank shall reasonably request to
         assist such Non-U.S. Bank to recover such Taxes.

                  (F) Any Bank that is entitled to an exemption from or
         reduction of withholding tax with respect to payments under this
         Agreement or any Bond pursuant to the law of any relevant jurisdiction
         or any treaty shall deliver to the Company (with a copy to the Agent),
         at the time or times prescribed by applicable law, such properly
         completed and executed documentation prescribed by applicable law as
         will permit such payments to be made without withholding or at a
         reduced rate.

                  (G) If the U.S. Internal Revenue Service or any other
         governmental authority of the United States or any other country or any
         political subdivision thereof asserts a claim that the Agent did not
         properly withhold tax from amounts paid to or for the account of any
         Bank (because the appropriate form was not delivered or properly
         completed, because such Bank failed to notify the Agent of a change in
         circumstances which rendered its exemption from withholding
         ineffective, or for any other reason), such Bank shall indemnify the
         Agent fully for all amounts paid, directly or indirectly, by the Agent
         as tax, withholding therefor, or otherwise, including penalties and
         interest, and including taxes imposed by any jurisdiction on amounts
         payable to the Agent under this subsection, together with all costs and
         expenses related thereto (including attorneys fees and time charges of
         attorneys for the Agent, which attorneys may be employees of the
         Agent). The obligations of the Banks under this Section 4.5(G) shall
         survive the payment of the Obligations and termination of this
         Agreement.

                  4.6 Bank Certificates, Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending Installation
with respect to Eurodollar Rate Loans to reduce any liability of the Company to
such Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate
Loan under Section 4.3, so long as such designation is not disadvantageous to
such Bank. A certificate of such Bank as to the amount due under Section 4.1,
4.4 or 4.5 shall be final, conclusive and binding on the Company in the absence
of manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Eurodollar Rate Loan whether in fact
that is the case or not. Unless otherwise provided herein, the amount specified
in

                                       20

<PAGE>
any certificate shall be payable on demand after receipt by the Company of such
certificate. The obligations of the Company under Sections 4.1, 4.4 and 4.5
shall survive payment of the Obligations and termination of this Agreement,
provided, that no Bank shall be entitled to compensation to the extent that such
compensation relates to any period of time more than 90 days after the
termination of this Agreement.

                    ARTICLE V: REPRESENTATIONS AND WARRANTIES

         The Company hereby represents and warrants that:

                  5.1 Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan.

                  5.2 Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by the Company of the Credit Documents are
within the Company's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) violate the Company's charter, bylaws
or any applicable law, or (ii) breach or result in an event of default under any
indenture or material agreement, and do not result in or require the creation of
any Lien upon or with respect to any of its properties (except the lien in favor
of the Agent pursuant to the Inventory Security Agreement and the lien of the
Indenture securing the Bonds).

                  5.3 Governmental Approvals. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any Credit Document, except for the authorization to issue, sell
or guarantee secured and/or unsecured short-term debt granted by the Federal
Energy Regulatory Commission, which authorization has been obtained and is in
full force and effect.

                  5.4 Legally Enforceable Agreements. Each Credit Document
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).

                  5.5 Financial Statements. The audited balance sheet of the
Company and its Consolidated Subsidiaries as at December 31, 2001, and the
related statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K (copies of which have been furnished to each Bank),
and the unaudited balance sheet of the Company and its Consolidated Subsidiaries
as at June 30, 2002 (copies of which have been furnished to each Bank), fairly
present the financial condition of the Company and its Consolidated Subsidiaries
as at such dates and the results of operations of the Company and its
Consolidated Subsidiaries for the periods ended on such dates, all in accordance
with GAAP (except to the extent that the Company may restate its financial
statements for the years ended December 30, 2000 and December 31, 2001, in
connection with its new auditor's review of such statements in support of the
re-audit of CMS Energy Corporation's financial statements), and since December
31, 2001, there has been

                                       21

<PAGE>
no Material Adverse Change (except to the extent described in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 as filed with
the SEC, copies of which have been furnished to each Bank).

                  5.6 Litigation. Except (i) to the extent described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001,
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and Current
Reports on Form 8-K filed by the Company on July 30, 2002 and September 8, 2002,
in each case as filed with the SEC, copies of which have been furnished to each
Bank, and (ii) such other similar actions, suits and proceedings predicated on
the occurrence of the same events giving rise to any actions, suits and
proceedings described in the Reports filed with the SEC set forth in clause (i)
hereof, there is no pending or threatened action or proceeding against the
Company or any of its Consolidated Subsidiaries before any court, governmental
agency or arbitrator, which, if adversely determined, might reasonably be
expected to materially adversely affect the financial condition, results of
operations, business, Property or prospects of the Company and its Consolidated
Subsidiaries, taken as a whole, or that would materially adversely affect the
Company's ability to perform its obligations under any Credit Document. As of
the Initial Borrowing Date, there is no litigation challenging the validity or
the enforceability of any of the Credit Documents.

                  5.7 Margin Stock. The Company is not engaged in the business
of extending credit for the purpose of buying or carrying margin stock (within
the meaning of Regulation U), and no proceeds of any Term Loan will be used to
buy or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.

                  5.8 ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any of its
ERISA Affiliates is an employer under a Multiemployer Plan.

                  5.9 Insurance. All insurance required by Section 6.2 is in
full force and effect.

                  5.10 Taxes. The Company and its Subsidiaries have filed all
tax returns (Federal, state and local) required to be filed and paid all taxes
shown thereon to be due, including interest and penalties, or, to the extent the
Company or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.

                  5.11 Investment Company Act. The Company is not an investment
company (within the meaning of the Investment Company Act of 1940, as amended).

                  5.12 Public Utility Holding Company Act. The Company is exempt
from the registration requirements of the Public Utility Holding Company Act of
1935, as amended, 15 USC 79, et seq.

                  5.13 Bonds. The issuance to the Agent of Bonds as evidence of
the Obligations (i) will not violate any provision of the Indenture or any
other agreement or instrument, or any law or regulation, or judicial or
regulatory order, judgment or decree, to which the Company or any of its
Subsidiaries is a party or by which any of the foregoing is bound and (ii) will
provide


                                       22

<PAGE>
the Banks, as beneficial holders of the Bonds through the Agent, the benefit of
the Lien of the Indenture equally and ratably with the holders of other First
Mortgage Bonds.

                        ARTICLE VI: AFFIRMATIVE COVENANTS

         So long as any Obligations shall remain unpaid or any Bank shall have
any Commitment under this Agreement, the Company shall:

                  6.1 Payment of Taxes, Etc. Pay and discharge before the same
shall become delinquent, (a) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property, provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole.

                  6.2 Maintenance of Insurance. Maintain insurance in such
amounts and covering such risks with respect to its business and properties as
is usually carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.

                  6.3 Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties, provided that the Company shall not be required to
preserve any such right or franchise or to remain so qualified unless the
failure to do so would have a material adverse effect on the financial condition
or results of operations of the Company and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Company to enter into, or to perform its
obligations under, any Credit Document.

                  6.4 Compliance with Laws, Etc. Comply with the requirements of
all applicable laws, rules, regulations and orders of any governmental
authority, the non-compliance with which would materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations under any Credit Document.

                  6.5 Visitation Rights. Subject to any necessary approval from
the Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers.

                  6.6 Keeping of Books. Keep, and cause each Consolidated
Subsidiary to keep, adequate records and books of account, in which full and
correct entries shall be made of all of its financial transactions and its
assets and business so as to permit the Company and its Consolidated
Subsidiaries to present financial statements in accordance with GAAP.


                                       23

<PAGE>
                  6.7 Reporting Requirements. Furnish to the Agent, with
sufficient copies for each of the Banks:

                  (A) as soon as practicable and in any event within five
         Business Days after becoming aware of the occurrence of any Default or
         Event of Default, a statement of a Designated Officer as to the nature
         thereof, and as soon as practicable and in any event within five
         Business Days thereafter, a statement of a Designated Officer as to the
         action which the Company has taken, is taking or proposes to take with
         respect thereto;

                  (B) as soon as available and in any event within 60 days after
         the end of each of the first three quarters of each fiscal year of the
         Company, a consolidated balance sheet of the Company and its
         Consolidated Subsidiaries as at the end of such quarter, and the
         related consolidated statements of income, cash flows and common
         stockholder's equity of the Company and its Consolidated Subsidiaries
         as at the end of and for the period commencing at the end of the
         previous fiscal year and ending with the end of such quarter, setting
         forth in each case in comparative form the corresponding figures for
         the corresponding date or period of the preceding fiscal year, or
         statements providing substantially similar information (which
         requirement shall be deemed satisfied by the delivery of the Company's
         quarterly report on Form 10-Q for such quarter), all in reasonable
         detail and duly certified (subject to the absence of footnotes and to
         year-end audit adjustments) by a Designated Officer as having been
         prepared in accordance with GAAP, together with (i) a certificate of a
         Designated Officer (which certificate shall also accompany the
         financial statements delivered pursuant to clause (C) below) stating
         that such officer has no knowledge (having made due inquiry with
         respect thereto) that a Default or Event of Default has occurred and is
         continuing, or, if a Default or Event of Default has occurred and is
         continuing, a statement as to the nature thereof and the actions which
         the Company has taken, is taking or proposes to take with respect
         thereto, and (ii) a certificate of a Designated Officer, in
         substantially the form of Exhibit C hereto, setting forth the Company's
         computation of the financial ratios specified in Sections 8.1 and 8.2
         as of the end of the immediately preceding fiscal quarter or year, as
         the case may be, of the Company;

                  (C) as soon as available and in any event within 120 days
         after the end of each fiscal year of the Company, a copy of the Annual
         Report on Form 10-K (or any successor form) for the Company for such
         year, including therein the consolidated balance sheet of the Company
         and its Consolidated Subsidiaries as at the end of such year and the
         consolidated statements of income, cash flows and common stockholder's
         equity of the Company and its Consolidated Subsidiaries as at the end
         of and for such year, or statements providing substantially similar
         information, in each case certified by independent public accountants
         of recognized national standing selected by the Company (and not
         objected to by the Majority Banks), together with a certificate of such
         accounting firm addressed to the Banks stating that, in the course of
         its examination of the consolidated financial statements of the Company
         and its Consolidated Subsidiaries, which examination was conducted by
         such accounting firm in accordance with GAAP, (1) such accounting firm
         has obtained no knowledge that an Event of Default, insofar as such
         Event of Default related to accounting or financial matters, has
         occurred and is continuing, or if, in the opinion of such accounting
         firm, such an Event of Default has

                                       24

<PAGE>
         occurred and is continuing, a statement as to the nature thereof, and
         (2) such accounting firm has examined a certificate prepared by the
         Company setting forth the computations made by the Company in
         determining, as of the end of such fiscal year, the ratios specified in
         Sections 8.1 and 8.2, which certificate shall be attached to the
         certificate of such accounting firm, and such accounting firm confirms
         that such computations accurately reflect such ratios;

                  (D) promptly after the sending or filing thereof, copies of
         all proxy statements which the Company sends to its stockholders,
         copies of all regular, periodic and special reports (other than those
         which relate solely to employee benefit plans) which the Company files
         with the SEC and notice of the sending or filing of (and, upon the
         request of the Agent or any Bank, a copy of) any final prospectus filed
         with the SEC;

                  (E) as soon as possible and in any event (i) within 30 days
         after the Company or any of its ERISA Affiliates knows or has reason to
         know that any Termination Event described in clause (a) of the
         definition of Termination Event with respect to any Plan has occurred
         and (ii) within ten days after the Company or any of its ERISA
         Affiliates knows or has reason to know that any other Termination Event
         with respect to any Plan has occurred, a statement of the Chief
         Financial Officer of the Company describing such Termination Event and
         the action, if any, which the Company or such ERISA Affiliate, as the
         case may be, proposes to take with respect thereto;

                  (F) promptly upon becoming aware thereof, notice of any
         upgrading or downgrading of the rating of the Senior Debt by Fitch,
         Moody's or S&P;

                  (G) as soon as possible and in any event within five (5) days
         after the occurrence of any material default under any material
         agreement to which the Company or any of its Subsidiaries is a party,
         which default would materially adversely affect the financial
         condition, business, results of operations, Property or prospects of
         the Company and its Subsidiaries, considered as a whole, any of which
         is continuing on the date of such certificate, a certificate of the
         president or chief financial officer of the Company setting forth the
         details of such material default and the action which the Company or
         any such Subsidiary proposes to take with respect thereto; and

                  (H) such other information respecting the Collateral or the
         business, properties or financial condition of the Company as the Agent
         or any Bank through the Agent may from time to time reasonably request.

                  6.8 Use of Proceeds. The Company will use the proceeds of the
Term Loans for general corporate purposes and working capital. The Company will
not, nor will it permit any Subsidiary to, use any of the proceeds of the Term
Loans to purchase or carry any "margin stock" (as defined in Regulation U).

                  6.9 Maintenance of Properties, Etc. The Company shall, and
shall cause each of its Subsidiaries to, maintain in all material respects all
of its respective owned and leased Property in good and safe condition and
repair to the same degree as other companies engaged in similar businesses and
owning similar properties, and not permit, commit or suffer any waste or

                                       25

<PAGE>
abandonment of any such Property, and from time to time make or cause to be made
all material repairs, renewals and replacements thereof, including, without
limitation, any capital improvements which may be required; provided, however,
that such Property may be altered or renovated in the ordinary course of the
Company's or its Subsidiaries' business; and provided, further, that the
foregoing shall not restrict the sale of any asset of the Company or any
Subsidiary to the extent not prohibited by Section 7.2.

                  6.10 Bonds. Beginning on the Initial Borrowing Date and
continuing until the Commitments have terminated and all Obligations have been
paid in full, cause the aggregate amount of all Bonds outstanding to at all
times be equal to or greater than the aggregate outstanding Term Loans and
interest hereunder.

                  6.11 First Mortgage Bonds. The Company shall not issue, or
cause to be issued, any First Mortgage Bonds on or before the Deferred Draw Date
other than to provide the Banks, as beneficial holders of the Bonds through the
Agent, the benefit of the Lien of the Indenture equally and ratably with the
holders of other First Mortgage Bonds to secure the Term Loans made pursuant to
the Deferred Draw Term Loan Commitments and the then effective Incremental Term
Loan Commitments.

                         ARTICLE VII: NEGATIVE COVENANTS

         So long as any Obligations shall remain unpaid or any Bank shall have
any Commitment under this Agreement, the Company shall not:

                  7.1 Liens. Create, incur, assume or suffer to exist any Lien
upon or with respect to any of its properties, now owned or hereafter acquired,
except:

                  (A) Liens created pursuant to the Indenture securing the First
         Mortgage Bonds;

                  (B) Liens securing pollution control bonds, or bonds issued to
         refund or refinance pollution control bonds (including Liens securing
         obligations (contingent or otherwise) of the Company under letter of
         credit agreements or other reimbursement or similar credit enhancement
         agreements with respect to pollution control bonds), provided that the
         aggregate face amount of any such bonds so issued shall not exceed the
         aggregate face amount of such pollution control bonds, as the case may
         be, so refunded or refinanced;

                  (C) Liens in (and only in) assets acquired to secure Debt
         incurred to finance the acquisition of such assets;

                  (D) Statutory and common law banker's Liens on bank deposits;

                  (E) Liens in respect of accounts receivable sold, transferred
         or assigned by the Company;

                  (F) Liens for taxes, assessments or other governmental charges
         or levies not at the time delinquent or thereafter payable without
         penalty or being contested in good faith

                                       26

<PAGE>
         by appropriate proceedings and for which adequate reserves in
         accordance with GAAP shall have been set aside on its books;

                  (G) Liens of carriers, warehousemen, mechanics, materialmen
         and landlords incurred in the ordinary course of business for sums not
         overdue or being contested in good faith by appropriate proceedings and
         for which adequate reserves shall have been set aside on its books;

                  (H) Liens incurred in the ordinary course of business in
         connection with workers' compensation, unemployment insurance or other
         forms of governmental insurance or benefits, or to secure performance
         of tenders, statutory obligations, leases and contracts (other than for
         borrowed money) entered into in the ordinary course of business or to
         secure obligations on surety or appeal bonds;

                  (I) Judgment Liens in existence less than 30 days after the
         entry thereof or with respect to which execution has been stayed or the
         payment of which is covered (subject to a customary deductible) by
         insurance;

                  (J) Zoning restrictions, easements, licenses, covenants,
         reservations, utility company rights, restrictions on the use of real
         property or minor irregularities of title incident thereto which do not
         in the aggregate materially detract from the value of the property or
         assets of the Company or materially impair the operation of its
         business;

                  (K) Liens arising in connection with the financing of the
         Company's fuel resources, including, but not limited to, nuclear fuel;

                  (L) Liens arising pursuant to MCL 324.20138; provided that the
         aggregate amount of all obligations secured by such Liens (excluding
         any such Liens of which the Company has no knowledge or which are
         permitted by subsection (F) above) shall not exceed $20,000,000;

                  (M) Liens arising in connection with Securitized Bonds;

                  (N) Liens on the "Facility LC Collateral Account" under (and
         as defined in) that certain 364-Day Credit Agreement, dated as of July
         12, 2002, by and among the Company, the banks from time to time parties
         thereto, and Bank One, NA, as agent thereunder, as amended, restated,
         supplemented or otherwise modified from time to time;

                  (O) Liens on the Collateral in favor of the Agent under the
         Inventory Term Loan Agreement pursuant to the Inventory Security
         Agreement; and

                  (P) Other Liens securing obligations in an aggregate amount
         not in excess of $150,000,000.

                  7.2 Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of 15% or more of its assets.



                                       27

<PAGE>
                  7.3 Mergers, Etc. Merge with or into or consolidate with or
into any other Person, except that the Company may merge with any other Person,
provided that, in each case, immediately after giving effect thereto, (a) no
event shall occur and be continuing which constitutes a Default or Event of
Default, (b) the Company is the surviving corporation, (c) the Company shall not
be liable with respect to any Debt or allow its property to be subject to any
Lien which it could not become liable with respect to or allow its property to
become subject to under this Agreement on the date of such transaction and (d)
the Company's Net Worth shall be equal to or greater than its Net Worth
immediately prior to such merger.

                  7.4 Compliance with ERISA. Permit to exist any occurrence of
any Reportable Event, or any other event or condition which presents a material
(in the reasonable opinion of the Majority Banks) risk of a termination by the
PBGC of any Plan of the Company or any ERISA Affiliate, which termination will
result in any material (in the reasonable opinion of the Majority Banks)
liability of the Company or such ERISA Affiliate to the PBGC.

                  7.5 Change in Nature of Business. Make any material change in
the nature of its business as carried on as of the date hereof.

                  7.6 Restricted Payments. The Company: (a) will not declare or
pay any dividends or make any other distributions on its capital stock (other
than dividends payable solely in such capital stock) or redeem any such capital
stock; and (b) will not, and will not permit any Subsidiary to, purchase or
otherwise acquire or retire any of the Company's capital stock or make any loans
or advances to CMS or any Subsidiary thereof (other than the Company or any
Subsidiary thereof); provided that, so long as no Default or Event of Default
exists, the Company may pay dividends in an aggregate amount not to exceed
$300,000,000 during any calendar year.

                  7.7 Off-Balance Sheet Liabilities. Create, incur, assume or
suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to
exist, Off-Balance Sheet Liabilities (exclusive of obligations arising in
connection with (a) the Amended and Restated Receivables Sale Agreement among
the Company, Asset Securitization Cooperative Corporation and Canadian Imperial
Bank of Commerce dated as of April 1, 2002 and (b) the Master Lease and Lease
Supplement, each dated as of April 23, 2001, between Consumers Campus Holding,
LLC (a wholly-owned Subsidiary of the Company), as lessee, and Wilmington Trust
Company, not in its individual capacity but solely as Owner Trustee of CEC Trust
2001-A, as lessor, along with various other related agreements) in the aggregate
in excess of $150,000,000 at any time.

                        ARTICLE VIII: FINANCIAL COVENANTS

         So long as any of the Obligations shall remain unpaid or any Bank shall
have any Commitment under this Agreement, the Company shall:

                  8.1 Debt to Capital Ratio. At all times, maintain a ratio of
Total Consolidated Debt to Total Consolidated Capitalization of not greater than
0.65 to 1.0.

                  8.2 Interest Coverage Ratio. Not permit the ratio, determined
as of the end of each of its fiscal quarters for the then most-recently ended
four fiscal quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest
Expense to be less than 2.0 to 1.0.

                                       28

<PAGE>
                          ARTICLE IX: EVENTS OF DEFAULT

                  9.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":

                  (A) The Company shall fail to pay (i) any principal of any
         Term Loan when due and payable, or (ii) any interest on any Term Loan
         or any fee or other Obligation payable hereunder within five (5) days
         after such interest or fee or other Obligation becomes due and payable;

                  (B) Any representation or warranty made by the Company (or any
         of its officers) in this Agreement or any other Credit Document or in
         any certificate, document, report, financial or other written statement
         furnished at any time pursuant to any Credit Document shall prove to
         have been incorrect in any material respect on or as of the date made;

                  (C) The Company shall fail to perform or observe any term,
         covenant or agreement contained in Section 6.10, Section 6.11, Article
         VII or Article VIII; or the Company shall fail to perform or observe
         any other term, covenant or agreement on its part to be performed or
         observed in this Agreement or in any other Credit Document and such
         failure shall continue for 30 consecutive days after notice thereof by
         means of facsimile, regular mail or written notice delivered in person
         (or telephonic notice thereof confirmed in writing) shall have been
         given to the Company by the Agent or the Majority Banks;

                  (D) The Company shall: (i) fail to pay any Debt (other than
         the payment obligations described in subsection (A) above) in excess of
         $25,000,000, or any interest or premium thereon, when due (whether by
         scheduled maturity, required prepayment, acceleration, demand or
         otherwise) and such failure shall continue after the applicable grace
         period, if any, specified in the instrument or agreement relating to
         such Debt; or (ii) fail to perform or observe any term, covenant or
         condition on its part to be performed or observed under any agreement
         or instrument relating to any such Debt, when required to be performed
         or observed, if the effect of such failure to perform or observe is to
         accelerate, or to permit the acceleration of, the maturity of such
         Debt, unless the obligee under or holder of such Debt shall have waived
         in writing such circumstance, or such circumstance has been cured, so
         that such circumstance is no longer continuing; or (iii) any such Debt
         shall be declared to be due and payable, or required to be prepaid
         (other than by a regularly scheduled required prepayment), in each case
         in accordance with the terms of such agreement or instrument, prior to
         the stated maturity thereof; or (iv) generally not, or shall admit in
         writing its inability to, pay its debts as such debts become due;

                  (E) The Company: (i) shall make an assignment for the benefit
         of creditors, or petition or apply to any tribunal for the appointment
         of a custodian, receiver or trustee for it or a substantial part of its
         assets; or (ii) shall commence any proceeding under any bankruptcy,
         reorganization, arrangement, readjustment of debt, dissolution or
         liquidation law or statute of any jurisdiction, whether now or
         hereafter in effect; or (iii) shall have

                                       29

<PAGE>
         had any such petition or application filed or any such proceeding shall
         have been commenced, against it, in which an adjudication or
         appointment is made or order for relief is entered, or which petition,
         application or proceeding remains undismissed for a period of 30
         consecutive days or more; or (iv) by any act or omission shall indicate
         its consent to, approval of or acquiescence in any such petition,
         application or proceeding or order for relief or the appointment of a
         custodian, receiver or trustee for all or any substantial part of its
         property; or (v) shall suffer any such custodianship, receivership or
         trusteeship to continue undischarged for a period of 30 days or more;
         or (vi) shall take any corporate action to authorize any of the actions
         set forth above in this subsection (E);

                  (F) One or more judgments, decrees or orders for the payment
         of money in excess of $25,000,000 in the aggregate shall be rendered
         against the Company and either (i) enforcement proceedings shall have
         been commenced by any creditor upon any such judgment or order or (ii)
         there shall be any period of more than 30 consecutive days during which
         a stay of enforcement of such judgment or order, by reason of a pending
         appeal or otherwise, shall not be in effect;

                  (G) Any Termination Event with respect to a Plan shall have
         occurred, and 30 days after notice thereof shall have been given to the
         Company by the Agent, (i) such Termination Event (if correctable) shall
         not have been corrected and (ii) the then present value of such Plan's
         vested benefits exceeds the then current value of the assets
         accumulated in such Plan by more than the amount of $25,000,000 (or in
         the case of a Termination Event involving the withdrawal of a
         "substantial employer" (as defined in Section 4001(A)(2) of ERISA), the
         withdrawing employer's proportionate share of such excess shall exceed
         such amount).

                  (H) Any Bond shall cease to be in full force and effect
         (except for Bonds surrendered by the Agent pursuant to Section 2.5(B),
         2.6 or 2.7); or the Company shall deny that it has any liability or
         obligation under any Bond or purport to revoke, terminate, rescind or
         redeem any Bond (other than in accordance with the terms of the Bonds
         and the Indenture).

                  (I) Any of the following shall occur and shall continue for
         ten (10) consecutive days after the Company has knowledge thereof: (i)
         on any date after the attachment of the Lien thereunder, the Inventory
         Security Agreement shall for any reason fail to create a valid and
         perfected first priority security interest in the Collateral purported
         to be covered thereby, (ii) the Inventory Security Agreement shall fail
         to remain in full force or effect, except with respect to any
         Collateral released pursuant to the express terms of thereof, or (iii)
         any action shall be taken to discontinue or to assert the invalidity or
         unenforceability of the Inventory Security Agreement.

                  9.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent shall upon the request, or may with the consent, of the
Majority Banks, by notice to the Company, (i) declare the Commitments to be
terminated or suspended, whereupon the same shall forthwith terminate, and/or
(ii) declare the Obligations to be forthwith due and payable, whereupon the
aggregate outstanding Term Loans and all other Obligations shall become and be
forthwith due and payable, in each case without presentment, demand, protest or
further notice of

                                       30

<PAGE>
any kind, all of which are hereby expressly waived by the Company, provided that
in the case of an Event of Default referred to in subsection 9.1(E) above, the
Commitments shall automatically terminate and the Obligations shall
automatically become due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company.

                   ARTICLE X: WAIVERS, AMENDMENTS AND REMEDIES

                  10.1 Amendments. Subject to the provisions of this Article X,
the Majority Banks (or the Agent with the consent in writing of the Majority
Banks) and the Company may enter into written agreements supplemental hereto for
the purpose of adding or modifying any provisions to the Credit Documents or
changing in any manner the rights of the Banks or the Company hereunder or
waiving any Event of Default hereunder, provided that no such supplemental
agreement shall, without the consent of all of the Banks:

                  (a) Extend the maturity of any Term Loan or reduce the
         principal amount thereof to a date after the Maturity Date, or reduce
         the rate or extend the time of payment of interest thereon or fees
         thereon.

                  (b) Modify the percentage specified in the definition of
         Majority Banks.

                  (c) Extend the Deferred Draw Date or increase the amount of
         the Commitments of any Bank hereunder, or permit the Company to assign
         its rights under this Agreement.

                  (d) Amend Section 6.10 or this Section 10.1.

                  (e) Make any change in an express right in this Agreement of a
         single Bank to give its consent, make a request or give a notice.

No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent.

                  10.2 Preservation of Rights. No delay or omission of the Banks
or the Agent to exercise any right under the Credit Documents shall impair such
right or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of a Term Loan notwithstanding the
existence of a Default or Event of Default or the inability of the Company to
satisfy the conditions precedent to such Term Loan shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Credit Documents whatsoever shall be valid unless in writing
signed by the Banks required pursuant to Section 10.1, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Credit Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Banks until the Obligations have been paid in
full.


                                       31

<PAGE>
                        ARTICLE XI: CONDITIONS PRECEDENT

                  11.1 Initial Term Loan. The Banks shall not be required to
make the Initial Term Loan hereunder unless the Company has furnished to the
Agent with sufficient copies for the Banks:

                  (A) Copies of the Restated Articles of Incorporation of the
         Company, together with all amendments, certified by the Secretary or an
         Assistant Secretary of the Company, and a certificate of good standing,
         certified by the appropriate governmental officer in its jurisdiction
         of incorporation.

                  (B) Copies, certified by the Secretary or an Assistant
         Secretary of the Company, of its bylaws and of its Board of Directors'
         resolutions (and resolutions of other bodies, if any are deemed
         necessary by counsel for any Bank) authorizing the execution of the
         Credit Documents.

                  (C) An incumbency certificate, executed by the Secretary or an
         Assistant Secretary of the Company, which shall identify by name and
         title and bear the original or facsimile signature of the officers of
         the Company authorized to sign the Credit Documents and the officers or
         other employees authorized to make borrowings hereunder, upon which
         certificate the Banks shall be entitled to rely until informed of any
         change in writing by the Company.

                  (D) A certificate, signed by a Designated Officer of the
         Company, stating that on the date hereof no Default or Event of Default
         has occurred and is continuing.

                  (E) Evidence satisfactory to the Agent of the issuance of
         Bonds in the form set forth in the Supplemental Indenture and in an
         aggregate principal amount of $70,000,000 pursuant to the applicable
         Bond Delivery Agreement.

                  (F) Favorable opinions of: (i) Michael D. VanHemert, Esq.,
         Deputy General Counsel of the Company, as to the matters set forth in
         Exhibit B-1 and as to such other matters as the Agent may reasonably
         request; and (ii) Skadden, Arps, Slate, Meagher & Flom LLP, special
         counsel to the Company, as to the matters set forth in Exhibit B-2 and
         as to such other matters as the Agent may reasonably request; and (iii)
         Miller, Canfield, Paddock and Stone, P.L.C., special counsel to the
         Company, as to the matters set forth in Exhibit B-3 and as to such
         other matters as the Agent may reasonably request. Such opinions shall
         be addressed to the Agent and the Banks and shall be satisfactory in
         form and substance to the Agent.

                  (G) Evidence satisfactory to the Agent that the initial "Term
         Loan" under and as defined in the Inventory Term Loan Agreement shall
         have been made or shall be made simultaneously with the Initial Term
         Loan hereunder.

                  (H) Evidence, in form and substance satisfactory to the Agent,
         that the Company has obtained all governmental approvals, if any,
         necessary for it to enter into the Credit Documents.


                                       32

<PAGE>
                  (I) Such other documents as any Bank or its counsel may have
         reasonably requested.

It shall be a further condition precedent to the making of the Initial Term Loan
hereunder that the Company shall have paid (i) to the Agent for the account of
the Banks the fees required to be paid on the Initial Borrowing Date and (ii) to
the Agent and the Arrangers the fees required to be paid to them pursuant to the
fee letter described in Section 13.12.

                  11.2 Incremental Deferred Draw Commitment; Deferred Draw Term
Loans. No Bank's Incremental Deferred Draw Commitment shall be effective and
binding on such Bank, and no Bank shall be required to make any Deferred Draw
Term Loan hereunder, unless and until the Company has furnished to the Agent
with sufficient copies for the Banks:

                  (A) Evidence satisfactory to the Agent of the issuance of
         Bonds in the form set forth in the Incremental Supplemental Indenture
         and in an aggregate principal amount equal to the aggregate principal
         amount of the Term Loans requested pursuant to Section 2.2 with respect
         to the Deferred Draw Term Loan Commitment plus the aggregate principal
         amount of the Term Loans requested pursuant to Section 2.2 with respect
         to the then effective aggregate Incremental Deferred Draw Commitment
         pursuant to the applicable Bond Delivery Agreement.

                  (B) Favorable opinions of: (i) Michael D. VanHemert, Esq.,
         Deputy General Counsel of the Company, as to the matters set forth in
         Exhibit B-1 and as to such other matters as the Agent may reasonably
         request; and (ii) Miller, Canfield, Paddock and Stone, P.L.C., special
         counsel to the Company, as to the matters set forth in Exhibit B-3 and
         as to such other matters as the Agent may reasonably request. Such
         opinions shall be addressed to the Agent and the Banks and shall be
         satisfactory in form and substance to the Agent.

                  (C) A certificate, signed by a Designated Officer of the
         Company, stating that on the date hereof no Default or Event of Default
         has occurred and is continuing.

                  (D) Evidence satisfactory to the Agent that the "Term Loans"
         under (and as defined in) the Inventory Term Loan Agreement shall
         simultaneously with any Deferred Draw Term Loan hereunder pursuant to
         any Incremental Deferred Draw Commitment be permanently prepaid in an
         amount equal to $55,000,000.

                  11.3 Each Term Loan. The Banks shall not be required to make
any Term Loan unless on the applicable Borrowing Date, (i) no Default or Event
of Default exists, (ii) the representations and warranties contained in Article
V (but (i) excluding, with respect to any Term Loan made pursuant to an
Incremental Deferred Draw Commitment, those contained in the second sentence of
Section 5.5 and in Section 5.6 and (ii) solely with respect to any Term Loan
made pursuant to a Deferred Draw Term Loan Commitment, without giving effect to
any restatement described in the third parenthetical of the first sentence of
Section 5.5 reflecting a financial condition of the Borrower and its
Subsidiaries that is not acceptable to the Agent and the Banks) are true and
correct as of such Borrowing Date, (iii) after giving effect to such Term Loan
the aggregate outstanding Term Loans, plus all accrued and unpaid Commitment
Fees and

                                       33

<PAGE>
interest hereunder, will not exceed the face amount of all Bonds and (iv) all
legal matters incident to the making of such Term Loan are satisfactory to the
Banks and their counsel. Each Borrowing Notice shall constitute a representation
and warranty by the Company that the conditions contained in subsections (i),
(ii) and (iii) above will be satisfied on the relevant Borrowing Date. For the
avoidance of doubt, the conversion or continuation of an Term Loan shall not be
considered the making of a Term Loan.

7                         ARTICLE XII: GENERAL PROVISIONS

                  12.1 Successors and Assigns. (A) The terms and provisions of
the Credit Documents shall be binding upon and inure to the benefit of the
Company and the Banks and their respective successors and assigns, except that
the Company shall not have the right to assign its rights under the Credit
Documents. Any Bank may sell participations in all or a portion of its rights
and obligations under this Agreement pursuant to subsection (B) below and any
Bank may assign all or any part of its rights and obligations under this
Agreement pursuant to subsection (C) below.

                  (B) Any Bank may sell participations to one or more banks or
         other entities (each a "Participant ") in all or a portion of its
         rights and obligations under this Agreement (including, without
         limitation, all or a portion of its Commitments and its outstanding
         Term Loans), provided that (i) such Bank's obligations under this
         Agreement (including, without limitation, its Commitments to the
         Company hereunder) shall remain unchanged, (ii) such Bank shall remain
         solely responsible to the other parties hereto for the performance of
         such obligations, (iii) such Bank shall remain the holder of the
         outstanding Term Loans of such Bank for all purposes of this Agreement
         and (iv) the Company shall continue to deal solely and directly with
         such Bank in connection with such Bank's rights and obligations under
         this Agreement. Each Bank shall retain the sole right to approve,
         without the consent of any Participant, any amendment, modification or
         waiver of any provision of the Credit Documents other than any
         amendment, modification or waiver with respect to any Term Loan or
         Commitments in which such Participant has an interest which would
         require consent of all of the Banks pursuant to the terms of Section
         10.1 or of any other Credit Document. The Company agrees that each
         Participant shall be deemed to have the right of setoff provided in
         Section 12.11 in respect of its participating interest in amounts owing
         under the Credit Documents to the same extent as if the amount of its
         participating interest were owing directly to it as a Bank under the
         Credit Documents, provided that each Bank shall retain the right of
         setoff provided in Section 12.11 with respect to the amount of
         participating interests sold to each Participant. The Banks agree to
         share with each Participant, and each Participant, by exercising the
         right of setoff provided in Section 12.11, agrees to share with each
         Bank, any amount received pursuant to the exercise of its right of
         setoff, such amounts to be shared in accordance with Section 12.11 as
         if each Participant were a Bank. The Company further agrees that each
         Participant shall be entitled to the benefits of Sections 4.1, 4.3, 4.4
         and 4.5 to the same extent as if it were a Bank and had acquired its
         interest by assignment pursuant to Section 12.1(C), provided that (i) a
         Participant shall not be entitled to receive any greater payment under
         Section 4.1, 4.3, 4.4 or 4.5 than the Bank who sold the participating
         interest to such Participant would have received had it retained such
         interest for its own account, unless the sale of such interest to such
         Participant is

                                       34

<PAGE>
         made with the prior written consent of the Company, and (ii) any
         Participant not incorporated under the laws of the United States of
         America or any State thereof agrees to comply with the provisions of
         Section 4.5 to the same extent as if it were a Bank.

                  (C) Any Bank may, in the ordinary course of its business and
         in accordance with applicable law, at any time assign to one or more
         financial institutions all or any part of its rights and obligations
         under this Agreement, provided that (i) such Bank has received the
         Agent's prior written consent to such assignment, which consent shall
         not be unreasonably withheld, and (ii) the minimum principal amount of
         any such assignment (other than assignments to a Federal Reserve Bank,
         or to any other Bank or affiliate of such assigning Bank, or to any
         direct or indirect contractual counterparties in swap agreements
         relating to the Term Loans to the extent required in connection with
         the physical settlement of any Bank's obligations pursuant thereto)
         shall be $1,000,000 (or such lesser amount consented to by the Agent);
         provided, that after giving effect to such assignment the assigning
         Bank shall have Commitments and Term Loans in the aggregate of not less
         than $1,000,000 (unless otherwise consented to by the Agent).
         Notwithstanding the foregoing sentence, any Bank may at any time,
         without the consent of the Company or the Agent, assign all or any
         portion of its rights under this Agreement to (i) a Federal Reserve
         Bank, provided that no such assignment shall release the transferor
         Bank from its obligations hereunder; and (ii) any Bank or any affiliate
         of such assigning Bank, provided that the creditworthiness of such
         affiliate (as determined in accordance with customary standards of the
         banking industry) is no less than that of the assigning Bank; and (iii)
         any direct or indirect contractual counterparties in swap agreements
         relating to the Term Loans to the extent required in connection with
         the physical settlement of any Bank's obligations pursuant thereto.

                  (D) Any Bank may, in connection with any sale or participation
         or proposed sale or participation pursuant to this Section 12.1,
         disclose to the purchaser or participant or proposed purchaser or
         participant any information relating to the Company furnished to such
         Bank by or on behalf of the Company, provided that prior to any such
         disclosure of non-public information, the purchaser or participant or
         proposed purchaser or participant (which purchaser or participant is
         not an affiliate of a Bank) shall agree to preserve the confidentiality
         of any confidential information (except any such disclosure as may be
         required by law or regulatory process) relating to the Company received
         by it from such Bank.

                  (E) Assignments under this Section 12.1 shall be made pursuant
         to an agreement ("Assignment Agreement") substantially in the form of
         Exhibit D hereto or in such other form as may be agreed to by the
         parties thereto and shall not be effective until a $3,500 fee has been
         paid to the Agent by the assignee, which fee shall cover the cost of
         processing such assignment, provided that such fee shall not be
         incurred in the event of an assignment by any Bank of all or a portion
         of its rights under this Agreement to (i) a Federal Reserve Bank or
         (ii) a Bank or an affiliate of the assigning Bank or (iii) to any
         direct or indirect contractual counterparties in swap agreements
         relating to the Term Loans to the extent required in connection with
         the physical settlement of any Bank's obligations pursuant thereto.


                                       35

<PAGE>
                  12.2 Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Term Loans herein contemplated.

                  12.3 Governmental Regulation. Anything contained in this
Agreement to the contrary notwithstanding, no Bank shall be obligated to extend
credit to the Company in violation of any limitation or prohibition provided by
any applicable statute or regulation.

                  12.4 Taxes. Any taxes (excluding income taxes) payable or
ruled payable by any Federal or State authority in respect of the execution of
the Credit Documents shall be paid by the Company, together with interest and
penalties, if any.

                  12.5 Choice of Law; Waiver of Jury Trial. THE CREDIT DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT
OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT AND THE COMPANY
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION OR ARISING HEREUNDER OR UNDER ANY
CREDIT DOCUMENT.

                  12.6 Headings. Section headings in the Credit Documents are
for convenience of reference only, and shall not govern the interpretation of
any of the provisions of the Credit Documents.

                  12.7 Entire Agreement. The Credit Documents embody the entire
agreement and understanding between the Company, the Agent and the Banks and
supersede all prior agreements and understandings between the Company, the Agent
and the Banks relating to the subject matter thereof (other than those contained
in the fee letter described in Section 13.12 which shall survive and remain in
full force and effect during the term of this Agreement).

                  12.8 Expenses; Indemnification. The Company shall reimburse
the Agent and the Arrangers for (a) any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent) paid or incurred by the Agent or the Arrangers in
connection with the preparation, review, execution, delivery, syndication,
distribution (including, without limitation, via the internet), amendment and
modification of the Credit Documents and (b) any reasonable costs, internal
charges and out-of-pocket expenses (including reasonable attorneys' fees and
time charges of attorneys for the Agent) paid or incurred by the Agent or the
Arrangers on its own behalf or on behalf of any Bank in connection with the
collection and enforcement of the Credit Documents. The Company further agrees
to indemnify the Agent, the Arrangers and each Bank and their respective

                                       36

<PAGE>
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and reasonable expenses (including, without
limitation, all material expenses of litigation or preparation therefor whether
or not the Agent, the Arrangers or any Bank is a party thereto) which any of
them may pay or incur arising out of or relating to this Agreement, the other
Credit Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Term Loan hereunder,
provided that the Company shall not be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent,
the Arrangers or any Bank. The obligations of the Company under this Section
shall survive the termination of this Agreement.

                  12.9 [Intentionally Omitted]

                  12.10 Severability of Provisions. Any provision in any Credit
Document that is held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of that provision in any other
jurisdiction, and to this end the provisions of all Credit Documents are
declared to be severable.

                  12.11 Setoff. In addition to, and without limitation of, any
rights of the Banks under applicable law, if the Company becomes insolvent,
however evidenced, or any Default or Event of Default occurs, any indebtedness
from any Bank to the Company (including all account balances, whether
provisional or final and whether or not collected or available) may be offset
and applied toward the payment of the Obligations owing to such Bank, whether or
not the Obligations, or any part hereof, shall then be due. The Company agrees
that any purchaser or participant under Section 12.1 may, to the fullest extent
permitted by law, exercise all its rights of payment with respect to such
purchase or participation as if it were the direct creditor of the Company in
the amount of such purchase or participation.

                  12.12 Ratable Payments. If any Bank, whether by setoff or
otherwise, has payment made to it upon its outstanding Term Loans in a greater
proportion than that received by any other Bank, such Bank agrees, promptly upon
demand, to purchase a portion of the aggregate outstanding Term Loans held by
the other Banks so that after such purchase each Bank will hold its Pro Rata
Share of the aggregate outstanding Term Loans. If any Bank, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Bank agrees, promptly upon demand, to take
such action necessary such that all Banks share in the benefits of such
collateral ratably in proportion to their respective Pro Rata Share of the
aggregate outstanding Term Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.

                  12.13 Nonliability of Banks. The relationship between the
Company, on the one hand, and the Banks and the Agent, on the other hand, shall
be solely that of borrower and lender. Neither the Agent, the Arrangers nor any
Bank shall have any fiduciary responsibilities to the Company. Neither the
Agent, the Arrangers nor any Bank undertakes any responsibility to the Company
to review or inform the Company of any matter in connection with any phase of
the Company's business or operations. The Company shall rely entirely upon its
own judgment with respect to its business, and any review, inspection,
supervision or information supplied to

                                       37

<PAGE>
the Company by the Banks is for the protection of the Banks and neither the
Company nor any third party is entitled to rely thereon. The Company agrees that
neither the Agent, the Arrangers nor any Bank shall have liability to the
Company (whether sounding in tort, contract or otherwise) for losses suffered by
the Company in connection with, arising out of, or in any way related to, the
transactions contemplated and the relationship established by the Credit
Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the
Agent, the Arrangers nor any Bank shall have any liability with respect to, and
the Company hereby waives, releases and agrees not to sue for, any special,
indirect, consequential or punitive damages suffered by the Company in
connection with, arising out of, or in any way related to the Credit Documents
or the transactions contemplated thereby.

                             ARTICLE XIII: THE AGENT

                  13.1 Appointment. Bank One, NA (Main Office - Chicago) is
hereby appointed Agent hereunder, and each of the Banks irrevocably authorizes
the Agent to act as the contractual representative on behalf of such Bank. The
Agent agrees to act as such upon the express conditions contained in this
Article XIII. The Agent shall not have a fiduciary relationship in respect of
any Bank by reason of this Agreement.

                  13.2 Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent shall
not have any implied duties to the Banks or any obligation to the Banks to take
any action hereunder except any action specifically provided by this Agreement
to be taken by the Agent.

                  13.3 General Immunity. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Banks or any
Bank for any action taken or omitted to be taken by it or them hereunder or in
connection herewith except for its or their own gross negligence or willful
misconduct.

                  13.4 No Responsibility for Loans, Recitals, Etc. The Agent
shall not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Credit Document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement.

                  13.5 Action on Instructions of Banks. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Credit Document in accordance with written instructions signed
by the Majority Banks (or all of the Banks if required by Section 10.1), and
such instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Banks. The Banks hereby acknowledge that the Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement or any other Credit Document
unless it shall be requested in writing to do so by the Majority Banks. The
Agent shall be fully justified in failing or refusing to take any action
hereunder and under any other Credit Document unless it shall first be


                                       38

<PAGE>
indemnified to its satisfaction by the Banks pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.

                  13.6 Employment of Agents and Counsel. The Agent may execute
any of its duties as Agent hereunder by or through employees, agents and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder.

                  13.7 Reliance on Documents; Counsel. The Agent shall be
entitled to rely upon any notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.

                  13.8 Agent's Reimbursement and Indemnification. The Banks
agree to reimburse and indemnify the Agent ratably in proportion to their
respective Pro Rata Shares (i) for any amounts not reimbursed by the Company for
which the Agent is entitled to reimbursement by the Company under the Credit
Documents, (ii) for any other expenses reasonably incurred by the Agent on
behalf of the Banks, in connection with the preparation, execution, delivery,
administration and enforcement of the Credit Documents, and for which the Agent
is not entitled to reimbursement by the Company under the Credit Documents, and
(iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or any other document
delivered in connection with this Agreement or the transactions contemplated
hereby or the enforcement of any of the terms hereof or of any such other
documents, and for which the Agent is not entitled to reimbursement by the
Company under the Credit Documents, provided that no Bank shall be liable for
any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent.

                  13.9 Rights as a Bank. With respect to its Commitments and any
Term Loan made by it, the Agent shall have the same rights and powers hereunder
as any Bank and may exercise the same as though it were not the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
Bank One in its individual capacity. The Agent may accept deposits from, lend
money to, and generally engage in any kind of banking or trust business with the
Company or any Subsidiary as if it were not the Agent.

                  13.10 Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank and
based on the financial statements prepared by the Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon the Agent or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.


                                       39

<PAGE>
                  13.11 Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Majority Banks. Upon any such resignation or removal, the
Majority Banks shall have the right to appoint, on behalf of the Banks, a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within thirty days after
the retiring Agent's giving notice of resignation, then the retiring Agent may
appoint, on behalf of the Banks, a successor Agent. Such successor Agent shall
be a commercial bank having capital and retained earnings of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.

                  13.12 Agent and Arrangers Fees. The Company agrees to pay to
the Agent and Banc One Capital Markets, Inc. and Barclays Capital (together, the
"Arrangers"), for their respective accounts, the fees agreed to by the Company,
the Agent and the Arrangers pursuant to that certain letter agreement dated
October 17, 2002, or as otherwise agreed from time to time.

                              ARTICLE XIV: NOTICES

                  14.1 Giving Notice. Except as otherwise permitted by Section
2.1 and 2.2 with respect to borrowing notices, all notices, requests and other
communications to any party hereunder shall be in writing (including electronic
transmission, facsimile transmission or similar writing) and shall be given to
such party: (x) in the case of the Company or the Agent, at its address or
facsimile number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or facsimile number set forth below its signature hereto or
(z) in the case of any party, at such other address or facsimile number as such
party may hereafter specify for the purpose by notice to the Agent and the
Company in accordance with the provisions of this Section 14.1. Each such
notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered (or, in the case of electronic transmission, received) at the
address specified in this Section; provided that notices to the Agent under
Article II shall not be effective until received.

                  14.2 Change of Address. The Company, the Agent and any Bank
may each change the address for service of notice upon it by a notice in writing
to the other parties hereto.


                  [Remainder of Page Intentionally Left Blank ]


                                       40

<PAGE>

                            ARTICLE XV: COUNTERPARTS

         This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Company, the Agent
and the Banks and each party has notified the Agent by facsimile or telephone
that it has taken such action.

         IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.



                                    CONSUMERS ENERGY COMPANY


                                    By: /s/ LAURA L. MOUNTCASTLE
                                        ---------------------------------------
                                        Name:  Laura L. Mountcastle
                                        Title: Vice President and Treasurer


                                    212 West Michigan Avenue
                                    Jackson, MI 49201
                                    Attention: James L. Loewen
                                    Facsimile No.: (517) 788-7080
                                    Confirmation (Phone) No: (517) 788-2286
                                    E-Mail Address: jlloewen@cmsenergy.com


                                       41
<PAGE>


                                    BANK ONE, NA (MAIN OFFICE -
                                    CHICAGO), Individually and as Agent


                                    By: /s/ JANE A. BEK
                                        ---------------------------------------
                                        Name:  Jane. A. Bek
                                        Title: Director


                                    ADDRESS:
                                    Bank One Plaza
                                    Chicago, Illinois 60670
                                    Attention: Jane A. Bek
                                    Facsimile No.: (312) 732-5435
                                    Confirmation (Phone) No: (312) 732-3422
                                    E-Mail Address: Jane_Bek@bankone.com


                                       42
<PAGE>


                                    BARCLAYS BANK PLC


                                    By: /s/ SYDNEY DENNIS
                                        ---------------------------------------
                                        Name:  Sydney Dennis
                                        Title: Director


                                    ADDRESS:
                                    222 Broadway
                                    New York, NY 10038
                                    Attention: Sydney Dennis
                                    Facsimile No.: (212) 412-7511
                                    Confirmation (Phone) No: (212) 412-2470
                                    E-Mail Address: sydney.dennis@barcap.com


                                       43
<PAGE>

                                   EXHIBIT A-1

                        [FORM OF SUPPLEMENTAL INDENTURE]



================================================================================


                         EIGHTY-FIFTH SUPPLEMENTAL INDENTURE


                        Providing among other things for

                             FIRST MORTGAGE BONDS,
                           Collateral Series due 2003

                        --------------------------------

                          Dated as of October 17, 2002

                        --------------------------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE


================================================================================

                                                          Counterpart ____ of 85


<PAGE>



                       EIGHTY-FIFTH SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                           COLLATERAL SERIES DUE 2003

                                 --------------

                          DATED AS OF OCTOBER 17, 2002

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 85

<PAGE>

         THIS EIGHTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of October 17, 2002
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of

                                       -1-

<PAGE>

the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS, the Company has entered into a Term Loan Agreement dated as of
October 17, 2002 (as amended or otherwise modified from time to time, the "Term
Loan Agreement") among the Company, various financial institutions and Bank One,
NA (Main Office - Chicago), as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and

         WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2003, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2003
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature April 15, 2003; and

         WHEREAS, each of the registered bonds without coupons of the 2003
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:

                                       -2-

<PAGE>

          [FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         No. 1                                             $70,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Term Loan Agreement dated as of October 17, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Term
Loan Agreement"), or registered assigns, the principal sum of Seventy Million
Dollars ($70,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on April 15, 2003 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding October 17, 2002. If the Maturity Date falls on a
day which is not a Business Day, as defined below, principal and any interest
and/or fees payable with respect to the Maturity Date will be paid on the
immediately preceding Business Day. The interest payable, and punctually paid or
duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "Interest Payment Date" shall mean each date
on which interest and/or fees under the Term Loan Agreement are due and payable
from time to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall
mean a rate of interest per annum, adjusted as necessary, to result in an
interest payment equal to the aggregate amount of interest and fees due under
the Term Loan Agreement on the applicable Interest Payment Date; and (D) "Record
Date" with respect to any Interest Payment Date shall

                                       -3-

<PAGE>

mean the day (whether or not a Business Day) immediately next preceding such
Interest Payment Date.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                                   CONSUMERS ENERGY COMPANY

Dated:
                                                   By: _________________________
                                                   Printed: ____________________
                                                   Title: ______________________

Attest: _________________________

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                            JPMORGAN CHASE BANK, Trustee

                                            By _________________________________
                                                         Authorized Officer

                                       -4-

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2003 (sometimes herein referred to as the "2003
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2003 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2003 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series

                                       -5-

<PAGE>

Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent in connection with the Obligations pursuant to the Term Loan
Agreement, and (iii) the amount of the arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2003 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2003 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2003 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the

                                       -6-

<PAGE>

Indenture, or (c) reduce the percentage of the principal amount of the bonds the
holders of which are required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

      [END OF FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                            - - - - - - - - - - - - -

                                       -7-

<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$70,000,000 principal amount of the 2003 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                       -8-

<PAGE>

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2003
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2003 Collateral
Series Bonds shall be issued in the aggregate principal amount of $70,000,000,
shall mature on April 15, 2003 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2003 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2003 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.

         The 2003 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the

                                       -9-

<PAGE>

same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2003 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2003 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2003 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2003 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2003 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2003 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2003
Collateral Series Bonds by the Agent to the Trustee, the 2003 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2003 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:

                                      -10-

<PAGE>

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee

                                      -11-

<PAGE>

         for the purpose, for the notation thereon of the fact that the holder
         of such bond has consented to the execution of such supplemental
         indenture, and in such case such notation, in form satisfactory to the
         Trustee, shall be made upon all bonds so submitted, and such bonds
         bearing such notation shall forthwith be returned to the persons
         entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in Chicago, Illinois and
New York, New

                                      -12-

<PAGE>

York for the conduct of substantially all of their commercial lending activities
and on which interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2003 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11.  Detailed Description of Property Mortgaged:

                                       I.

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                      II.

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                      III.

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,

                                      -13-

<PAGE>

towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                      IV.

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                       V.

        GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
        STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
                                     SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                      VI.

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located

                                      -14-

<PAGE>

in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.

                                      VII.

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                     VIII.

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.

                                      -15-

<PAGE>

                                       IX.

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                       X.

                            TELEPHONE PROPERTIES AND
                          RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
line of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                      XI.

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of

                                      -16-

<PAGE>

         beginning of this description, commence at the Southwest corner of said
         section, run thence East along the South line of said section 1243 feet
         to the place of beginning of this description, thence continuing East
         along said South line of said section 66 feet to the West 1/8 line of
         said section, thence N 02 degrees 09' 30" E along the said West 1/8
         line of said section 660 feet, thence West 330 feet, thence S 02
         degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
         09' 30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00"

                                      -17-

<PAGE>

         W, 330.0 feet; thence South parallel with the West line of said
         section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
         West line of said section and the center line of East City Limits Road;
         thence South along the said West line of said section, 50.0 feet to the
         place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point

                                      -18-

<PAGE>

         1278.27 feet distant South of the North quarter post of said section,
         said distance being measured along the North and South quarter line of
         said section, running thence S89 degrees21'E 250 feet, thence North
         along a line parallel with the said North and South quarter line of
         said section 200 feet, thence N89 degrees21'W 250 feet to the North and
         South quarter line of said section, thence South along said North and
         South quarter line of said section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                      -19-

<PAGE>

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said

                                      -20-

<PAGE>

         section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
         of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W' from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                      -21-

<PAGE>

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                                      -22-

<PAGE>

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State

                                      -23-

<PAGE>

         Trunkline Highway 414.22 feet to the West line of said section; thence
         N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
         thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
         section; thence S 01 degrees 03' 40" W along the East line of said
         section 250 feet to the place of beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple

                                      -24-

<PAGE>

         River to a point which said point is S 88 degrees 58' 30" W of a point
         on the East bank of the Thornapple River herein designated "Point B",
         said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
         above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
         B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
         of beginning. (Bearings are based on the East line of Section 15, T5N,
         R10W between the East 1/4 corner of said section and the Northeast
         corner of said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
         Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                      -25-

<PAGE>

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
         Manistee County Records.

                                      -26-

<PAGE>

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                      -27-

<PAGE>

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                 MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
         described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place

                                      -28-

<PAGE>

         of beginning for this description; thence continuing N 87 degrees 14'
         29" E along said North section line a distance of 75.0 feet to the East
         line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
         Section 8; thence S 02 degrees 37' 09" E along said East line a
         distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
         75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
         the place of beginning.

                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and

                                      -29-

<PAGE>

         South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
         said North and South 1/4 line of said section, 400.00 feet to the point
         of beginning; subject to the use of the N'ly 33.00 feet thereof for
         highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                      -30-

<PAGE>

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8

                                      -31-

<PAGE>

         line of said Section 34 and the place of beginning for this
         description; thence continuing N 18 degrees 11' 50" W a distance of
         349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
         thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
         1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
         South 1/8 line of said section a distance of 294.76 feet to the place
         of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet;

                                      -32-

<PAGE>

         thence easterly parallel with the South line of Section 6 a distance of
         215 feet to the point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).

         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.

                                      -33-

<PAGE>
                                       JPMORGAN CHASE BANK, AS TRUSTEE



(SEAL)                                     By ---------------------------
                                                L. O'Brien
                                                Vice President
Attest:



- ----------------------
VIRGINIA DOMINGUEZ
Trust Officer



Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of



- ----------------------
Natalia Rodriguez
Assistant Vice President





- ---------------------
Wanda Eiland
Assistant Vice President


STATE OF NEW YORK       )
                         ss.
COUNTY OF NEW YORK      )


          The foregoing instrument was acknowledged before me this    day of
October, 2002, by L. O'Brien a Vice President of JPMORGAN CHASE BANK, a New York
corporation, on behalf of the corporation.



                             --------------------------------------------
                                                            Notary Public

[Seal]                             New York County, New York
                                   My Commission Expires:



                                                   Emily Fayan
                                         Notary Public, State of New York
                                                  No. 24-47305
                                            Qualified in Kings County
                                      Certificate Filed in New York Country
                                      Commission Expires December 31, 2005


Prepared by:                       When recorded, return to:
Kimberly C. Wilson                 Consumers Energy Company
212 West Michigan Avenue           General Services Real Estate Department
Jackson, MI 49201                  Attn: Nancy P. Fisher, P-21-411
                                   1945 W. Parnall Road
                                   Jackson, MI 49201







                                      S-2
<PAGE>
          [FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                              FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003


         No. 1                                                    $70,000,000

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Term Loan Agreement dated as of October 17, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Term
Loan Agreement"), or registered assigns, the principal sum of Seventy Million
Dollars ($70,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on April 15, 2003 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding October 17, 2002. If the Maturity Date falls on a
day which is not a Business Day, as defined below, principal and any interest
and/or fees payable with respect to the Maturity Date will be paid on the
immediately preceding Business Day. The interest payable, and punctually paid or
duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "Interest Payment Date" shall mean each date
on which interest and/or fees under the Term Loan Agreement are due and payable
from time to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall
mean a rate of interest per annum, adjusted as necessary, to result in an
interest payment equal to the aggregate amount of interest and fees due under
the Term Loan Agreement on the applicable



                                      -48-

<PAGE>
Interest Payment Date; and (D) "Record Date" with respect to any Interest
Payment Date shall mean the day (whether or not a Business Day) immediately next
preceding such Interest Payment Date.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.




                                             CONSUMERS ENERGY COMPANY

Dated:
                                             By
                                                -------------------------------
                                             Printed
                                                     --------------------------
                                             Title
                                                   ----------------------------




Attest:
       ------------------------




                                      -49-

<PAGE>
                           TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.

                                                JPMORGAN CHASE BANK, Trustee



                                                By
                                                   ----------------------------
                                                   Authorized Officer








                                      -50-

<PAGE>
                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                 FIRST MORTGAGE BOND COLLATERAL SERIES DUE 2003


         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2003 (sometimes herein referred to as the "2003
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2003 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2003 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series



                                      -51-

<PAGE>
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent in connection with the Obligations pursuant to the Term Loan
Agreement, and (iii) the amount of the arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2003 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2003 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2003 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the


                                      -52-

<PAGE>
Indenture, or (c) reduce the percentage of the principal amount of the bonds the
holders of which are required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

 [END OF FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                ----------------


                                      -53-
<PAGE>
         AND WHEREAS all acts and things necessary to make the 2003 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$70,000,000 principal amount of the 2003 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;


                                      -54-

<PAGE>
         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2003
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2003 Collateral
Series Bonds shall be issued in the aggregate principal amount of $70,000,000,
shall mature on April 15, 2003 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2003 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2003 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.

         The 2003 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the


                                      -55-

<PAGE>
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2003 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2003 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2003 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2003 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2003 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2003 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2003
Collateral Series Bonds by the Agent to the Trustee, the 2003 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.

         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2003 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:


                                      -56-

<PAGE>
         SECTION 17.02. With the consent of the holders of not less than a
majority in principal amount of the bonds at the time outstanding or their
attorneys-in-fact duly authorized, or, if fewer than all series are affected,
not less than a majority in principal amount of the bonds at the time
outstanding of each series the rights of the holders of which are affected,
voting together, the Company, when authorized by a resolution, and the Trustee
may from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the Company
and the rights of the holders of any of the bonds and coupons; provided,
however, that no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of payment of interest
thereon, or reduce the amount of the principal thereof, or reduce any premium
payable on the redemption thereof, without the consent of the holder of each
bond so affected, or (2) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of this Indenture, without the
consent of the holders of all the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the consent of the
holders of all the bonds then outstanding. For the purposes of this Section,
bonds shall be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the rights of holders
thereof against the Company or against its property. The Trustee may in its
discretion determine whether or not, in accordance with the foregoing, bonds of
any particular series would be affected by any supplemental indenture and any
such determination shall be conclusive upon the holders of bonds of such series
and all other series. Subject to the provisions of Sections 16.02 and 16.03
hereof, the Trustee shall not be liable for any determination made in good faith
in connection herewith.

         Upon the written request of the Company, accompanied by a resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of bondholders as aforesaid
(the instrument or instruments evidencing such consent to be dated within one
year of such request), the Trustee shall join with the Company in the execution
of such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion but shall not be obligated to enter
into such supplemental indenture.

         It shall not be necessary for the consent of the bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.

         The Company and the Trustee, if they so elect, and either before or
after such consent has been obtained, may require the holder of any bond
consenting to the execution of any such supplemental indenture to submit his
bond to the Trustee or to ask such bank, banker or trust company as may be
designated by the Trustee


                                      -57-

<PAGE>
         for the purpose, for the notation thereon of the fact that the holder
         of such bond has consented to the execution of such supplemental
         indenture, and in such case such notation, in form satisfactory to the
         Trustee, shall be made upon all bonds so submitted, and such bonds
         bearing such notation shall forthwith be returned to the persons
         entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in Chicago, Illinois and
New York, New



                                      -58-

<PAGE>
York for the conduct of substantially all of their commercial lending activities
and on which interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2003 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11.  Detailed Description of Property Mortgaged:

                                   ARTICLE I:

                       ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                   ARTICLE II:

                           ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.

                                  ARTICLE III:

                          ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,


                                      -59-

<PAGE>
towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                   ARTICLE IV:

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                   ARTICLE V:

                 GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
            DESULPHURIZATION STATIONS, METERING STATIONS, ODORIZING
                         STATIONS, REGULATORS AND SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.

                                   ARTICLE VI:

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located



                                      -60-

<PAGE>
in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.

                                  ARTICLE VII:

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                  ARTICLE VIII:

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.




                                      -61-

<PAGE>
                                   ARTICLE IX:

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                   ARTICLE X:

             TELEPHONE PROPERTIES AND RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                   ARTICLE XI:

                               OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the line of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:

                                  ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of


                                      -62-

<PAGE>
         beginning of this description, commence at the Southwest corner of said
         section, run thence East along the South line of said section 1243 feet
         to the place of beginning of this description, thence continuing East
         along said South line of said section 66 feet to the West 1/8 line of
         said section, thence N 02 degrees 09' 30" E along the said West 1/8
         line of said section 660 feet, thence West 330 feet, thence S 02
         degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
         09' 30" W, 330 feet to the place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                  ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                  ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                  ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00"


                                      -63-

<PAGE>
         W, 330.0 feet; thence South parallel with the West line of said
         section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
         West line of said section and the center line of East City Limits Road;
         thence South along the said West line of said section, 50.0 feet to the
         place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with the East line of said section
         165 feet; thence East 165 feet to the East line of said section; thence
         South 165 feet to the place of beginning.

                                  BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point


                                      -64-

<PAGE>
         1278.27 feet distant South of the North quarter post of said section,
         said distance being measured along the North and South quarter line of
         said section, running thence S89 degrees21'E 250 feet, thence North
         along a line parallel with the said North and South quarter line of
         said section 200 feet, thence N89 degrees21'W 250 feet to the North and
         South quarter line of said section, thence South along said North and
         South quarter line of said section 200 feet to the place of beginning.


                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                   CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                                CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West line of said section;
         thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
         said section 442.1 feet; thence South 788.15 feet to the South line of
         said section; thence S 89 degrees 29' 30" W, along said South line of
         said section 442.1 feet to the place of beginning.

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:




                                      -65-

<PAGE>
                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                 CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence N 89 degrees 51' 30" E along the South line of said section 400
         feet to the place of beginning of this description; thence continuing N
         89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
         feet; thence S 89 degrees 51' 30" W parallel with the South line of
         said section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the
         place of beginning.



                                      -66-

<PAGE>
                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                  Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                              GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of Hannah Road, thence North along the West
         line of said section and the center line of Hannah Road 400 feet to the
         place of beginning for this description.

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:


                                      -67-

<PAGE>
                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                  INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line



                                      -68-

<PAGE>
         of said section at a point which said point is 105.82 feet distant N'ly
         of the center of said section as measured along said North and South
         1/4 line of said section; thence N 00 degrees 04' 47" E along said
         North and South 1/4 line of said section, 303.67 feet; thence N 67
         degrees 18' 24" E, 1425.78 feet to the East 1/8 line of said section;
         thence S 00 degrees 00' 26" E along said East 1/8 line of said section,
         303.48 feet to the place of beginning. (Bearings are based on the East
         line of Section 15, T5N, R6W, from the E 1/4 corner of said section to
         the Northeast corner of said section assumed as N 00 degrees 05' 38"
         W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                 ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38 feet to the North 1/8 line of said section; thence S 89
         degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
         to the center line of State Trunkline Highway M-52; thence N 53 degrees
         46' 00" W along the center line of said State Trunkline Highway 414.22
         feet to the West line of said section; thence N 00 degrees 55' 10" E
         along the West line of said section 74.35 feet; thence S 89 degrees 32'
         00" E, 5356.02 feet to the East line of said section; thence S 01
         degrees 03' 40" W along the East line of said section 250 feet to the
         place of beginning.


                                      -69-

<PAGE>
                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                 KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                   KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
         feet to a point herein designated "Point A" on the East bank of the
         Thornapple River, thence continuing S 88 degrees 53' 30" W to the
         center thread of the Thornapple River, thence NW'ly along the center
         thread of said Thornapple River to a point which said point is S 88
         degrees 58' 30" W of a point on the East bank of the Thornapple River
         herein designated "Point B", said "Point B" being N 23 degrees 41' 35"
         W 360.75 feet from said above-described "Point A", thence N 88 degrees
         58' 30" E to said "Point B", thence continuing N 88 degrees 58' 30" E
         2650.13 feet to the place of beginning. (Bearings are based on the East
         line of



                                      -70-

<PAGE>
         Section 15, T5N, R10W between the East 1/4 corner of said section and
         the Northeast corner of said section assumed as N 0 degrees 59' 55" W.)

                                   LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                  LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                 LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.

                                LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.


                                      -71-

<PAGE>
                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                  MACOMB COUNTY

         Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                 MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
         Manistee County Records.

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.



                                      -72-

<PAGE>
Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                  MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along



                                      -73-

<PAGE>
         said South line of said section 100 feet; thence N 00 degrees 50' 35"
         E, 250 feet; thence East 100 feet; thence S 00 degrees 50' 35" W
         parallel with and 16.5 feet distant W'ly of as measured perpendicular
         to the West 1/8 line of said section, as occupied, a distance of 250
         feet to the place of beginning.

                                  MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

         The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                 MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

         The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place of beginning for this
         description; thence continuing N 87 degrees 14' 29" E along said North
         section line a distance of 75.0 feet to the East line of the West
         526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02
         degrees 37' 09" E along said East line a distance of 160.0 feet; thence
         S 87 degrees 14' 29" W a distance of 75.0 feet; thence N 02 degrees 37'
         09" W a distance of 160.0 feet to the place of beginning.


                                      -74-

<PAGE>
                                  OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                  OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                  OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and South 1/4 line of said
         section; thence N 00 degrees 28' 43" W along the said North and South
         1/4 line of said section, 400.00 feet to the point of beginning;
         subject to the use of the N'ly 33.00 feet thereof for highway purposes.

                                  OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:



                                      -75-

<PAGE>
                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                               PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;


                                      -76-

<PAGE>
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                                SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                                ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8 line of said Section 34 and
         the place of beginning for this description; thence continuing N 18
         degrees 11' 50" W a distance of 349.91 feet; thence N 89 degrees 57'
         01" W a distance of 294.80 feet; thence S 18 degrees 11' 50" E a
         distance of 350.04 feet to the South 1/8 line of said Section 34;
         thence S 89 degrees 58' 29" E along the South 1/8 line of said section
         a distance of 294.76 feet to the place of beginning.


                                      -77-

<PAGE>
                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet; thence easterly
         parallel with the South line of Section 6 a distance of 215 feet to the
         point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet,


                                      -78-

<PAGE>

         thence South parallel with said West section line 350 feet, thence West
         parallel with said North section line 450 feet, thence North parallel
         with said West section line 350 feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).


                                      -79-

<PAGE>


         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.


                                      -80-
<PAGE>

                                              CONSUMERS ENERGY COMPANY



(SEAL)                                     By
                                              ----------------------------
                                              Laura L. Mountcastle
Attest:                                       Vice President and Treasurer



- ----------------------------
Don A. Forsblom
Assistant Secretary



Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of


- ----------------------------
Kimberly C. Wilson


- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN           )
                             ss.
COUNTY OF JACKSON           )

                  The foregoing instrument was acknowledged before me this ___
day of ____________, 2002, by Laura L. Mountcastle, Vice President and Treasurer
of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the
corporation.

                                           ------------------------------------
                                           Margaret Hillman, Notary Public
[Seal]                                     Jackson County, Michigan
                                           My Commission Expires: June 14, 2004


                                      -81-

<PAGE>


                                           JPMORGAN CHASE BANK, AS TRUSTEE



(SEAL)                                     By
                                              ----------------------------
                                              L. O'Brien
Attest:                                       Vice President



- ----------------------------

Trust Officer



Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of


- ----------------------------



- ----------------------------




STATE OF NEW YORK           )
                            ss.
COUNTY OF NEW YORK          )


                  The foregoing instrument was acknowledged before me this ____
day of _____________, 2002, by L. O'Brien, a Vice President of JPMORGAN CHASE
BANK, a New York corporation, on behalf of the corporation.


                                        --------------------------------------
                                                                 Notary Public
[Seal]                                  New York County, New York
                                        My Commission Expires:

Prepared by:
Kimberly C. Wilson
212 West Michigan Avenue
Jackson, MI 49201


                                      A-1
<PAGE>

When recorded, return to:
Consumers Energy Company
General Services Real Estate Department
Attn: Nancy P. Fisher, P-21-411
1945 W. Parnall Road
Jackson, MI 49201

<PAGE>
                                  EXHIBIT A-2

                  [FORM OF INCREMENTAL SUPPLEMENTAL INDENTURE]

                      EIGHTY-SIXTH SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                             FIRST MORTGAGE BONDS,

                           COLLATERAL SERIES DUE 2003

                                 --------------

                       DATED AS OF [          ]    , 2002
                                    ----------  ---

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                    TRUSTEE

                                                        Counterpart _____ of 85


<PAGE>


         THIS EIGHTY-SIXTH SUPPLEMENTAL INDENTURE, dated as of [____________]
_____, 2002 (herein sometimes referred to as "this Supplemental Indenture"),
made and entered into by and between CONSUMERS ENERGY COMPANY, a corporation
organized and existing under the laws of the State of Michigan, with its
principal executive office and place of business at 212 West Michigan Avenue, in
Jackson, Jackson County, Michigan 49201, formerly known as Consumers Power
Company (hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE
BANK, a corporation organized and existing under the laws of the State of New
York, with its corporate trust offices at 450 W. 33rd Street, in the Borough of
Manhattan, The City of New York, New York 10001 (hereinafter sometimes referred
to as the "Trustee"), as Trustee under the Indenture dated as of September 1,
1945 between Consumers Power Company, a Maine corporation (hereinafter sometimes
referred to as the "Maine corporation"), and City Bank Farmers Trust Company
(Citibank, N.A., successor, hereinafter sometimes referred to as the
"Predecessor Trustee"), securing bonds issued and to be issued as provided
therein (hereinafter sometimes referred to as the "Indenture"),

         WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and

         WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and

         WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and

         WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and

         WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and

         WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and

         WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and

         WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and

         WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of

                                      -1-
<PAGE>


the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and

         WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and

         WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and

         WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and

         WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and

         WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and

         WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and

         WHEREAS, the Company has entered into a Term Loan Agreement dated as of
October ___, 2002 (as amended or otherwise modified from time to time, the "Term
Loan Agreement") among the Company, various financial institutions and Bank One,
NA (Main Office - Chicago), as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and

         WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2003, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2003
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature April 15, 2003; and

         WHEREAS, each of the registered bonds without coupons of the 2003
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:


                                      -2-
<PAGE>


         [FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                              FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

No. 1                                                             $[INSERT
                                                                  AMOUNT OF
                                                                  DEFERRED DRAW
                                                                  TERM LOAN]

         CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Term Loan Agreement dated as of October _____, 2002 among the Company, the Banks
and the Agent (as amended or otherwise modified from time to time, the "Term
Loan Agreement"), or registered assigns, the principal sum of [INSERT AMOUNT OF
DEFERRED DRAW TERM LOAN] ($[_______]) or such lesser principal amount as shall
be equal to the aggregate principal amount of the Term Loans (as defined in the
Term Loan Agreement) included in the Obligations (as defined in the Term Loan
Agreement) outstanding on April 15, 2003 (the "Maturity Date"), but not in
excess, however, of the principal amount of this bond, and to pay interest
thereon at the Interest Rate (as defined below) until the principal hereof is
paid or duly made available for payment on the Maturity Date, or, in the event
of redemption of this bond, until the redemption date, or, in the event of
default in the payment of the principal hereof, until the Company's obligations
with respect to the payment of such principal shall be discharged as provided in
the Indenture (as defined on the reverse hereof). Interest on this bond shall be
payable on each Interest Payment Date (as defined below), commencing on the
first Interest Payment Date next succeeding [INSERT DATE OF THE SUPPLEMENTAL
INDENTURE], 2002. If the Maturity Date falls on a day which is not a Business
Day, as defined below, principal and any interest and/or fees payable with
respect to the Maturity Date will be paid on the immediately preceding Business
Day. The interest payable, and punctually paid or duly provided for, on any
Interest Payment Date will, subject to certain exceptions, be paid to the person
in whose name this bond (or one or more predecessor bonds) is registered at the
close of business on the Record Date (as defined below); provided, however, that
interest payable on the Maturity Date will be payable to the person to whom the
principal hereof shall be payable. Should the Company default in the payment of
interest ("Defaulted Interest"), the Defaulted Interest shall be paid to the
person in whose name this bond (or one or more predecessor bonds) is registered
on a subsequent record date fixed by the Company, which subsequent record date
shall be fifteen (15) days prior to the payment of such Defaulted Interest. As
used herein, (A) "Business Day" shall mean any day, other than a Saturday or
Sunday, on which banks generally are open in Chicago, Illinois and New York, New
York for the conduct of substantially all of their commercial lending activities
and on which interbank wire transfers can be made on the Fedwire system; (B)
"Interest Payment Date" shall mean each date on which interest and/or fees under
the Term Loan Agreement are due and payable from time to time pursuant to the
Term Loan Agreement; (C) "Interest Rate" shall mean


                                      -3-
<PAGE>


a rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of interest and fees due under the Term
Loan Agreement on the applicable Interest Payment Date; and (D) "Record Date"
with respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.

         Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.

         The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.

         This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.

         IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.

                                        CONSUMERS ENERGY COMPANY
Dated:
                                        By:
                                            ----------------------------------
                                        Printed:
                                                 -----------------------------
                                        Title:
                                               -------------------------------


Attest:
        -------------------------


                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.


                                      -4-
<PAGE>


                                        JPMORGAN CHASE BANK, Trustee

                                        By
                                           -------------------------
                                           Authorized Officer


                                      -5-
<PAGE>


                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                              FIRST MORTGAGE BOND
                           COLLATERAL SERIES DUE 2003

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2003 (sometimes herein referred to as the "2003
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.

         The 2003 Collateral Series Bonds are to be issued and delivered to the
Agent in order evidence and secure the obligation of the Company under the Term
Loan Agreement to make payments to the Banks under the Term Loan Agreement and
to provide the Banks the benefit of the lien of the Indenture with respect to
the 2003 Collateral Series Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2003
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series


                                      -6-
<PAGE>

Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent in connection with the Obligations pursuant to the Term Loan
Agreement, and (iii) the amount of the arrearage.

         If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2003 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2003 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2003 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.

         This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.

         In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the



                                      -7-
<PAGE>

Indenture, or (c) reduce the percentage of the principal amount of the bonds the
holders of which are required to approve any such supplemental indenture.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.

         No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.

         This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.

         The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.

      [END OF FORM OF REGISTERED BOND OF THE 2003 COLLATERAL SERIES BONDS]

                           ---------------

                                      -8-
<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;

         NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$[INSERT AMOUNT OF DEFERRED DRAW TERM LOAN] principal amount of the 2003
Collateral Series Bonds proposed to be issued initially and all other bonds
which shall be issued under the Indenture, as supplemented and amended from time
to time, and for the purpose of securing the faithful performance and observance
of all covenants and conditions therein, and in any indenture supplemental
thereto, set forth, the Company has given, granted, bargained, sold, released,
transferred, assigned, hypothecated, pledged, mortgaged, confirmed, set over,
warranted, alienated and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage,
confirm, set over, warrant, alien and convey unto JPMorgan Chase Bank, as
Trustee, as provided in the Indenture, and its successor or successors in the
trust thereby and hereby created and to its or their assigns forever, all the
right, title and interest of the Company in and to all the property, described
in Section 11 hereof, together (subject to the provisions of Article X of the
Indenture) with the tolls, rents, revenues, issues, earnings, income, products
and profits thereof, excepting, however, the property, interests and rights
specifically excepted from the lien of the Indenture as set forth in the
Indenture;

         TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;

         SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                      -9-
<PAGE>

         BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;

         AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:

         SECTION 1. There is hereby created one series of bonds (the "2003
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2003 Collateral
Series Bonds shall be issued in the aggregate principal amount of $[INSERT
AMOUNT OF DEFERRED DRAW TERM LOAN], shall mature on April 15, 2003 and shall be
issued only as registered bonds without coupons in denominations of $1,000 and
any multiple thereof. The serial numbers of the 2003 Collateral Series Bonds
shall be such as may be approved by any officer of the Company, the execution
thereof by any such officer either manually or by facsimile signature to be
conclusive evidence of such approval. The 2003 Collateral Series Bonds are to be
issued to and registered in the name of the Agent under the Term Loan Agreement
(as such terms are defined in the Sample Bond) to evidence and secure any and
all Obligations (as such term is defined in the Term Loan Agreement) of the
Company under the Term Loan Agreement.

         The 2003 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.

         The obligation of the Company to make payments with respect to the
principal of 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with


                                      -10-
<PAGE>

respect to the principal of the 2003 Collateral Series Bonds shall be deemed
discharged in the same amount as the payment with respect to the Term Loans
discharges the outstanding obligation with respect to such Term Loans.

         The obligation of the Company to make payments with respect to the
interest on 2003 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2003 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.

         The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2003 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2003 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.

         The 2003 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.

         SECTION 2. The 2003 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.

         SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2003 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2003 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2003
Collateral Series Bonds by the Agent to the Trustee, the 2003 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.


         SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2003 Collateral Series Bonds or of any
subsequent series of bonds issued


                                      -11-
<PAGE>


under the Indenture, to make such amendments to the Indenture, as supplemented,
as shall be necessary in order to amend Section 17.02 to read as follows:

                  SECTION 17.02. With the consent of the holders of not less
         than a majority in principal amount of the bonds at the time
         outstanding or their attorneys-in-fact duly authorized, or, if fewer
         than all series are affected, not less than a majority in principal
         amount of the bonds at the time outstanding of each series the rights
         of the holders of which are affected, voting together, the Company,
         when authorized by a resolution, and the Trustee may from time to time
         and at any time enter into an indenture or indentures supplemental
         hereto for the purpose of adding any provisions to or changing in any
         manner or eliminating any of the provisions of this Indenture or of any
         supplemental indenture or modifying the rights and obligations of the
         Company and the rights of the holders of any of the bonds and coupons;
         provided, however, that no such supplemental indenture shall (1) extend
         the maturity of any of the bonds or reduce the rate or extend the time
         of payment of interest thereon, or reduce the amount of the principal
         thereof, or reduce any premium payable on the redemption thereof,
         without the consent of the holder of each bond so affected, or (2)
         permit the creation of any lien, not otherwise permitted, prior to or
         on a parity with the lien of this Indenture, without the consent of the
         holders of all the bonds then outstanding, or (3) reduce the aforesaid
         percentage of the principal amount of bonds the holders of which are
         required to approve any such supplemental indenture, without the
         consent of the holders of all the bonds then outstanding. For the
         purposes of this Section, bonds shall be deemed to be affected by a
         supplemental indenture if such supplemental indenture adversely affects
         or diminishes the rights of holders thereof against the Company or
         against its property. The Trustee may in its discretion determine
         whether or not, in accordance with the foregoing, bonds of any
         particular series would be affected by any supplemental indenture and
         any such determination shall be conclusive upon the holders of bonds of
         such series and all other series. Subject to the provisions of Sections
         16.02 and 16.03 hereof, the Trustee shall not be liable for any
         determination made in good faith in connection herewith.

                  Upon the written request of the Company, accompanied by a
         resolution authorizing the execution of any such supplemental
         indenture, and upon the filing with the Trustee of evidence of the
         consent of bondholders as aforesaid (the instrument or instruments
         evidencing such consent to be dated within one year of such request),
         the Trustee shall join with the Company in the execution of such
         supplemental indenture unless such supplemental indenture affects the
         Trustee's own rights, duties or immunities under this Indenture or
         otherwise, in which case the Trustee may in its discretion but shall
         not be obligated to enter into such supplemental indenture.

                  It shall not be necessary for the consent of the bondholders
         under this Section to approve the particular form of any proposed
         supplemental indenture, but it shall be sufficient if such consent
         shall approve the substance thereof.


                                      -12-
<PAGE>

                  The Company and the Trustee, if they so elect, and either
         before or after such consent has been obtained, may require the holder
         of any bond consenting to the execution of any such supplemental
         indenture to submit his bond to the Trustee or to ask such bank, banker
         or trust company as may be designated by the Trustee for the purpose,
         for the notation thereon of the fact that the holder of such bond has
         consented to the execution of such supplemental indenture, and in such
         case such notation, in form satisfactory to the Trustee, shall be made
         upon all bonds so submitted, and such bonds bearing such notation shall
         forthwith be returned to the persons entitled thereto.

                  Prior to the execution by the Company and the Trustee of any
         supplemental indenture pursuant to the provisions of this Section, the
         Company shall publish a notice, setting forth in general terms the
         substance of such supplemental indenture, at least once in one daily
         newspaper of general circulation in each city in which the principal of
         any of the bonds shall be payable, or, if all bonds outstanding shall
         be registered bonds without coupons or coupon bonds registered as to
         principal, such notice shall be sufficiently given if mailed, first
         class, postage prepaid, and registered if the Company so elects, to
         each registered holder of bonds at the last address of such holder
         appearing on the registry books, such publication or mailing, as the
         case may be, to be made not less than thirty days prior to such
         execution. Any failure of the Company to give such notice, or any
         defect therein, shall not, however, in any way impair or affect the
         validity of any such supplemental indenture.

         SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.

         SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.

         SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.

         SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.

         SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any


                                      -13-
<PAGE>

supplemental indenture thereto) such notice need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the date fixed for such notice. "Business Day" means, with respect
to this Section 9, any day, other than a Saturday or Sunday, on which banks
generally are open in Chicago, Illinois and New York, New York for the conduct
of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system.

         SECTION 10. This Supplemental Indenture and the 2003 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.

         SECTION 11. Detailed Description of Property Mortgaged:

                                   ARTICLE I:

                      ELECTRIC GENERATING PLANTS AND DAMS

         All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.

                                  ARTICLE II:

                          ELECTRIC TRANSMISSION LINES

         All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.


                                      -14-
<PAGE>

                                  ARTICLE III:

                         ELECTRIC DISTRIBUTION SYSTEMS

         All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards, towers, poles, wires,
insulators, subways, trenches, conduits, manholes, cables, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all real
property, rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation thereof,
through, over, under or upon any private property or any public streets or
highways within as well as without the corporate limits of any municipal
corporation.

                                   ARTICLE IV:

               ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES

         All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.

                                   ARTICLE V:

                GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
             DESULPHURIZATION STATIONS, METERING STATIONS, ODORIZING
                         STATIONS, REGULATORS AND SITES

         All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.


                                      -15-
<PAGE>

                                  ARTICLE VI:

                               GAS STORAGE FIELDS

         The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located in the Township of Salem,
Washtenaw County, Township of Lyon, Oakland County, and the Townships of
Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the
Salem Gas Storage Field, located in the Township of Salem, Allegan County, and
in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage
Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in
the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township
of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located
in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas
Storage Field, located in the Townships of Casco, China, Cottrellville and Ira,
St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.

                                  ARTICLE VII:

                             GAS TRANSMISSION LINES

         All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.

                                 ARTICLE VIII:

                            GAS DISTRIBUTION SYSTEMS

         All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed


                                      -16-
<PAGE>

in connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.

                                  ARTICLE IX:

               OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.

         All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.

                                   ARTICLE X:

                            TELEPHONE PROPERTIES AND
                         RADIO COMMUNICATION EQUIPMENT

         All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.

                                  ARTICLE XI:

                              OTHER REAL PROPERTY

         All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:


                                      -17-
<PAGE>

                                 ALCONA COUNTY

         Certain land in Caledonia Township, Alcona County, Michigan described
as:

                  The East 330 feet of the South 660 feet of the SW 1/4 of the
         SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
         330 feet thereof; said land being more particularly described as
         follows: To find the place of beginning of this description, commence
         at the Southwest corner of said section, run thence East along the
         South line of said section 1243 feet to the place of beginning of this
         description, thence continuing East along said South line of said
         section 66 feet to the West 1/8 line of said section, thence N 02
         degrees 09' 30" E along the said West 1/8 line of said section 660
         feet, thence West 330 feet, thence S 02 degrees 09' 30" W, 330 feet,
         thence East 264 feet, thence S 02 degrees 09' 30" W, 330 feet to the
         place of beginning.

                                 ALLEGAN COUNTY

         Certain land in Lee Township, Allegan County, Michigan described as:

                  The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.

                                 ALPENA COUNTY

         Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:

                  All that part of the S'ly 1/2 of the former Boyne City-Gaylord
         and Alpena Railroad right of way, being the Southerly 50 feet of a 100
         foot strip of land formerly occupied by said Railroad, running from the
         East line of Section 31, T31N, R7E, Southwesterly across said Section
         31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
         of Section 9, except the West 1646 feet thereof, all in T30N, R6E.

                                 ANTRIM COUNTY

         Certain land in Mancelona Township, Antrim County, Michigan described
as:

                  The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the State of Michigan to August W. Schack and Emma H. Schack, his wife,
         dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
         page 682 of Antrim County Records.

                                 ARENAC COUNTY

         Certain land in Standish Township, Arenac County, Michigan described
as:


                                      -18-
<PAGE>

                  A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
         T18N, R4E, described as follows: To find the place of beginning of said
         parcel of land, commence at the Northwest corner of Section 12, T18N,
         R4E; run thence South along the West line of said section, said West
         line of said section being also the center line of East City Limits
         Road 2642.15 feet to the W 1/4 post of said section and the place of
         beginning of said parcel of land; running thence N 88 degrees 26' 00" E
         along the East and West 1/4 line of said section, 660.0 feet; thence
         North parallel with the West line of said section, 310.0 feet; thence S
         88 degrees 26' 00" W, 330.0 feet; thence South parallel with the West
         line of said section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0
         feet to the West line of said section and the center line of East City
         Limits Road; thence South along the said West line of said section,
         50.0 feet to the place of beginning.

                                  BARRY COUNTY

         Certain land in Johnstown Township, Barry County, Michigan described
as:

                  A strip of land 311 feet in width across the SW 1/4 of the NE
         1/4 of Section 31, T1N, R8W, described as follows: To find the place of
         beginning of this description, commence at the E 1/4 post of said
         section; run thence N 00 degrees 55' 00" E along the East line of said
         section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
         thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
         of said section and the place of beginning of this description; thence
         continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
         1/4 line of said section; thence S 00 degrees 39'35" W along said North
         and South 1/4 line of said section, 311.03 feet to a point, which said
         point is 952.72 feet distant N'ly from the East and West 1/4 line of
         said section as measured along said North and South 1/4 line of said
         section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
         line of said section; thence N 00 degrees 47' 20" E along said East 1/8
         line of said section, 311.02 feet to the place of beginning.

                                   BAY COUNTY

         Certain land in Frankenlust Township, Bay County, Michigan described
as:

                  The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
         the SE 1/4 of Section 9, T13N, R4E.

                                 BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
as:

                  A parcel of land in the Northeast 1/4 of Section 7, Township
         26 North, Range 14 West, described as beginning at a point on the East
         line of said Section 7, said point being 320 feet North measured along
         the East line of said section from the East 1/4 post; running thence
         West 165 feet; thence North parallel with



                                      -19-
<PAGE>

         the East line of said section 165 feet; thence East 165 feet to the
         East line of said section; thence South 165 feet to the place of
         beginning.

                                 BRANCH COUNTY

         Certain land in Girard Township, Branch County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
         described as beginning at a point on the North and South quarter line
         of said section at a point 1278.27 feet distant South of the North
         quarter post of said section, said distance being measured along the
         North and South quarter line of said section, running thence S89
         degrees21'E 250 feet, thence North along a line parallel with the said
         North and South quarter line of said section 200 feet, thence N89
         degrees21'W 250 feet to the North and South quarter line of said
         section, thence South along said North and South quarter line of said
         section 200 feet to the place of beginning.

                                 CALHOUN COUNTY

         Certain land in Convis Township, Calhoun County, Michigan described as:

                  A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
         T1S, R6W, described as follows: To find the place of beginning of this
         description, commence at the Southeast corner of said section; run
         thence North along the East line of said section 1034.32 feet to the
         place of beginning of this description; running thence N 89 degrees 39'
         52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
         said section; thence S 89 degrees 39' 52" E along said South 1/8 line
         of said section 333.0 feet to the East line of said section; thence
         South along said East line of said section 290.0 feet to the place of
         beginning. (Bearings are based on the East line of Section 32, T1S,
         R6W, from the Southeast corner of said section to the Northeast corner
         of said section assumed as North.)

                                  CASS COUNTY

         Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:

                  The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
         R13W.

                               CHARLEVOIX COUNTY

         Certain land in South Arm Township, Charlevoix County, Michigan
described as:

                  A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
         described as follows: Beginning at the Southwest corner of said section
         and running thence North along the West line of said section 788.25
         feet to a point which is 528 feet distant South of the South 1/8 line
         of said section as measured along the said West

                                      -20-
<PAGE>

         line of said section; thence N 89 degrees 30' 19" E, parallel with said
         South 1/8 line of said section 442.1 feet; thence South 788.15 feet to
         the South line of said section; thence S 89 degrees 29' 30" W, along
         said South line of said section 442.1 feet to the place of beginning.

                                CHEBOYGAN COUNTY

         Certain land in Inverness Township, Cheboygan County, Michigan
described as:

                  A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
         described as beginning at the Northwest corner of the SW frl 1/4,
         running thence East on the East and West quarter line of said Section,
         40 rods, thence South parallel to the West line of said Section 40
         rods, thence West 40 rods to the West line of said Section, thence
         North 40 rods to the place of beginning.

                                  CLARE COUNTY

         Certain land in Frost Township, Clare County, Michigan described as:

                  The East 150 feet of the North 225 feet of the NW 1/4 of the
         NW 1/4 of Section 15, T20N, R4W.

                                 CLINTON COUNTY

         Certain land in Watertown Township, Clinton County, Michigan described
as:

                  The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
         North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
         T5N, R3W.

                                CRAWFORD COUNTY

         Certain land in Lovells Township, Crawford County, Michigan described
as:

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees53'30" East along North section line 649.64 feet;
         thence South 55 degrees 42'30" East 340.24 feet; thence South 55
         degrees 44' 37" East 5,061.81 feet to the East section line; thence
         South 00 degrees 00' 08" West along East section line 441.59 feet;
         thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                  EATON COUNTY

         Certain land in Eaton Township, Eaton County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
         described as follows: To find the place of beginning of this
         description commence at the


                                      -21-
<PAGE>

         Southwest corner of said section; run thence N 89 degrees 51' 30" E
         along the South line of said section 400 feet to the place of beginning
         of this description; thence continuing N 89 degrees 51' 30" E, 500
         feet; thence N 00 degrees 50' 00" W, 600 feet; thence S 89 degrees 51'
         30" W parallel with the South line of said section 500 feet; thence S
         00 degrees 50' 00" E, 600 feet to the place of beginning.

                                  EMMET COUNTY

         Certain land in Wawatam Township, Emmet County, Michigan described as:

                  The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
         Section 23, T39N, R4W.

                                 GENESEE COUNTY

         Certain land in Argentine Township, Genesee County, Michigan described
as:

                  A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
         being more particularly described as follows:

                   Beginning at a point of the West line of Duffield Road, 100
         feet wide, (as now established) distant 829.46 feet measured N01
         degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
         distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
         to a point on the North line of the South half of the Southwest quarter
         of said Section 8; thence N88 degrees14'04"E along the North line of
         South half of the Southwest quarter of said Section 8 a distance 550
         feet to a point on the West line of Duffield Road, 100 feet wide (as
         now established); thence S01 degrees42'56"E along the West line of said
         Duffield Road a distance of 500 feet to the point of beginning.

                                 GLADWIN COUNTY

         Certain land in Secord Township, Gladwin County, Michigan described as:

                  The East 400 feet of the South 450 feet of Section 2, T19N,
         R1E.

                             GRAND TRAVERSE COUNTY

         Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:

                  A parcel of land in the Northwest 1/4 of Section 3, T25N,
         R11W, described as follows: Commencing at the Northwest corner of said
         section, running thence S 89 degrees19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
         section and the center line of


                                      -22-
<PAGE>

         Hannah Road, thence North along the West line of said section and the
         center line of Hannah Road 400 feet to the place of beginning for this
         description.

                                 GRATIOT COUNTY

         Certain land in Fulton Township, Gratiot County, Michigan described as:

                  A parcel of land in the NE 1/4 of Section 7, Township 9 North,
         Range 3 West, described as beginning at a point on the North line of
         George Street in the Village of Middleton, which is 542 feet East of
         the North and South one-quarter (1/4) line of said Section 7; thence
         North 100 feet; thence East 100 feet; thence South 100 feet to the
         North line of George Street; thence West along the North line of George
         Street 100 feet to place of beginning.

                                HILLSDALE COUNTY

         Certain land in Litchfield Village, Hillsdale County, Michigan
described as:

                  Lot 238 of Block three (3) of Assessors Plat of the Village of
         Litchfield.

                                  HURON COUNTY

         Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:

                  The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.

                                 INGHAM COUNTY

         Certain land in Vevay Township, Ingham County, Michigan described as:

                  A parcel of land 660 feet wide in the Southwest 1/4 of Section
         7 lying South of the centerline of Sitts Road as extended to the
         North-South 1/4 line of said Section 7, T2N, R1W, more particularly
         described as follows: Commence at the Southwest corner of said Section
         7, thence North along the West line of said Section 2502.71 feet to the
         centerline of Sitts Road; thence South 89 degrees54'45" East along said
         centerline 2282.38 feet to the place of beginning of this description;
         thence continuing South 89 degrees54'45" East along said centerline and
         said centerline extended 660.00 feet to the North-South 1/4 line of
         said section; thence South 00 degrees07'20" West 1461.71 feet; thence
         North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
         East 1457.91 feet to the centerline of Sitts Road and the place of
         beginning.

                                  IONIA COUNTY

         Certain land in Sebewa Township, Ionia County, Michigan described as:


                                      -23-
<PAGE>

                  A strip of land 280 feet wide across that part of the SW 1/4
         of the NE 1/4 of Section 15, T5N, R6W, described as follows:

                  To find the place of beginning of this description commence at
         the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
         along the East line of said section, 1218.43 feet; thence S 67 degrees
         18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
         place of beginning of this description; thence continuing S 67 degrees
         18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
         at a point which said point is 105.82 feet distant N'ly of the center
         of said section as measured along said North and South 1/4 line of said
         section; thence N 00 degrees 04' 47" E along said North and South 1/4
         line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
         1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
         00' 26" E along said East 1/8 line of said section, 303.48 feet to the
         place of beginning. (Bearings are based on the East line of Section 15,
         T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
         of said section assumed as N 00 degrees 05' 38" W.)

                                  IOSCO COUNTY

         Certain land in Alabaster Township, Iosco County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence
         South along the North and South 1/4 line of said section, 1354.40 feet
         to the place of beginning of this description; thence continuing South
         along the said North and South 1/4 line of said section, 165.00 feet to
         a point on the said North and South 1/4 line of said section which said
         point is 1089.00 feet distant North of the center of said section;
         thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
         feet to the said North and South 1/4 line of said section and the place
         of beginning.

                                ISABELLA COUNTY

         Certain land in Chippewa Township, Isabella County, Michigan described
as:

                  The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
         T14N, R3W.

                                 JACKSON COUNTY

         Certain land in Waterloo Township, Jackson County, Michigan described
as:

                  A parcel of land in the North fractional part of the N
         fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
         the place of beginning of this description commence at the E 1/4 post
         of said section; run thence N 01 degrees 03' 40" E along the East line
         of said section 1335.45 feet to the North 1/8 line of said section and
         the place of beginning of this description; thence N 89 degrees 32' 00"
         W, 2677.7 feet to the North and South 1/4 line of said section; thence
         S 00 degrees 59' 25" W along the North and South 1/4 line of said
         section 22.38


                                      -24-
<PAGE>

         feet to the North 1/8 line of said section; thence S 89 degrees 59' 10"
         W along the North 1/8 line of said section 2339.4 feet to the center
         line of State Trunkline Highway M-52; thence N 53 degrees 46' 00" W
         along the center line of said State Trunkline Highway 414.22 feet to
         the West line of said section; thence N 00 degrees 55' 10" E along the
         West line of said section 74.35 feet; thence S 89 degrees 32' 00" E,
         5356.02 feet to the East line of said section; thence S 01 degrees 03'
         40" W along the East line of said section 250 feet to the place of
         beginning.

                                KALAMAZOO COUNTY

         Certain land in Alamo Township, Kalamazoo County, Michigan described
as:

                  The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
         T1S, R12W, being more particularly described as follows: To find the
         place of beginning of this description, commence at the Northwest
         corner of said section; run thence S 00 degrees 36' 55" W along the
         West line of said section 971.02 feet to the place of beginning of this
         description; thence continuing S 00 degrees 36' 55" W along said West
         line of said section 350.18 feet to the North 1/8 line of said section;
         thence S 87 degrees 33' 40" E along the said North 1/8 line of said
         section 1325.1 feet to the West 1/8 line of said section; thence N 00
         degrees 38' 25" E along the said West 1/8 line of said section 350.17
         feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
         beginning.

                                KALKASKA COUNTY

         Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:

                  The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
         therefrom all mineral, coal, oil and gas and such other rights as were
         reserved unto the State of Michigan in that certain deed running from
         the Department of Conservation for the State of Michigan to George
         Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
         December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
         and subject to easement for pipeline purposes as granted to Michigan
         Consolidated Gas Company by first party herein on April 4, 1963 and
         recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
         Records.

                                  KENT COUNTY

         Certain land in Caledonia Township, Kent County, Michigan described as:

                  A parcel of land in the Northwest fractional 1/4 of Section
         15, T5N, R10W, described as follows: To find the place of beginning of
         this description commence at the North 1/4 corner of said section, run
         thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
         section 2046.25 feet to the place of beginning of this description,
         thence continuing S 0 degrees 59' 26" E along said North and South 1/4
         line of said section 332.88 feet, thence S 88 degrees 58' 30"


                                      -25-
<PAGE>


         W 2510.90 feet to a point herein designated "Point A" on the East bank
         of the Thornapple River, thence continuing S 88 degrees 53' 30" W to
         the center thread of the Thornapple River, thence NW'ly along the
         center thread of said Thornapple River to a point which said point is S
         88 degrees 58' 30" W of a point on the East bank of the Thornapple
         River herein designated "Point B", said "Point B" being N 23 degrees
         41' 35" W 360.75 feet from said above-described "Point A", thence N 88
         degrees 58' 30" E to said "Point B", thence continuing N 88 degrees 58'
         30" E 2650.13 feet to the place of beginning. (Bearings are based on
         the East line of Section 15, T5N, R10W between the East 1/4 corner of
         said section and the Northeast corner of said section assumed as N 0
         degrees 59' 55" W.)

                                  LAKE COUNTY

         Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:

                  A strip of land 50 feet wide East and West along and adjoining
         the West line of highway on the East side of the North 1/2 of Section
         13 T18N, R12W. Also a strip of land 100 feet wide East and West along
         and adjoining the East line of the highway on the West side of
         following described land: The South 1/2 of NW 1/4, and the South 1/2 of
         the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.

                                 LAPEER COUNTY

         Certain land in Hadley Township, Lapeer County, Michigan described as:

                  The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
         T6N, R9E, except the West 1064 feet thereof.

                                LEELANAU COUNTY

         Certain land in Cleveland Township, Leelanau County, Michigan described
as:

                  The North 200 feet of the West 180 feet of the SW 1/4 of the
         SE 1/4 of Section 35, T29N, R13W.

                                 LENAWEE COUNTY

         Certain land in Madison Township, Lenawee County, Michigan described
as:

                  A strip of land 165 feet wide off the West side of the
         following described premises: The E 1/2 of the SE 1/4 of Section 12.
         The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
         being all in T7S, R3E, excepting therefrom a parcel of land in the E
         1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
         corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
         rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
         the place of beginning.


                                      -26-
<PAGE>

                               LIVINGSTON COUNTY

         Certain land in Cohoctah Township, Livingston County, Michigan
described as:

                  Parcel 1

                  The East 390 feet of the East 50 rods of the SW 1/4 of Section
         30, T4N, R4E.

                  Parcel 2

                  A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
         described as follows: To find the place of beginning of this
         description commence at the N 1/4 post of said section; run thence N 89
         degrees 13' 06" W along the North line of said section, 330 feet to the
         place of beginning of this description; running thence S 00 degrees 52'
         49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
         00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
         thence S 89 degrees 13' 06" E along said North line of said section, 60
         feet to the place of beginning.

                                 MACOMB COUNTY

     Certain land in Macomb Township, Macomb County, Michigan described as:

                  A parcel of land commencing on the West line of the E 1/2 of
         the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
         said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
         and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
         according to the recorded plat thereof, as recorded in Liber 24 of
         Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
         Section 6; thence East on said East and West 1/4 line 8.93 chains;
         thence North parallel with the said West line of the E 1/2 of the NW
         1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
         beginning, all in T3N, R13E.

                                MANISTEE COUNTY

         Certain land in Manistee Township, Manistee County, Michigan described
as:

                  A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
         described as follows: To find the place of beginning of this
         description, commence at the Southwest corner of said section; run
         thence East along the South line of said section 832.2 feet to the
         place of beginning of this description; thence continuing East along
         said South line of said section 132 feet; thence North 198 feet; thence
         West 132 feet; thence South 198 feet to the place of beginning,
         excepting therefrom the South 2 rods thereof which was conveyed to
         Manistee Township for highway purposes by a Quitclaim Deed dated June
         13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
         Manistee County Records.

                                      -27-
<PAGE>

                                  MASON COUNTY

         Certain land in Riverton Township, Mason County, Michigan described as:

                  Parcel 1

                  The South 10 acres of the West 20 acres of the S 1/2 of the NE
         1/4 of Section 22, T17N, R17W.

                  Parcel 2

                  A parcel of land containing 4 acres of the West side of
         highway, said parcel of land being described as commencing 16 rods
         South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
         22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
         NW'ly along the W'ly line of said highway to the place of beginning,
         together with any and all right, title, and interest of Howard C.
         Wicklund and Katherine E. Wicklund in and to that portion of the
         hereinbefore mentioned highway lying adjacent to the E'ly line of said
         above described land.

                                 MECOSTA COUNTY

         Certain land in Wheatland Township, Mecosta County, Michigan described
as:

                  A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
         T14N, R7W, described as beginning at the Southwest corner of said
         section; thence East along the South line of Section 133 feet; thence
         North parallel to the West section line 133 feet; thence West 133 feet
         to the West line of said Section; thence South 133 feet to the place of
         beginning.

                                 MIDLAND COUNTY

         Certain land in Ingersoll Township, Midland County, Michigan described
as:

                  The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
         T13N, R2E.

                                MISSAUKEE COUNTY

         Certain land in Norwich Township, Missaukee County, Michigan described
as:

                  A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
         T24N, R6W, described as follows: Commencing at the Northwest corner of
         said section, running thence N 89 degrees 01' 45" E along the North
         line of said section 233.00 feet; thence South 233.00 feet; thence S 89
         degrees 01' 45" W, 233.00 feet to the West line of said section; thence
         North along said West line of said section 233.00 feet to the place of
         beginning. (Bearings are based on the West line of Section 16, T24N,
         R6W, between the Southwest and Northwest corners of said section
         assumed as North.)

                                      -28-
<PAGE>

                                 MONROE COUNTY

         Certain land in Whiteford Township, Monroe County, Michigan described
as:

                  A parcel of land in the SW1/4 of Section 20, T8S, R6E,
         described as follows: To find the place of beginning of this
         description commence at the S 1/4 post of said section; run thence West
         along the South line of said section 1269.89 feet to the place of
         beginning of this description; thence continuing West along said South
         line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
         thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
         16.5 feet distant W'ly of as measured perpendicular to the West 1/8
         line of said section, as occupied, a distance of 250 feet to the place
         of beginning.

                                MONTCALM COUNTY

         Certain land in Crystal Township, Montcalm County, Michigan described
as:

                  The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.

                               MONTMORENCY COUNTY

         Certain land in the Village of Hillman, Montmorency County, Michigan
described as:

                  Lot 14 of Hillman Industrial Park, being a subdivision in the
         South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
         the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
         Montmorency County Records.

                                MUSKEGON COUNTY

         Certain land in Casnovia Township, Muskegon County, Michigan described
as:

                  The West 433 feet of the North 180 feet of the South 425 feet
         of the SW 1/4 of Section 3, T10N, R13W.

                                 NEWAYGO COUNTY

         Certain land in Ashland Township, Newaygo County, Michigan described
as:

                  The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                  The E 75 feet of the N 160 feet of the N 330 feet of the W
         526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
         particularly described as follows: Commence at the NW corner of said
         Section 8, thence N 87 degrees 14' 29" E along the North line of said
         Section 8 a distance of 451.84 feet to the place


                                      -29-
<PAGE>

         of beginning for this description; thence continuing N 87 degrees 14'
         29" E along said North section line a distance of 75.0 feet to the East
         line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
         Section 8; thence S 02 degrees 37' 09" E along said East line a
         distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
         75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
         the place of beginning.

                                 OCEANA COUNTY

         Certain land in Crystal Township, Oceana County, Michigan described as:

                  The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
         feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.

                                 OGEMAW COUNTY

         Certain land in West Branch Township, Ogemaw County, Michigan described
as:

                  The South 660 feet of the East 660 feet of the NE 1/4 of the
         NE 1/4 of Section 33, T22N, R2E.

                                 OSCEOLA COUNTY

         Certain land in Hersey Township, Osceola County, Michigan described as:

                  A parcel of land in the North 1/2 of the Northeast 1/4 of
         Section 13, T17N, R9W, described as commencing at the Northeast corner
         of said Section; thence West along the North Section line 999 feet to
         the point of beginning of this description; thence S 01 degrees 54' 20"
         E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
         along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
         1331.26 feet to the North Section line; thence East along the North
         Section line 331 feet to the point of beginning.

                                 OSCODA COUNTY

         Certain land in Comins Township, Oscoda County, Michigan described as:

                  The East 400 feet of the South 580 feet of the W 1/2 of the SW
         1/4 of Section 15, T27N, R3E.

                                 OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                  Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
         described as: Beginning at the N 1/4 corner of said section; running
         thence S 89 degrees 04' 06" E along the North line of said section,
         330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
         degrees 04' 06" W, 330.00 feet to the North and


                                      -30-
<PAGE>

         South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
         said North and South 1/4 line of said section, 400.00 feet to the point
         of beginning; subject to the use of the N'ly 33.00 feet thereof for
         highway purposes.

                                 OTTAWA COUNTY

         Certain land in Robinson Township, Ottawa County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NE 1/4 of the
         NW 1/4 of Section 26, T7N, R15W.

                              PRESQUE ISLE COUNTY

         Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:

                  Part of the South half of the Northeast quarter, Section 24,
         T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
         more fully described as: Commencing at the East 1/4 corner of said
         Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
         said North 1/8 line of Section 24 to the point of beginning.

                  Together with a 33 foot easement along the West 33 feet of the
         Northwest quarter lying North of the North 1/8 line of Section 24,
         Belknap Township, extended, in Section 19, T34N, R6E.

                                ROSCOMMON COUNTY

         Certain land in Gerrish Township, Roscommon County, Michigan described
as:

                  A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
         described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section, run
         thence East along the North line of said section 1,163.2 feet to the
         place of beginning of this description (said point also being the place
         of intersection of the West 1/8 line of said section with the North
         line of said section), thence S 01 degrees 01' E along said West 1/8
         line 132 feet, thence West parallel with the North line of said section
         132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
         said section 132 feet to the North line of said section, thence East
         along the North line of said section 132 feet to the place of
         beginning.

                                      -31-
<PAGE>

                                 SAGINAW COUNTY

         Certain land in Chapin Township, Saginaw County, Michigan described as:

                  A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
         described as follows: To find the place of beginning of this
         description commence at the Southwest corner of said section; run
         thence North along the West line of said section 1581.4 feet to the
         place of beginning of this description; thence continuing North along
         said West line of said section 230 feet to the center line of a creek;
         thence S 70 degrees 07' 00" E along said center line of said creek
         196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
         line of said section and the place of beginning.

                                 SANILAC COUNTY

         Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:

                  The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
         R14E, excepting therefrom the South 83 feet of the East 83 feet
         thereof.

                               SHIAWASSEE COUNTY

         Certain land in Burns Township, Shiawassee County, Michigan described
as:

                  The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
         T5N, R4E.

                                ST. CLAIR COUNTY

         Certain land in Ira Township, St. Clair County, Michigan described as:

                  The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.

                               ST. JOSEPH COUNTY

         Certain land in Mendon Township, St. Joseph County, Michigan described
as:

                  The North 660 feet of the West 660 feet of the NW 1/4 of SW
         1/4, Section 35, T5S, R10W.

                                 TUSCOLA COUNTY

         Certain land in Millington Township, Tuscola County, Michigan described
as:

                  A strip of land 280 feet wide across the East 96 rods of the
         South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
         particularly described as commencing at the Northeast corner of Section
         3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
         Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
         distance of 1398.67 feet to the South 1/8


                                      -32-
<PAGE>

         line of said Section 34 and the place of beginning for this
         description; thence continuing N 18 degrees 11' 50" W a distance of
         349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
         thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
         1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
         South 1/8 line of said section a distance of 294.76 feet to the place
         of beginning.

                                VAN BUREN COUNTY

         Certain land in Covert Township, Van Buren County, Michigan described
as:

                  All that part of the West 20 acres of the N 1/2 of the NE
         fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
         North 80 rods, being more particularly described as follows: To find
         the place of beginning of this description commence at the N 1/4 post
         of said section; run thence N 89 degrees 29' 20" E along the North line
         of said section 280.5 feet to the place of beginning of this
         description; thence continuing N 89 degrees 29' 20" E along said North
         line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
         1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
         and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
         said North and South 1/4 line of said section 211.4 feet; thence N 89
         degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
         to the North line of said section and the place of beginning.

                                WASHTENAW COUNTY

         Certain land in Manchester Township, Washtenaw County, Michigan
described as:

                  A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
         T4S, R3E, described as follows: To find the place of beginning of this
         description commence at the Northwest corner of said section; run
         thence East along the North line of said section 1355.07 feet to the
         West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
         West 1/8 line of said section 927.66 feet to the place of beginning of
         this description; thence continuing S 00 degrees 22' 20" E along said
         West 1/8 line of said section 660 feet to the North 1/8 line of said
         section; thence N 86 degrees 36' 57" E along said North 1/8 line of
         said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
         thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.

                                  WAYNE COUNTY

         Certain land in Livonia City, Wayne County, Michigan described as:

                  Commencing at the Southeast corner of Section 6, T1S, R9E;
         thence North along the East line of Section 6 a distance of 253 feet to
         the point of beginning; thence continuing North along the East line of
         Section 6 a distance of 50 feet; thence Westerly parallel to the South
         line of Section 6, a distance of 215 feet; thence Southerly parallel to
         the East line of Section 6 a distance of 50 feet;


                                      -33-
<PAGE>

         thence easterly parallel with the South line of Section 6 a distance of
         215 feet to the point of beginning.

                                 WEXFORD COUNTY

         Certain land in Selma Township, Wexford County, Michigan described as:

                  A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
         described as beginning on the North line of said section at a point 200
         feet East of the West line of said section, running thence East along
         said North section line 450 feet, thence South parallel with said West
         section line 350 feet, thence West parallel with said North section
         line 450 feet, thence North parallel with said West section line 350
         feet to the place of beginning.

         SECTION 12. The Company is a transmitting utility under Section 9401(5)
of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in
M.C.L. 440.9105(n).


         IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.


                                      -34-
<PAGE>

                                              CONSUMERS ENERGY COMPANY



(SEAL)                                     By
                                              ----------------------------
                                              Laura L. Mountcastle
Attest:                                       Vice President and Treasurer



- ----------------------------
Don A. Forsblom
Assistant Secretary



Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of


- ----------------------------
Kimberly C. Wilson


- ----------------------------
Sammie B. Dalton

STATE OF MICHIGAN           )
                             ss.
COUNTY OF JACKSON           )

                  The foregoing instrument was acknowledged before me this ___
day of ____________, 2002, by Laura L. Mountcastle, Vice President and Treasurer
of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the
corporation.

                                           ------------------------------------
                                           Margaret Hillman, Notary Public
[Seal]                                     Jackson County, Michigan
                                           My Commission Expires: June 14, 2004



                                      S-1

<PAGE>

                                           JPMORGAN CHASE BANK, AS TRUSTEE



(SEAL)                                     By
                                              ----------------------------
                                              L. O'Brien
Attest:                                       Vice President



- ----------------------------

Trust Officer



Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of


- ----------------------------



- ----------------------------




STATE OF NEW YORK           )
                            ss.
COUNTY OF NEW YORK          )


                  The foregoing instrument was acknowledged before me this ____
day of _____________, 2002, by L. O'Brien, a Vice President of JPMORGAN CHASE
BANK, a New York corporation, on behalf of the corporation.


                                        --------------------------------------
                                                                 Notary Public
[Seal]                                  New York County, New York
                                        My Commission Expires:

Prepared by:
Kimberly C. Wilson
212 West Michigan Avenue
Jackson, MI 49201


<PAGE>

When recorded, return to:
Consumers Energy Company
General Services Real Estate Department
Attn: Nancy P. Fisher, P-21-411
1945 W. Parnall Road
Jackson, MI 49201


<PAGE>

                                  EXHIBIT B-1

                             REQUIRED OPINIONS FROM

                           MICHAEL D. VANHEMERT, ESQ.

1.       The Company is a corporation duly incorporated, validly existing and in
         good standing under the laws of the State of Michigan.

2.       The execution and delivery of the Credit Documents by the Company and
         the performance by the Company of the Obligations have been duly
         authorized by all necessary corporate action and proceedings on the
         part of the Company and will not:

         (a) contravene the Company's Restated Articles of Incorporation, as
         amended, or bylaws;

         (b) contravene any law or any contractual restriction imposed by any
         indenture or any other agreement or instrument evidencing or governing
         indebtedness for borrowed money of the Company; or

         (c) result in or require the creation of any Lien upon or with respect
         to any of the Company's properties (except the lien in favor of the
         Agent pursuant to the Inventory Security Agreement and the lien of the
         Indenture securing the Bonds).

3.       The Credit Documents have been duly executed and delivered by the
         Company.

4.       To the best of my knowledge, there is no pending or threatened action
         or proceeding against the Company or any of its Consolidated
         Subsidiaries before any court, governmental agency or arbitrator
         (except (i) to the extent described in the Company's annual report on
         Form 10-K for the year ended December 31, 2001, quarterly report on
         Form 10-Q for the quarter ended June 30, 2002, and current reports on
         Form 8-K filed by the Company on July 30, 2002 and September 8, 2002,
         in each case as filed with the SEC, and (ii) such other similar
         actions, suits and proceedings predicated on the occurrence of the same
         events giving rise to any actions, suits and proceedings described in
         the reports filed with the SEC set forth in clause (i) of this
         paragraph 4) which might reasonably be expected to materially adversely
         affect the financial condition or results of operations of the Company
         and its Consolidated Subsidiaries, taken as a whole, or that would
         materially adversely affect the Company's ability to perform its
         obligations under any Credit Document. To the best of my knowledge,
         there is no litigation challenging the validity or the enforceability
         of any of the Credit Documents.

5.       No authorization or approval or other action by, and no notice to or
         filing with, any governmental authority or regulatory body is required
         for the due execution, delivery and performance by the Company of any
         Credit Document, except for the authorization to issue, sell or
         guarantee secured and/or unsecured short-term debt granted by the
         Federal Energy Regulatory Commission in Docket No. ES02-37-000
         (hereinafter the "FERC Order"). The FERC Order is in full force and
         effect as of the date hereof.


                                      B-1
<PAGE>


6.       The Bonds, assuming due authentication in accordance with the terms of
         the Indenture, are in due and proper form and, when delivered to the
         Agent pursuant to the Bond Delivery Agreement, will evidence and secure
         the Obligations owing under the Agreement and will be valid and
         enforceable obligations of the Company in accordance with their terms,
         secured by the lien of the Indenture on an equal and ratable basis with
         all other bonds issued thereunder and otherwise entitled to the
         benefits provided by the Indenture.

7.       The Indenture has been qualified under the Trust Indenture Act of 1939,
         as amended, and the execution and delivery of the Supplemental
         Indenture will not cause the Indenture to not be so qualified.

8.       The Company is not an "investment company" or a company "controlled" by
         an "investment company" as such terms are defined in the Investment
         Company Act of 1940, as amended.

9.       The Company (i) is a "public utility" and a "subsidiary company" of a
         "holding company", as such terms are defined in the Public Utility
         Holding Company Act of 1935, as amended (the "Holding Company Act"),
         and (ii) is currently exempt from all provisions of the Holding Company
         Act, except Section 9(a)(2) thereof.

10.      In a properly presented case, a Michigan court or a federal court
         applying Michigan choice of law rules should give effect to the choice
         of law provisions of the Agreement and should hold that the Agreement
         is to be governed by the laws of the State of New York rather than the
         laws of the State of Michigan, except in the case of those provisions
         set forth in the Agreement the enforcement of which would contravene a
         fundamental policy of the State of Michigan. In the course of our
         review of the Agreement, nothing has come to my attention to indicate
         that any of such provisions would do so. Notwithstanding the foregoing,
         even if a Michigan court or a federal court holds that the Agreement is
         to be governed by the laws of the State of Michigan, the Agreement
         constitutes a legal, valid and binding obligation of the Company,
         enforceable under Michigan law (including usury provisions) against the
         Company in accordance with its terms, subject to (a) the effect of
         applicable bankruptcy, insolvency, reorganization, moratorium or other
         similar laws affecting the enforcement of creditors' rights generally
         and (b) the application of general principles of equity (regardless of
         whether considered in a proceeding in equity or at law).


                                      B-2
<PAGE>

                                  EXHIBIT B-2

                             REQUIRED OPINIONS FROM

                    SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

1.       The execution and delivery of the Credit Documents by the Company and
         the performance by the Company of the Obligations will not:

         (a) contravene any contractual restriction imposed by the Company
         Indentures; or

         (b) result in or require the creation of any Lien upon or with respect
         to any of the Company's properties pursuant to either of the Company
         Indentures.

2.       The Agreement constitutes a legal, valid and binding obligation of the
         Company enforceable against the Company in accordance with its terms,
         subject to (a) the effect of applicable bankruptcy, insolvency,
         reorganization, moratorium or other similar laws affecting the
         enforcement of creditors' rights generally and (b) the application of
         general principles of equity (regardless of whether considered in a
         preceding in equity or at law).

         "Company Indentures" means (i) the Indenture dated as of January 1,
1996, as supplemented and amended from time to time, between the Company
(formerly known as Consumers Power Company) and The Bank of New York, as
Trustee, and (ii) the Indenture dated as of February 1, 1998, as supplemented
and amended from time to time, between the Company and JP Morgan Chase Bank
(formerly known as The Chase Manhattan Bank), as Trustee.


                                      B-3
<PAGE>

                                  EXHIBIT B-3

                             REQUIRED OPINIONS FROM

                  MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.

         1. The Bonds, assuming due authentication in accordance with the terms
of the Indenture, are in due and proper form and, when delivered to the Agent
pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.

         2. The Inventory Security Agreement creates, in favor of the Agent, on
behalf of and for the ratable benefit of the Banks, a valid security interest in
all of the Company's right, title and interest in and to the Collateral (as
defined in the Inventory Security Agreement) to the extent a security interest
may be created therein under Article 9 of the Michigan Uniform Commercial Code.
The financing statement is in proper form for filing with the Secretary of State
of Michigan. Upon the filing of the financing statement in the office of the
Secretary of State of Michigan, such security interest in the Collateral will be
perfected.


                                      B-4
<PAGE>

                                   EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

         I, _________________, ______________ of Consumers Energy Company, a
Michigan corporation (the "Company"), DO HEREBY CERTIFY in connection with the
Term Loan Agreement dated as of October 17, 2002 (the "Credit Agreement"; the
terms defined therein being used herein as so defined) among the Company,
various financial institutions and Bank One, NA (Main Office - Chicago), as
Agent, that:

I.       Section 8.1 of the Credit Agreement provides that the Company shall:
         "At all times, maintain a ratio of Total Consolidated Debt to Total
         Consolidated Capitalization of not greater than 0.65 to 1.0."

         The following calculations are made in accordance with the definitions
         of Total Consolidated Debt and Total Consolidated Capitalization in the
         Credit Agreement and are correct and accurate as of _____________, ___:

A.       Total Consolidated Debt

         (a)      Indebtedness for borrowed money                 $

plus     (b)      Indebtedness for deferred purchase price of
                  property/services

plus     (c)      Unfunded Vested Liabilities

plus     (d)      Obligations under acceptance facilities

plus     (e)      Obligations under Capital Leases

plus     (f)      Obligations under interest rate swap, "cap",
                  "collar" or other hedging agreement

plus     (g)      Guaranties, endorsements and
                  other contingent obligations

minus    (h)      Principal amount of any Securitized Bonds

minus    (i)      Junior Subordinated Debt owned by any
                  Hybrid Preferred Securities Subsidiary

minus    (j)      Subordinated guaranties by the Company of
                  payments with respect to Hybrid Preferred
                  Securities

minus    (k)      Agreed upon percentage of Net Proceeds
                  from issuance of hybrid debt/equity


                                      C-1

<PAGE>

                  securities (other than Junior Subordinated
                  Debt and Hybrid Preferred Securities)

                                        TOTAL                     $

B.       Total Consolidated Capitalization:

         (a)      Total Consolidated Debt                         $

         (b)      Equity of common stockholders

         (c)      Equity of preference stockholders

         (d)      Equity of preferred stockholders

                                        TOTAL                     $

C.       Debt to Capital Ratio                                     _____ to 1.00
         (total of A divided by total of B)

II.      Section 8.2 of the Credit Agreement provides that the Company shall:
         "Not permit the ratio, determined as of the end of each of its fiscal
         quarters for the then most-recently ended four fiscal quarters, of (i)
         Consolidated EBIT to (ii) cash Consolidated Interest Expense to be less
         than 2.0 to 1.0"

                  The following calculations are made in accordance with the
definitions of Consolidated EBIT and Consolidated Interest Expense in the Credit
Agreement and are correct and accurate as of _____________, ___:

A.       Consolidated EBIT

         (a)      Consolidated Net Income                       $

plus     (b)      Consolidated Interest Expense                 $

plus     (c)      Expense for taxes paid or accrued             $

plus     (d)      Non-cash write-offs and write-downs           $
                  contained in the Company's Consolidated
                  Net Income, including, without limitation,
                  write-offs or write-downs related to the sale
                  of assets, impairment of assets and loss on
                  contracts

plus     (e)      For any fiscal period ending prior to March   $
                  31, 2003, pre-tax write-off for the fiscal
                  period ending December 31, 2001 in an
                  amount not to exceed $126,000,000 arising
                  from the loss on Power Purchase Agreement


                                      C-2

<PAGE>

                  - MCV Partnership

minus    (f)      Extraordinary gains realized other than in    $
                  the ordinary course of business

                                        TOTAL                   $

B.       Consolidated Interest Expense                          $

C.       Interest Coverage Ratio                                  _____ to 1.00
         (total of A divided by total of B)

         IN WITNESS WHEREOF, I have signed this Certificate this ___ day of
_________, ___.


                                      C-3

<PAGE>

                                   EXHIBIT D

                      ASSIGNMENT AND ASSUMPTION AGREEMENT

         This Assignment and Assumption (the "Assignment and Assumption") is
dated as of the Effective Date set forth below and is entered into by and
between [Insert name of AssignoR] (the "Assignor") and [Insert name of AssigneE]
(the "Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement "), receipt of a copy of which is hereby acknowledged by the
Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are
hereby agreed to and incorporated herein by reference and made a part of this
Assignment and Assumption as if set forth herein in full.

         For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Agent as contemplated below, the interest in and to all of the Assignor's
rights and obligations in its capacity as a Bank under the Credit Agreement and
any other documents or instruments delivered pursuant thereto that represents
the amount and percentage interest identified below of all of the Assignor's
outstanding rights and obligations under the respective facilities identified
below (including without limitation any letters of credit, guaranties and
swingline loans included in such facilities and, to the extent permitted to be
assigned under applicable law, all claims (including without limitation contract
claims, tort claims, malpractice claims, statutory claims and all other claims
at law or in equity), suits, causes of action and any other right of the
Assignor against any Person whether known or unknown arising under or in
connection with the Credit Agreement, any other documents or instruments
delivered pursuant thereto or the loan transactions governed thereby) (the
"Assigned Interest"). Such sale and assignment is without recourse to the
Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by the Assignor.

1.       Assignor:

2.       Assignee: __________________________ [and is an affiliate of Assignor]

3.       Borrower: CONSUMERS ENERGY COMPANY

4.       Agent: Bank One, NA, as the Agent under the Credit Agreement.

5.       Credit Agreement: The Term Loan Agreement dated as of October 17, 2002
among Consumers Energy Company, the Banks party thereto, and Bank One, NA, as
Agent.


                                      D-1

<PAGE>

6. Assigned Interest:

<Table>
<Caption>
                      Aggregate Amount
                      of Commitments/          Amount of Commitments/     Percentage Assigned of
                      outstanding Term         outstanding Term Loans     Commitments/
Facility Assigned     Loans for all Banks*     Assigned*                  outstanding Term Loans(2)
- -----------------     --------------------     ----------------------     ------------------------
<S>                   <C>                      <C>                        <C>
                      $                        $                                        %
- -----------------      -----------------        -----------------                 ------
                      $                        $                                        %
- -----------------      -----------------        -----------------                 ------
                      $                        $                                        %
- -----------------      -----------------        -----------------                 ------
</Table>

7. Trade Date:                          (4)
              --------------------------

Effective Date: ____________________, 20__ [TO BE INSERTED BY AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE
AGENT.]

         The terms set forth in this Assignment and Assumption are hereby agreed
to:

                                        ASSIGNOR
                                        [NAME OF ASSIGNOR]

                                        By:
                                                Title:

                                        ASSIGNEE
                                        [NAME OF ASSIGNEE]

                                        By:
                                                Title:

[Consented to and ](5) Accepted:

BANK ONE, NA, as Agent

By:
Title:


[Consented to:](6)

* Amount to be adjusted by the counterparties to take into account any payments
  or prepayments made between the Trade Date and the Effective Date.

2 Set forth, to at least 9 decimals, as a percentage of the Commitments/Term
  Loans of all Banks thereunder.

4 Insert if satisfaction of minimum amounts is to be determined as of the Trade
  Date.

5 To be added only if the consent of the Agent is required by the terms of the
  Credit Agreement.

6 To be added only if the consent of the Company and/or other parties is
  required by the terms of the Credit Agreement.


                                      D-2
<PAGE>


[NAME OF RELEVANT PARTY]


By:
Title:



                                      D-3
<PAGE>


                                    ANNEX 1
                            TERMS AND CONDITIONS FOR
                           ASSIGNMENT AND ASSUMPTION

                  1. Representations and Warranties.

                  1.1 Assignor. The Assignor represents and warrants that (i) it
is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby. Neither the Assignor nor any of its officers,
directors, employees, agents or attorneys shall be responsible for (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Credit Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency, perfection, priority,
collectibility, or value of the Credit Documents or any collateral thereunder,
(iii) the financial condition of the Company, any of its Subsidiaries or
Affiliates or any other Person obligated in respect of any Credit Document, (iv)
the performance or observance by the Company, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under any
Credit Document, (v) inspecting any of the property, books or records of the
Company, or any guarantor, or (vi) any mistake, error of judgment, or action
taken or omitted to be taken in connection with the Term Loans or the Credit
Documents.

                  1.2. Assignee. The Assignee (a) represents and warrants that
(i) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby and to become a Bank under the Credit
Agreement, (ii) from and after the Effective Date, it shall be bound by the
provisions of the Credit Agreement as a Bank thereunder and, to the extent of
the Assigned Interest, shall have the obligations of a Bank thereunder, (iii)
agrees that its payment instructions and notice instructions are as set forth in
Schedule 1 to this Assignment and Assumption, (iv) confirms that none of the
funds, monies, assets or other consideration being used to make the purchase and
assumption hereunder are "plan assets" as defined under ERISA and that its
rights, benefits and interests in and under the Credit Documents will not be
"plan assets" under ERISA, (v) agrees to indemnify and hold the Assignor
harmless against all losses, costs and expenses (including, without limitation,
reasonable attorneys' fees) and liabilities incurred by the Assignor in
connection with or arising in any manner from the Assignee's non-performance of
the obligations assumed under this Assignment and Assumption, (vi) it has
received a copy of the Credit Agreement, together with copies of financial
statements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase the Assigned Interest on the basis of which it has
made such analysis and decision independently and without reliance on the Agent
or any other Bank, and (vii) attached as Schedule 1 to this Assignment and
Assumption is any documentation required to be delivered by the Assignee with
respect to its tax status pursuant to the terms of the Credit Agreement, duly
completed and executed by the Assignee and (b) agrees that (i) it will,
independently and without reliance on the Agent, the Assignor or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Documents, and


                                      D-4
<PAGE>


(ii) it will perform in accordance with their terms all of the obligations which
by the terms of the Credit Documents are required to be performed by it as a
Bank.

                  2. Payments. The Assignee shall pay the Assignor, on the
Effective Date, the amount agreed to by the Assignor and the Assignee. From and
after the Effective Date, the Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to but excluding the
Effective Date and to the Assignee for amounts which have accrued from and after
the Effective Date.

                  3. General Provisions. This Assignment and Assumption shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the law
of the State of Illinois.


                                      D-5
<PAGE>


                          ADMINISTRATIVE QUESTIONNAIRE

    (Schedule to be supplied by Closing Unit or Trading Documentation Unit)

   (For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
      (For Forms after Primary Syndication call Jim Bartz at 312-732-1242)


                                      D-6
<PAGE>


              US AND NON-US TAX INFORMATION REPORTING REQUIREMENTS

    (Schedule to be supplied by Closing Unit or Trading Documentation Unit)

   (For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
      (For Forms after Primary Syndication call Jim Bartz at 312-732-1242)


                                      D-7
<PAGE>


                                   EXHIBIT E

                             TERMS OF SUBORDINATION

                           [JUNIOR SUBORDINATED DEBT]

                                  ARTICLE ____
                                 SUBORDINATION

         Section ___.1 Applicability of Article; Securities Subordinated to
Senior Indebtedness.

         (a) This Article ____ shall apply only to the Securities of any series
which, pursuant to Section ___, are expressly made subject to this Article. Such
Securities are referred to in this Article ____ as "Subordinated Securities."

         (b) The Issuer covenants and agrees, and each Holder of Subordinated
Securities by his acceptance thereof likewise covenants and agrees, that the
indebtedness represented by the Subordinated Securities and the payment of the
principal and interest, if any, on the Subordinated Securities is subordinated
and subject in right, to the extent and in the manner provided in this Article,
to the prior payment in full of all Senior Indebtedness.

         "Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date hereof or thereafter
incurred, created or assumed: (i) indebtedness of the Issuer for money borrowed
by the Issuer (including purchase money obligations) or evidenced by debentures
(other than the Subordinated Securities), notes, bankers' acceptances or other
corporate debt securities, or similar instruments issued by the Issuer; (ii) all
capital lease obligations of the Issuer; (iii) all obligations of the Issuer
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Issuer and all obligations of the Issuer under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) obligations with respect to letters of
credit; (v) all indebtedness of others of the type referred to in the preceding
clauses (i) through (iv) assumed by or guaranteed in any manner by the Issuer or
in effect guaranteed by the Issuer; (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of the Issuer (whether or not such obligation is assumed by
the Issuer), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Subordinated Notes, as the case may be,
including all other debt securities and guaranties in respect of those debt
securities, issued to any other trusts, partnerships or other entities
affiliated with the Issuer which act as a financing vehicle of the Issuer in
connection with the issuance of preferred securities by such entity or other
securities which rank pari passu with, or junior to, the Preferred Securities,
and (2) any indebtedness between or among the Issuer and its affiliates; and/or
(vii) renewals, extensions or refundings of any of the indebtedness referred to
in the preceding clauses unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same or the assumption or guarantee of the same, or
pursuant to which the same is outstanding, such indebtedness or such renewal,
extension or refunding thereof is not superior in right of payment to the
Subordinated Securities.


                                      E-1
<PAGE>


         This Article shall constitute a continuing obligation to all Persons
who, in reliance upon such provisions become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions.

         Section ___.2 Issuer Not to Make Payments with Respect to Subordinated
Securities in Certain Circumstances.

         (a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium and interest
thereon shall first be paid in full, or such payment duly provided for in cash
in a manner satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of the principal of, or interest on, Subordinated
Securities or to acquire any Subordinated Securities or on account of any
sinking fund provisions of any Subordinated Securities (except payments made in
capital stock of the Issuer or in warrants, rights or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before the maturity of such Senior
Indebtedness, and payments made through the exchange of other debt obligations
of the Issuer for such Subordinated Securities in accordance with the terms of
such Subordinated Securities, provided that such debt obligations are
subordinated to Senior Indebtedness at least to the extent that the Subordinated
Securities for which they are exchanged are so subordinated pursuant to this
Article ____).

         (b) Upon the happening and during the continuation of any default in
payment of the principal of, or interest on, any Senior Indebtedness when the
same becomes due and payable or in the event any judicial proceeding shall be
pending with respect to any such default, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by the Issuer with respect to the principal of, or interest on,
Subordinated Securities or to acquire any Subordinated Securities or on account
of any sinking fund provisions of Subordinated Securities (except payments made
in capital stock of the Issuer or in warrants, rights, or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before such default and notice thereof, and
payments made through the exchange of other debt obligations of the Issuer for
such Subordinated Securities in accordance with the terms of such Subordinated
Securities, provided that such debt obligations are subordinated to Senior
Indebtedness at least to the extent that the Subordinated Securities for which
they are exchanged are so subordinated pursuant to this Article ____).

         (c) In the event that, notwithstanding the provisions of this Section
___.2, the Issuer shall make any payment to the Trustee on account of the
principal of or interest on Subordinated Securities, or on account of any
sinking fund provisions of such Securities, after the maturity of any Senior
Indebtedness as described in Section ___.2(a) above or after the happening of a
default in payment of the principal of or interest on any Senior Indebtedness as
described in Section ___.2(b) above, then, unless and until all Senior
Indebtedness which shall have matured, and all premium and interest thereon,
shall have been paid in full (or the declaration of acceleration thereof shall
have been rescinded or annulled), or such default shall have been cured or
waived or shall have ceased to exist, such payment (subject to the provisions of
Sections ___.6 and ___.7) shall be held by the Trustee, in trust for the benefit
of, and shall be


                                      E-2
<PAGE>


paid forthwith over and delivered to, the holders of such Senior Indebtedness
(pro rata as to each of such holders on the basis of the respective amounts of
Senior Indebtedness held by them) or their representative or the trustee under
the indenture or other agreement (if any) pursuant to which such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all such Senior Indebtedness remaining unpaid to
the extent necessary to pay the same in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness. The Issuer shall give prompt written notice to the Trustee
of any default in the payment of principal of or interest on any Senior
Indebtedness.

         Section ___.3 Subordinated Securities Subordinated to Prior Payment of
All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Issuer.
Upon any distribution of assets of the Issuer in any dissolution, winding up,
liquidation or reorganization of the Issuer (whether voluntary or involuntary,
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):

         (a) the holders of all Senior Indebtedness shall first be entitled to
receive payments in full of the principal thereof and premium and interest due
thereon, or provision shall be made for such payment, before the Holders of
Subordinated Securities are entitled to receive any payment on account of the
principal of or interest on such Securities;

         (b) any payment or distribution of assets of the Issuer of any kind or
character, whether in cash, property or securities (other than securities of the
Issuer as reorganized or readjusted or securities of the Issuer or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in this Article ____
with respect to Subordinated Securities, to the payment in full without
diminution or modification by such plan of all Senior Indebtedness), to which
the Holders of Subordinated Securities or the Trustee on behalf of the Holders
of Subordinated Securities would be entitled except for the provisions of this
Article ____ shall be paid or delivered by the liquidating trustee or agent or
other person making such payment or distribution directly to the holders of
Senior Indebtedness or their representative, or to the trustee under any
indenture under which Senior Indebtedness may have been issued (pro rata as to
each such holder, representative or trustee on the basis of the respective
amounts of unpaid Senior Indebtedness held or represented by each), to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution or
provision thereof to the holders of such Senior Indebtedness; and

         (c) in the event that notwithstanding the foregoing provisions of this
Section ___.3, any payment or distribution of assets of the Issuer of any kind
or character, whether in cash, property or securities (other than securities of
the Issuer as reorganized or readjusted or securities of the Issuer or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in this Article ____
with respect to Subordinated Securities, to the payment in full without
diminution or modification by such plan of all Senior Indebtedness), shall be
received by the Trustee or the Holders of the Subordinated Securities on account
of principal of or interest on the Subordinated Securities before all Senior
Indebtedness is paid in full, or effective provision made for its payment, such
payment or distribution (subject to the provisions of Section ___.6 and ___.7)


                                      E-3
<PAGE>


shall be received and held in trust for and shall be paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representative, or to the trustee under any indenture under which such Senior
Indebtedness may have been issued (pro rata as provided in subsection (b)
above), for application to the payment of such Senior Indebtedness until all
such Senior Indebtedness shall have been paid in full, after giving effect to
any concurrent payment or distribution or provision therefor to the holders of
such Senior Indebtedness.

         The Issuer shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Issuer.

         The consolidation of the Issuer with, or the merger of the Issuer into,
another corporation or the liquidation or dissolution of the Issuer following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided for
in Article ____ hereof shall not be deemed a dissolution, winding up,
liquidation or reorganization for the purposes of this Section ___.3 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated such in Article ____.

         Section ___.4 Holders of Subordinated Securities to be Subrogated to
Right of Holders of Senior Indebtedness. Subject to the payment in full of all
Senior Indebtedness, the Holders of Subordinated Securities shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Issuer applicable to the Senior Indebtedness
until all amounts owing on Subordinated Securities shall be paid in full, and
for the purposes of such subrogation no payments or distributions to the holders
of the Senior Indebtedness by or on behalf of the Issuer or by or on behalf of
the Holders of Subordinated Securities by virtue of this Article ____ which
otherwise would have been made to the Holders of Subordinated Securities shall,
as between the Issuer, its creditors other than holders of Senior Indebtedness
and the Holders of Subordinated Securities, be deemed to be payment by the
Issuer to or on account of the Senior Indebtedness, it being understood that the
provisions of this Article ____ are and are intended solely for the purpose of
defining the relative rights of the Holders of the Subordinated Securities, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.

         Section ___.5 Obligation of the Issuer Unconditional. Nothing contained
in this Article ____ or elsewhere in this Indenture or in any Subordinated
Security is intended to or shall impair, as among the Issuer, its creditors
other than holders of Senior Indebtedness and the Holders of Subordinated
Securities, the obligation of the Issuer, which is absolute and unconditional,
to pay to the Holders of Subordinated Securities the principal of, and interest
on, Subordinated Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of Subordinated Securities and creditors of the Issuer
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Subordinated Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article ____ of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Issuer received upon the exercise of any such remedy. Upon any payment or
distribution of assets of the Issuer referred to in this Article ____, the
Trustee and Holders of Subordinated Securities shall be entitled to rely upon
any order or


                                      E-4
<PAGE>


decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or, subject
to the provisions of Section ___ and ___, a certificate of the receiver, trustee
in bankruptcy, liquidating trustee or agent or other Person making such payment
or distribution to the Trustee or the Holders of Subordinated Securities, for
the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Issuer, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
____.

         Nothing contained in this Article ____ or elsewhere in this Indenture
or in any Subordinated Security is intended to or shall affect the obligation of
the Issuer to make, or prevent the Issuer from making, at any time except during
the pendency of any dissolution, winding up, liquidation or reorganization
proceeding, and, except as provided in subsections (a) and (b) of Section ___.2,
payments at any time of the principal of, or interest on, Subordinated
Securities.

         Section ___.6 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. The Issuer shall give prompt written notice to the Trustee of
any fact known to the Issuer which would prohibit the making of any payment or
distribution to or by the Trustee in respect of the Subordinated Securities.
Notwithstanding the provisions of this Article ____ or any provision of this
Indenture, the Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment or
distribution to or by the Trustee, unless at least two Business Days prior to
the making of any such payment, the Trustee shall have received written notice
thereof from the Issuer or from one or more holders of Senior Indebtedness or
from any representative thereof or from any trustee therefor, together with
proof satisfactory to the Trustee of such holding of Senior Indebtedness or of
the authority of such representative or trustee; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections ___
and ___, shall be entitled to assume conclusively that no such facts exist. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a
representative or trustee on behalf of the holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a representative of or
trustee on behalf of any such holder). In the event that the Trustee determines,
in good faith, that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payments or
distribution pursuant of this Article ____, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, as to the extent to which
such Person is entitled to participate in such payment or distribution, and as
to other facts pertinent to the rights of such Person under this Article ____,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment. The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness and nothing in this Article ____
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section ___.

         Section ___.7 Application by Trustee of Monies or Government
Obligations Deposited with It. Money or Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Section ____ shall be
for the sole benefit of Securityholders


                                      E-5
<PAGE>


and, to the extent allocated for the payment of Subordinated Securities, shall
not be subject to the subordination provisions of this Article ____, if the same
are deposited in trust prior to the happening of any event specified in Section
___.2. Otherwise, any deposit of monies or Government Obligations by the Issuer
with the Trustee or any paying agent (whether or not in trust) for the payment
of the principal of, or interest on, any Subordinated Securities shall be
subject to the provisions of Section ___.1, ___.2 and ___.3 except that, if
prior to the date on which by the terms of this Indenture any such monies may
become payable for any purposes (including, without limitation, the payment of
the principal of, or the interest, if any, on any Subordinated Security) the
Trustee shall not have received with respect to such monies the notice provided
for in Section ___.6, then the Trustee or the paying agent shall have full power
and authority to receive such monies and Government Obligations and to apply the
same to the purpose for which they were received, and shall not be affected by
any notice to the contrary which may be received by it on or after such date.
This Section ___.7 shall be construed solely for the benefit of the Trustee and
paying agent and, as to the first sentence hereof, the Securityholders, and
shall not otherwise effect the rights of holders of Senior Indebtedness.

         Section ___.8 Subordination Rights Not Impaired by Acts or Omissions of
Issuer or Holders of Senior Indebtedness. No rights of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Issuer or by any act or failure to act, in good faith, by
any such holders or by any noncompliance by the Issuer with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with.

         Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness of the Issuer may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of the
Subordinated Securities, without incurring responsibility to the Holders of the
Subordinated Securities and without impairing or releasing the subordination
provided in this Article ____ or the obligations hereunder of the Holders of the
Subordinated Securities to the holders of such Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Indebtedness;
(iii) release any Person liable in any manner for the collection for such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Issuer, as the case may be, and any other Person.

         Section ___.9 Securityholders Authorize Trustee to Effectuate
Subordination of Securities. Each Holder of Subordinated Securities by his
acceptance thereof authorizes and expressly directs the Trustee on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article ____ and appoints the Trustee his
attorney-in-fact for such purpose, including in the event of any dissolution,
winding up, liquidation or reorganization of the Issuer (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise) the immediate filing of a claim for the unpaid balance
of his Subordinated Securities in the form required in said proceedings and
causing said claim to be approved. If the Trustee does not file a proper claim
or


                                      E-6
<PAGE>


proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file such claim or claims, then the holders of
Senior Indebtedness have the right to file and are hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities.

         Section ___.10 Right of Trustee to Hold Senior Indebtedness. The
Trustee in its individual capacity shall be entitled to all of the rights set
forth in this Article ____ in respect of any Senior Indebtedness at any time
held by it to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.

         With respect to the holders of Senior Indebtedness of the Issuer, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article ____, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Sections ___.2 and ___.3, the Trustee shall not be
liable to any holder of such Senior Indebtedness if it shall pay over or deliver
to Holders of Subordinated Securities, the Issuer or any other Person money or
assets to which any holder of such Senior Indebtedness shall be entitled by
virtue of this Article ____ or otherwise.

         Section ___.11 Article ____ Not to Prevent Events of Defaults. The
failure to make a payment on account of principal or interest by reason of any
provision in this Article ____ shall not be construed as preventing the
occurrence of an Event of Default under Section ----.


                                      E-7
<PAGE>


                                   EXHIBIT F

                             TERMS OF SUBORDINATION

                   [GUARANTY OF HYBRID PREFERRED SECURITIES]

         SECTION ___. This Guarantee will constitute an unsecured obligation of
the Guarantor and will rank subordinate and junior in right of payment to all
other liabilities of the Guarantor and pari passu with any guarantee now or
hereafter entered into by the Guarantor in respect of the securities
representing common beneficial interests in the assets of the Issuer or of any
preferred or preference stock of any affiliate of the Guarantor.


                                      F-1
<PAGE>


                                  EXHIBIT G-1

            FORM OF BOND DELIVERY AGREEMENT (SUPPLEMENTAL INDENTURE)

                            BOND DELIVERY AGREEMENT



                            CONSUMERS ENERGY COMPANY

                                       TO

                             BANK ONE, NA, AS AGENT


                          Dated as of October 17, 2002




                                  Relating to
           First Mortgage Bonds, Collateral Series due April 15, 2003



                               ------------------


                                      G-1
<PAGE>


         THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of October
17, 2002, is between Consumers Energy Company (the "Company"), and Bank One, NA,
as agent (the "Agent") under the Term Loan Agreement (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement") dated as of
October 17, 2002, among the Company, the financial institutions parties thereto
(the "Banks"), and the Agent. Capitalized terms used but not otherwise defined
herein have the respective meanings assigned to such terms in the Loan
Agreement.

         Whereas, the Company entered into the Loan Agreement and has made
borrowings thereunder in accordance with the provisions thereof;

         Whereas, the Company has established its First Mortgage Bonds,
Collateral Series due 2003, in the initial aggregate principal amount of
$70,000,000 (the "Bonds") to be issued under and in accordance with that certain
Eighty-Fifth Supplemental Indenture dated as of October 17, 2002 (the
"Supplemental Indenture"), to the Indenture of the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank) dated as of September 1, 1945
(as amended and supplemented, the "Indenture"); and

         Whereas, the Company proposes to issue and deliver to the Agent, for
the benefit of the Banks, the Bonds in order to provide the Bonds as evidence of
(and the benefit of the lien of the Indenture with respect to the Bonds for) the
Obligations of the Company arising under the Loan Agreement;

         Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:

                                    ARTICLE I
                                    THE BONDS

Section 1.1 Delivery of Bonds.

         In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Loan Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $70,000,000, maturing on April 15,
2003 and bearing interest as provided in the Supplemental Indenture. The
obligation of the Company to pay the principal of and interest on the Bonds
shall be deemed to have been satisfied and discharged in full or in part, as the
case may be, to the extent of payment by the Company of the Obligations, all as
set forth in the Bonds and in Section 1 of the Supplemental Indenture.

         The Bonds are registered in the name of the Agent and shall be owned
and held by the Agent, subject to the provisions of this Agreement, for the
benefit of the Banks, and the Company shall have no interest therein. The Agent
shall be entitled to exercise all rights of bondholders under the Indenture with
respect to the Bonds.

         The Agent hereby acknowledges receipt of the Bonds.


                                      G-2
<PAGE>


Section 1.2 Payments on the Bonds.

         Any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments of the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the Loan Agreement applicable
to payments received by the Agent in respect of the Obligations (and the Company
hereby consents to such distributions).

                                   ARTICLE II
                    NO TRANSFER OF BONDS; SURRENDER OF BONDS

Section 2.1 No Transfer of the Bonds.

         The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Loan Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.

Section 2.2 Surrender of Bonds.

                  (A) The Agent shall forthwith surrender to or upon the order
         of the Company all Bonds held by it at the first time at which the
         Commitments shall have been terminated and all Obligations shall have
         been paid in full.

                  (B) Upon any permanent reduction in the Commitments and/or
         prepayments of Term Loans pursuant to the terms of the Loan Agreement,
         the Agent shall forthwith surrender to or upon the order of the Company
         Bonds in an aggregate principal amount equal to the excess of the
         aggregate principal amount of Bonds held by the Agent over the sum of
         the total Commitments and the aggregate outstanding Term Loans.

                                  ARTICLE III
                                 GOVERNING LAW

         This Agreement shall construed in accordance with and governed by the
internal laws (without regard to the conflict of laws provisions) of the State
of New York, but giving effect to Federal laws applicable to national banks.

                            [SIGNATURE PAGE FOLLOWS]


                                      G-3
<PAGE>


IN WITNESS WHEREOF, the Company and the Agent have caused this Agreement to be
executed and delivered as of the date first above written.

                                               CONSUMERS ENERGY COMPANY

                                               By:
                                                   ----------------------
                                               Name:
                                               Title:


                                               BANK ONE, NA, as Agent

                                               By:
                                                   ----------------------
                                               Name:
                                               Title:


                                      G-4
<PAGE>


                                  EXHIBIT G-2

      FORM OF BOND DELIVERY AGREEMENT (INCREMENTAL SUPPLEMENTAL INDENTURE)


                            BOND DELIVERY AGREEMENT




                            CONSUMERS ENERGY COMPANY

                                       TO

                             BANK ONE, NA, AS AGENT


                       Dated as of [______________], 2002



                                  Relating to
           First Mortgage Bonds, Collateral Series due April 15, 2003



                               ------------------


                                      G-5
<PAGE>


         THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of
[________], 2002, is between Consumers Energy Company (the "Company"), and Bank
One, NA, as agent (the "Agent") under the Term Loan Agreement (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
dated as of October 17, 2002, among the Company, the financial institutions
parties thereto (the "Banks"), and the Agent. Capitalized terms used but not
otherwise defined herein have the respective meanings assigned to such terms in
the Loan Agreement.

         Whereas, the Company entered into the Loan Agreement and has made
borrowings thereunder in accordance with the provisions thereof;

         Whereas, the Company established certain First Mortgage Bonds,
Collateral Series due 2003, in the aggregate principal amount of $70,000,000
(the "Initial Bonds") to be issued under and in accordance with that certain
Eighty-Fifth Supplemental Indenture dated as of October 17, 2002 (the "Initial
Supplemental Indenture") to the Indenture of the Company to JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank) dated as of September 1, 1945 (as
amended and supplemented, the "Indenture");

         Whereas, the Company has established its First Mortgage Bonds,
Collateral Series due 2003, in the aggregate principal amount of $[INSERT AMOUNT
OF DEFERRED DRAW TERM LOAN] (the "Bonds") to be issued under and in accordance
with that certain Eighty-Sixth Supplemental Indenture dated as of [________],
2002 (the "Supplemental Indenture"), to the Indenture; and

         Whereas, the Company proposes to issue and deliver to the Agent, for
the benefit of the Banks, the Bonds in order to provide the Bonds as additional
evidence of (and the benefit of the lien of the Indenture with respect to the
Bonds for) the Obligations of the Company arising under the Loan Agreement;

         Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:

                                   ARTICLE I
                                    THE BONDS

Section 1.1 Delivery of Bonds.

         In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Loan Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $[INSERT AMOUNT OF DEFERRED DRAW TERM
LOAN], maturing on April 15, 2003 and bearing interest as provided in the
Supplemental Indenture. Without duplication in respect of any payment in respect
of the Initial Bonds, the obligation of the Company to pay the principal of and
interest on the Bonds shall be deemed to have been satisfied and discharged in
full or in part, as the case may be, to the extent of payment by the Company of
the Obligations, all as set forth in the Bonds and in Section 1 of the
Supplemental Indenture.


                                      G-6
<PAGE>


         The Bonds are registered in the name of the Agent and shall be owned
and held by the Agent, subject to the provisions of this Agreement, for the
benefit of the Banks, and the Company shall have no interest therein. The Agent
shall be entitled to exercise all rights of bondholders under the Indenture with
respect to the Bonds.

         The Agent hereby acknowledges receipt of the Bonds.

Section 1.2 Payments on the Bonds.

         Without duplication in respect of any payment in respect of the Initial
Bonds, any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments of the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the Loan Agreement applicable
to payments received by the Agent in respect of the Obligations (and the Company
hereby consents to such distributions).

                                   ARTICLE II
                    NO TRANSFER OF BONDS; SURRENDER OF BONDS

Section 2.1 No Transfer of the Bonds.

         The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Loan Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.

Section 2.2 Surrender of Bonds.

                  (C) The Agent shall forthwith surrender to or upon the order
         of the Company all Bonds held by it at the first time at which the
         Commitments shall have been terminated and all Obligations shall have
         been paid in full.

                  (D) Without duplication in respect of the surrender of any
         Initial Bonds, upon any permanent reduction in the Commitments and/or
         prepayments of Term Loans pursuant to the terms of the Loan Agreement,
         the Agent shall forthwith surrender to or upon the order of the Company
         Bonds in an aggregate principal amount equal to the excess of the
         aggregate principal amount of Bonds held by the Agent over the sum of
         the total Commitments and the aggregate outstanding Term Loans.

                                  ARTICLE III
                                 GOVERNING LAW

         This Agreement shall construed in accordance with and governed by the
internal laws (without regard to the conflict of laws provisions) of the State
of New York, but giving effect to Federal laws applicable to national banks.

                            [SIGNATURE PAGE FOLLOWS]


                                      G-7
<PAGE>


IN WITNESS WHEREOF, the Company and the Agent have caused this Agreement to be
executed and delivered as of the date first above written.

                                               CONSUMERS ENERGY COMPANY

                                               By:
                                                   ----------------------
                                               Name:
                                               Title:


                                               BANK ONE, NA, as Agent

                                               By:
                                                   ----------------------
                                               Name:
                                               Title:


                                      G-8
<PAGE>


                               COMMITMENT SCHEDULE

<Table>
<Caption>
                       INITIAL TERM      DEFERRED DRAW       INCREMENTAL
                         LOAN              TERM LOAN         DEFERRED DRAW
BANK                   COMMITMENT         COMMITMENTS        COMMITMENTS*
- ----                   ------------      -------------       -------------
<S>                    <C>               <C>                 <C>
Bank One, NA           $38,888,889        $2,777,778         $44,444,444

Barclays Bank PLC      $31,111,111        $2,222,222         $35,555,556

AGGREGATE              $70,000,000        $5,000,000         $80,000,000
COMMITMENTS
</Table>

                  *No Bank's Incremental Deferred Draw Commitment shall be
effective and binding on such Bank, and no Bank shall be required to make any
Deferred Draw Term Loan pursuant to any Incremental Deferred Draw Commitment
hereunder, unless and until the Company shall have satisfied the conditions set
forth in Section 11.2.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(F)
<SEQUENCE>8
<FILENAME>k75486exv4wxfy.txt
<DESCRIPTION>$300 MILLION AMENDED AND RESTATED TERM LOAN AGRMT
<TEXT>
<PAGE>
                                                                    EXHIBIT 4(f)

                                                                  EXECUTION COPY

================================================================================

                    AMENDED AND RESTATED TERM LOAN AGREEMENT

                          Dated as of September 26,2002

                                      among

                            CONSUMERS ENERGY COMPANY,
                                as the Borrower,

                    THE FINANCIAL INSTITUTIONS NAMED HEREIN,
                                  as the Banks,

                                       and

                          CITICORP NORTH AMERICA, INC.,
                                    as Agent

================================================================================

                            SALOMON SMITH BARNEY INC.

                      as Lead Arranger and Sole Book Runner

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                           Page
                                                           ----
<S>                                                        <C>
ARTICLE I    DEFINITIONS ...............................     1
     1.1     Definitions ...............................     1
     1.2     Singular and Plural .......................    11
     1.3     Accounting Terms ..........................    11

ARTICLE II   THE TERM LOANS ............................    12
     2.1     The Term Loans ............................    12
     2.2     Making of Term Loans ......................    12
     2.3     Repayment of Term Loans ...................    12
     2.4     Optional Principal Payments ...............    12
     2.5     Mandatory Prepayments .....................    13
     2.6     Conversion or Continuation ................    13
     2.7     Interest Rates, Interest Payment Dates ....    14
     2.8     Rate after Maturity .......................    14
     2.9     Method of Payment .........................    15
     2.10    Evidence of Obligation; Telephonic
               Notices..................................    15
     2.11    Lending Installations .....................    15
     2.12    Non-Receipt of Funds by the Agent .........    16

ARTICLE III   RESERVED .................................    16

ARTICLE IV   CHANGE IN CIRCUMSTANCES ...................    16
     4.1     Yield Protection ..........................    16
     4.2     Replacement Bank ..........................    17
     4.3     Availability of Eurodollar Rate Loans .....    17
     4.4     Funding Indemnification ...................    18
     4.5     Taxes .....................................    18
     4.6     Bank Certificates .........................    20

ARTICLE V    REPRESENTATIONS AND WARRANTIES ............    20
     5.1     Incorporation and Good Standing ...........    20
     5 2     Corporate Power and Authority: No
               Conflicts................................    20
     5.3     Governmental Approvals ....................    20
     5.4     Legally Enforceable Agreements ............    21
     5.5     Financial Statements ......................    21
     5.6     Litigation ................................    21
     5.7     Margin Stock ..............................    21
     5.8     ERISA .....................................    21
     5.9     Insurance .................................    21
     5.10    Taxes .....................................    22
     5.11    Investment Company Act ....................    22
     5.12    Public Utility Holding Company Act ........    22
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                        <C>
     5.13    Bonds .....................................    22

ARTICLE VI   AFFIRMATIVE COVENANTS .....................    22
     6.1     Payment of Taxes ..........................    22
     6.2     Maintenance of Insurance ..................    22
     6.3     Preservation of Corporate Existence, Etc ..    22
     6.4     Compliance with Laws ......................    23
     6.5     Visitation Rights .........................    23
     6.6     Keeping of Books ..........................    23
     6.7     Reporting Requirements ....................    23
     6.8     Use of proceeds ...........................    25
     6.9     Maintenance of Properties, Etc ............    25
     6.10    Bonds .....................................    25
     6.11    Recordation of Supplemental Indenture .....    25

ARTICLE VII  NEGATIVE COVENANTS ........................    25
     7.1     Liens .....................................    25
     7.2     Sale of Assets ............................    27
     7.3     Mergers, Etc ..............................    27
     7.4     Compliance with ERISA .....................    27
     7.5     Change in Nature of Business ..............    27
     7.6     Restricted Payments .......................    27
     7.7     Off-Balance Sheet Liabilities .............    27

ARTICLE VIII FINANCIAL COVENANTS .......................    27
     8.1     Debt to Capital Ratio .....................    28
     8.2     Interest Coverage Ratio ...................    28

ARTICLE IX   EVENTS OF DEFAULT .........................    28
     9.1     Events of Default .........................    28
     9.2     Remedies ..................................    29

ARTICLE X    WAIVERS, AMENDMENTS AND REMEDIES ..........    29
    10.1     Amendments ................................    30
    10.2     Preservation of Rights ....................    30

ARTICLE XI   CONDITIONS PRECEDENT ......................    30
    11.1     Delivery of Documents .....................    30
    11.2     Payment of Fees ...........................    31
    11.3     No Default, Etc ...........................    31

ARTICLE XII  GENERAL PROVISIONS ........................    31
    12.1     Successors and Assigns ....................    31
    12.2     Survival of Representations ...............    34
    12.3     Governmental Regulation ...................    34
    12.4     Taxes .....................................    34
    12.5     Choice of Law; Waiver of Jury Trial .......    34
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                        <C>
    12.6     Headings ..................................    35
    12.7     Entire Agreement ..........................    35
    12.8     Expenses; Indemnification .................    35
    12.9     [Intentionally Omitted.] ..................    35
    12.10    Severability of Provisions ................    35
    12.11    Setoff ....................................    35
    12.12    Ratable Payments ..........................    36
    12.13    Nonliability of Banks .....................    36

ARTICLE XIII THE AGENT .................................    37
    13.1     Appointment ...............................    37
    13.2     Powers ....................................    37
    13.3     General Immunity ..........................    37
    13.4     No Responsibility for Loans, Recitals, Etc.    37
    13.5     Action on Instructions of Banks ...........    37
    13.6     Employment of Agents and Counsel ..........    37
    13.7     Reliance on Documents; Counsel ............    37
    13.8     Agent's Reimbursement and Indemnification..    38
    13.9     Rights as a Lender ........................    38
    13.10    Bank Credit Decision ......................    38
    13.11    Successor Agent ...........................    38
    13.12    Agent and Arranger Fees ...................    39

ARTICLE XIV  NOTICES ...................................    39
    14.1     Giving Notice .............................    39
    14.2     Change of Address .........................    39

ARTICLE XV   COUNTERPARTS ..............................    40
</TABLE>

                                       iii

<PAGE>

SCHEDULES

Commitment Schedule

<TABLE>
<S>               <C>
EXHIBITS
Exhibit A         Form of Supplemental Indenture
Exhibit B-1       Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2       Required Opinions from Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit B-3       Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C         Form of Compliance Certificate
Exhibit D         Form of Assignment and Assumption Agreement
Exhibit E         Terms of Subordination (Junior Subordinated Debt)
Exhibit F         Terms of Subordination (Guaranty of Hybrid Preferred Securities)
Exhibit G         Form of Bond Delivery Agreement
</TABLE>

                                       iv

<PAGE>

                              AMENDED AND RESTATED
                               TERM LOAN AGREEMENT

         This Amended and Restated Term Loan Agreement, dated as of September
26,2002, is among Consumers Energy Company, a Michigan corporation (the
"Company"), the financial institutions listed on the signature pages hereof
(together with their respective successors and assigns, the "Banks") and
Citicorp North America, Inc., a Delaware corporation, as Agent.

                                    RECITALS

         The Company, Citicorp North America, Inc., as a Bank, and Citicorp USA,
Inc., as Agent, are parties to that certain Term Loan Agreement dated as of July
12,2002 (the "Original Agreement"), pursuant to which Citicorp North America,
Inc. has made a term loan to the Company in the outstanding principal amount of
$300,000,000 (the "Outstanding Term Loan").

         The parties hereto desire to amend and restate the Original Agreement
on the terms and conditions set forth herein, among other things to extend the
maturity thereof and to reflect that Citicorp USA, Inc. has resigned as Agent
and has been replaced by Citicorp North America, Inc.

         Accordingly, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

         1.1      Definitions. As used in this Agreement:

         "Agent" means Citicorp in its capacity as administrative agent for the
Banks pursuant to Article XIII, and not in its individual capacity as a Bank,
and any successor Agent appointed pursuant to Article XIII.

         "Agreement" means this Amended and Restated Term Loan Agreement, as
amended from time to time.

         "Applicable Margin" means, with respect to Eurodollar Rate Loans at any
time, 4.50% per annum, and with respect to Floating Rate Loans at any time,
3.50% per annum; provided that so long as any Downgrade Event shall exist,
"Applicable Margin" shall mean, with respect to Eurodollar Rate Loans at such
time, 5.00% per annum, and with respect to Floating Rate Loans at such time,
4.00% per annum.

         "Approved Fund" means, with respect to any Bank that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Bank or by an
affiliate of such investment advisor.

         "Arranger" means Salomon Smith Barney Inc., a New York corporation, and
its successors, in its capacity as Lead Arranger and Sole Book Runner.

<PAGE>

         "Article" means an article of this Agreement unless another document is
specifically referenced.

         "Assignment Agreement" - see Section 12.1(e).

         "Banks" - see the preamble.

         "Base Eurodollar Rate" means, with respect to any Interest Period
applicable to a Borrowing of Eurodollar Rate Loans, the per annum interest rate
determined by the offered rate per annum at which deposits in Dollars appears on
Telerate page 3750 (or any successor page) as of 11:00 a.m. (London time), or in
the event such offered rate is not available from the Telerate page, the rate
offered on deposits in Dollars by Citibank's London Office to prime banks in the
London interbank market at 11:00 a.m. (London time), on the Eurodollar Interest
Rate Determination Date for such Interest Period and in an amount substantially
equal to the amount of the Eurodollar Rate Loan to be outstanding from Citicorp
North America, Inc. for such Interest Period.

         "Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time, which rate per annum shall at all
times be equal to the highest of:

                  (i)      the rate of interest announced publicly by Citibank
         in New York, New York from time to time, as Citibank's base rate; and

                  (ii)     the sum (adjusted to the nearest one-quarter of one
         percent (0.25%)or, if there is no nearest one-quarter of one percent
         (0.25%), to the next higher one-quarter of one percent (0.25%)) of (A)
         one-half of one percent (0.50%) per annum plus (B) the rate per annum
         obtained by dividing (I) the latest three-week moving average of
         secondary market morning offering rates in the United States for
         three-month certificates of deposit of major United States money market
         banks, such three-week moving average (adjusted to the basis of a year
         of 360 days) being determined weekly on each Monday (or, if any such
         day is not a Business Day, on the next succeeding Business Day) for the
         three-week period ending on the previous Friday (or, if such day is not
         a Business Day, on the next preceding Business Day) by Citibank on the
         basis of such rates reported by certificate of deposit dealers to, and
         published by, the Federal Reserve Bank of New York, or, if such
         publication shall be suspended or terminated, on the basis of
         quotations for such rates received by Citibank from three (3) New York
         certificate of deposit dealers of recognized standing selected by
         Citibank, by (II) a percentage equal to 100% minus the average of the
         daily percentages specified during such three-week period by the FRB
         for determining the maximum reserve requirement (including, but not
         limited to, any emergency, supplemental or other marginal reserve
         requirement) for Citibank in respect of liabilities consisting of or
         including (among other liabilities) three-month U.S. dollar nonpersonal
         time deposits in the United States plus (C) the average during such
         three- week period of the annual assessment rates estimated by Citibank
         for determining the then current annual assessment payable by Citibank
         to the Federal Deposit Insurance Corporation (or any successor) for
         insuring U.S. dollar deposits of Citibank in the United States; and

                                        2

<PAGE>

                  (iii)    the sum of (A) one-half of one percent (0.50%) per
         annum plus (B) the Federal Funds Rate in effect from time to time
         during such period.

         "Bond Delivery Agreement" means a bond delivery agreement substantially
in the form of Exhibit G whereby the Agent (x) acknowledges delivery of the
Bonds and (y) agrees to hold the Bonds for the benefit of the Banks and to
distribute all payments made by the Company on account thereof to the Banks.

         "Bonds" means a series of First Mortgage Bonds created under the
Supplemental Indenture issued in favor of, and in form and substance
satisfactory to, the Agent.

         "Borrowing" means a borrowing consisting of Term Loans of the same Type
made, continued or converted on the same day and, in the case of Eurodollar Rate
Loans, having the same Interest Period.

         "Building Lease" means the Master Lease and Lease Supplement, each
dated as of April 23, 2001, between Consumers Campus Holdings, LLC, a wholly
owned Subsidiary of the Company, as lessee, and Wilmington Trust Company, not in
its individual capacity but solely as owner Trustee of CEC Trust 2001-A, as
lessor, together with certain other related agreements.

         "Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in New York, New York for the conduct of
substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in New York, New York for the conduct of substantially all of their
commercial lending activities and interbank wire transfers can be made on the
Fedwire system.

         "Capital Lease" means any lease which has been or would be capitalized
on the books of the lessee in accordance with GAAP.

         "Citibank" means Citibank, N.A., a national banking association.

         "Citicorp" means Citicorp North America, Inc., a Delaware corporation,
in its individual capacity, and its successors and assigns.

         "CMS" means CMS Energy Corporation, a Michigan corporation.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Commitment Schedule" means the Schedule identifying each Bank's Term
Loan Commitment as of the date hereof attached hereto and identified as such.

         "Company" - see the preamble.

         "Consolidated EBIT" means Consolidated Net Income plus (i) to the
extent deducted from revenues in determining Consolidated Net Income (without
duplication), (a) Consolidated

                                        3

<PAGE>

Interest Expense, (b) expense for taxes paid or accrued, (c) any non-cash
write-offs and write-downs contained in the Company's Consolidated Net Income,
including, without limitation, write-offs or write-downs related to the sale of
assets, impairment of assets and loss on contracts, and (d) the pre-tax
write-off for the fiscal period ending December 31,2001 in an amount not to
exceed $126,000,000 arising from the loss on Power Purchase Agreement -MCV
Partnership, minus, (ii) to the extent included in Consolidated Net Income,
extraordinary gains realized other than in the ordinary course of business, all
calculated for the Company and its Subsidiaries on a consolidated basis in
accordance with GAAP.

         "Consolidated Interest Expense" means with respect to any period for
which the amount thereof is to be determined, an amount equal to interest
expense on Debt, including payments in the nature of interest under Capital
Leases, all calculated for the Company and its Subsidiaries on a consolidated
basis in accordance with GAAP.

         "Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.

         "Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.

         "Conversion/Continuation Notice" - see Section 2.6(b).

         "Credit Agreement" means that certain 364 Day Credit Agreement, dated
as of July 12, 2002, by and among the Company, the banks from time to time
parties thereto, and Bank One, NA, as agent thereunder, as amended, restated,
supplemented or otherwise modified from time to time.

         "Debt" means, with respect to any Person, and without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all Unfunded Vested Liabilities of such Person (if such Person is
not the Company, determined in a manner analogous to that of determining
Unfunded Vested Liabilities of the Company), (d) all obligations of such Person
arising under acceptance facilities, (e) all obligations of such Person as
lessee under Capital Leases, (f) all obligations of such Person arising under
any interest rate swap, "cap", "collar" or other hedging agreements; provided,
however, for purposes of the calculation of Debt for this clause (f) only, the
actual amount of Debt of such Person shall be determined on a net basis to the
extent such agreements permit such amounts to be calculated on a net basis, and
(g) all guaranties, endorsements (other than for collection in the ordinary
course of business) and other contingent obligations of such Person to assure a
creditor against loss (whether by the purchase of goods or services, the
provision of funds for payment, the supply of funds to invest in any Person or
otherwise) in respect of indebtedness or obligations of any other Person of the
kinds referred to in clauses (a) through (f) above.

         "Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.

                                        4

<PAGE>

         "Designated Officer" means the Chief Financial Officer, the Treasurer,
an Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.

         "Downgrade Event" means that the Senior Debt is rated BB or below by
S&P or Ba2 or below by Moody's.

         "Effective Date" means September 26,2002.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

         "ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

         "Eurodollar Interest Rate Determination Date" means the second Business
Day prior to the first day of each Interest Period.

         "Eurodollar Rate" means, with respect to any Interest Period applicable
to a Eurodollar Rate Loan, an interest rate per annum equal to the sum of (i)
the quotient obtained by dividing (a) the Base Eurodollar Rate applicable to
that Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to that Interest Period plus (ii) the Applicable Margin.

         "Eurodollar Rate Loan" means a Term Loan which bears interest by
reference to the Eurodollar Rate.

         "Event of Default" means an event described in Article IX.

         "Excluded Taxes" means, in the case of each Bank or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Bank or the Agent is incorporated or organized or (ii) the jurisdiction in
which the Agent's or such Bank's principal executive office or such Bank's
applicable Lending Installation is located.

         "Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day in New York, New York, for the next preceding
Business Day) in New York, New York by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day in New
York, New York, the average of the quotations for such day on such transactions
received by the Agent from three federal funds brokers of recognized standing
selected by the Agent.

         "Fee Letter" means the fee letter dated July 12,2002 among the Company,
the Arranger, Citicorp USA, Inc. and Citicorp North America, Inc.

                                        5

<PAGE>

         "First Mortgage Bonds" means bonds issued by the Company pursuant to
the Indenture.

         "Fitch" means Fitch, Inc. or any successor thereto.

         "Floating Rate" means a rate per annum equal to (i) the Base Rate plus
(ii) the Applicable Margin, changing when and as the Base Rate changes.

         "Floating Rate Loan" means a Term Loan which bears interest at the
Floating Rate.

         "FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.

         "GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except, for purposes of the financial statements required to be
delivered pursuant to Sections 6.7(b)and (c), for changes concurred in by the
Company's independent public accountants).

         "Hybrid Preferred Securities" means any preferred securities issued by
a Hybrid Preferred Securities Subsidiary, where such preferred securities have
the following characteristics;

                  (i)      such Hybrid Preferred Securities Subsidiary lends
         substantially all of the proceeds from the issuance of such preferred
         securities to the Company or a wholly-owned direct or indirect
         Subsidiary of the Company in exchange for Junior Subordinated Debt
         issued by the Company or such wholly-owned direct or indirect
         Subsidiary, respectively;

                  (ii)     such preferred securities contain terms providing for
         the deferral of interest payments corresponding to provisions providing
         for the deferral of interest payments on the Junior Subordinated Debt;
         and

                  (iii)    the Company or a wholly-owned direct or indirect
         Subsidiary of the Company (as the case may be) makes periodic interest
         payments on the Junior Subordinated Debt, which interest payments are
         in turn used by the Hybrid Preferred Securities Subsidiary to make
         corresponding payments to the holders of the preferred securities.

         "Hybrid Preferred Securities Subsidiary" means any Delaware business
trust (or similar entity) (i) all of the common equity interest of which is
owned (either directly or indirectly through one or more wholly-owned
Subsidiaries of the Company) at all times by the Company or a wholly-owned
direct or indirect Subsidiary of the Company, (ii) that has been formed for the
purpose of issuing Hybrid Preferred Securities and (iii) substantially all of
the assets of which consist at all times solely of Junior Subordinated Debt
issued by the Company or a wholly-owned direct or indirect Subsidiary of the
Company (as the case may be) and payments made from time to time on such Junior
Subordinated Debt.

                                        6

<PAGE>

         "Indenture" means the Indenture, dated as of September 1, 1945, as
supplemented and amended from time to time, from the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as successor Trustee.

         "Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months, or such shorter or longer period agreed to by
the Company and the Banks, commencing on a Business Day selected by the Company
pursuant to this Agreement. Such Interest Period shall end on the day which
corresponds numerically to such date one, two, three or six months thereafter
(or such shorter or longer period agreed to by the Company and the Banks),
provided, however, that if there is no such numerically corresponding day in
such next, second, third or sixth succeeding month (or such shorter or longer
period, as applicable), such Interest Period shall end on the last Business Day
of such next, second, third or sixth succeeding month (or such shorter or longer
period, as applicable). If an Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the next succeeding
Business Day, provided, however, that if said next succeeding Business Day falls
in a new calendar month, such Interest Period shall end on the immediately
preceding Business Day. The Company may not select any Interest Period that ends
after the Maturity Date.

         "Junior Subordinated Debt" means any unsecured Debt of the Company or a
Subsidiary of the Company (i) issued in exchange for the proceeds of Hybrid
Preferred Securities and (ii) subordinated to the rights of the Banks hereunder
and under the other Loan Documents pursuant to terms of subordination
substantially similar to those set forth in Exhibit E. or pursuant to other
terms and conditions satisfactory to the Majority Banks.

         "Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.

         "Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.

         "Loan" means a Floating Rate Loan or a Eurodollar Rate Loan.

         "Loan Documents" means this Agreement, the Supplemental Indenture and
the Bonds.

         "Majority Banks" means, as of any date of determination, Banks whose
Pro Rata Shares, in the aggregate, are 51% or greater as of such date.

         "Material Adverse Change" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, property, financial condition, results of
operations or prospects of the Company and its Subsidiaries, considered as a
whole, (b) the Company's ability to perform its obligations under this Agreement
and the other Loan Documents or (c) the validity or enforceability of any Loan
Document or the rights or remedies of the Agent or the Banks thereunder.

         "Maturity Date" means July 11,2004.

         "Moody's" means Moody's Investors Service, Inc. or any successor
thereto.

                                        7

<PAGE>

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.

         "Net Cash Proceeds of Sale" means proceeds received by the Company in
cash (including cash, equivalents readily convertible into cash, and such
proceeds of any notes received as consideration of any other non-cash
consideration) from the sale, assignment or other disposition of (but not the
lease or license of) any Property, other than sales of inventory in the ordinary
course of business and sales of accounts receivable pursuant to the Receivables
Sale Agreement, net of (A) the costs of sale, assignment or other disposition,
(B) any income, franchise, transfer or other tax liability arising from such
transaction and (C) amounts applied to the repayment of Debt (other than the
Obligations) secured by a Lien permitted by Section 7.1 on the asset disposed
of, if such net proceeds arise from any individual sale, assignment or other
disposition or from any group of related sales, assignments or other
dispositions.

         "Net Proceeds" means, with respect to any sale or issuance of
securities or incurrence of Debt by any Person, the excess of (i) the gross cash
proceeds received by or on behalf of such Person in respect of such sale,
issuance or incurrence (as the case may be) over (ii) customary underwriting
commissions, auditing and legal fees, printing costs, rating agency fees and
other customary and reasonable fees and expenses incurred by such Person in
connection therewith.

         "Net Worth" means, with respect to any Person, the excess of such
Person's total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistently applied,
excluding, however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included in clauses
(i) or (ii) above, that are treated as intangibles in conformity with GAAP.

         "Non-U.S. Bank" - see Section 4.5(d).

         "Obligations" means all unpaid principal of and accrued and unpaid
interest on the Term Loans and all other obligations of the Company to the Banks
or to any Bank or the Agent or Arranger arising under the Loan Documents.

         "Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.

         "Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.

         "Original Agreement" - see the Recitals.

                                        8

<PAGE>

         "Other Taxes" - see Section 4.5(b).

         "Outstanding Term Loan" - see the Recitals.

         "Payment Date" means the second Business Day of each calendar quarter
occurring after the Effective Date.

          "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

         "Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.

         "Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and
covered by Title IV of ERISA.

         "Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.

         "Pro Rata Share" means, with respect to any Bank, at any time, the
percentage obtained by dividing (i) the outstanding principal balance of such
Bank's Term Loan at such time by (ii) the outstanding principal balance of all
Term Loans.

         "Receivables Sale Agreement" means the Amended and Restated Receivables
Sale Agreement among the Company, Asset Securitization Cooperative Corporation
and Canadian Imperial Bank of Commerce, dated as of April 1,2002.

         "Regulation D" means Regulation D of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to reserve requirements applicable to member
banks of the Federal Reserve System.

         "Regulation U" means Regulation U of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to the extension of credit by banks,
non-banks and non-broker-dealers for the purpose of purchasing or carrying
margin stocks.

         "Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.

         "Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.

         "S&P" means Standard and Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.

                                        9

<PAGE>

         "SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.

         "Section" means a numbered section of this Agreement, unless another
document is specifically referenced.

         "Securitized Bonds" shall mean any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of the Company
which are payable solely from specialized charges authorized by the utility
commission of the relevant state in connection with the recovery of regulatory
assets or other stranded costs.

         "Senior Debt" means the First Mortgage Bonds.

         "Single Employer Plan" means a Plan maintained by the Company or any
ERISA Affiliate for employees of the Company or any ERISA Affiliate.

         "Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership interests
having ordinary voting power (absolutely or contingently) for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by such Person.

         "Supplemental Indenture" means a supplemental indenture substantially
in the form of Exhibit A.

         "Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

         "Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a) (2) of ERISA, or (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan.

         "Term Loan Commitment" means, for each Bank other than Citicorp North
America, Inc., the obligation of such Bank to make a term loan to the Company on
the Effective Date in an amount not exceeding the amount set forth on the
Commitment Schedule as its Term Loan Commitment, and in the case of Citicorp
North America, Inc., the amount of the Outstanding Term Loan to be retained by
Citicorp North America, Inc. as of the Effective Date after giving effect to the
making of such term loans by the other Banks and the disbursement of the
proceeds thereof.

         "Term Loans" - see Section 2.1.

                                       10

<PAGE>

         "Total Consolidated Capitalization" means, at any date of
determination, the sum of (a) Total Consolidated Debt, (b) equity of the common
stockholders of the Company, (c) equity of the preference stockholders of the
Company and (d) equity of the preferred stockholders of the Company, in each
case determined at such date.

         "Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided, that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Loan
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid
Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).

         "Type" means, with respect to any Loan, the character of such Loan as a
Eurodollar Rate Loan or a Floating Rate Loan.

         "Unfunded Vested Liabilities" means, (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, and (ii) in the case of Multiemployer
Plans, the withdrawal liability of the Company and its ERISA Affiliates.

         1.2      Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.

         1.3      Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. If any changes in
generally accepted accounting principles are hereafter required or permitted and
are adopted by the Company or any of its Subsidiaries, or the Company or any of
its Subsidiaries shall change its application of generally accepted accounting
principles with respect to any Off-Balance Sheet Liabilities, in each case, with
the agreement of its independent certified public accountants and such changes
result in a change in the method of calculation of any of the financial
covenants, tests, restrictions or standards herein or in the related definitions
or terms used therein ("Accounting Changes"), the parties hereto agree, at the
Company's request, to enter into negotiations, in good faith, in order to amend
such provisions in a credit neutral manner so as to reflect equitably such
changes with the desired result that the criteria for evaluating the Company's
and its Subsidiaries' financial condition shall be the same after such changes
as if such changes had not been made; provided, however, until such provisions
are amended in a manner reasonably satisfactory to the Agent, the Arranger and
the Majority Banks, no Accounting Change shall be given effect in such
calculations. In the event such amendment is entered into, all references in
this Agreement to GAAP shall mean generally accepted accounting principles as of
the date of such amendment.

                                       11

<PAGE>

                                   ARTICLE II
                                 THE TERM LOANS

         2.1      The Term Loans. Each Bank (other than Citicorp North America,
Inc.) severally agrees, on the terms and conditions set forth in this Agreement,
to make a term loan to the Company on the Effective Date in an amount equal to
such Bank's Term Loan Commitment (each individually, a "Term Loan" and,
collectively, together with the portion of the Outstanding Term Loan held by
Citicorp North America, Inc. after giving effect to the disbursements of funds
by the Agent in accordance with Section 2.2, the "Term Loans"). The Term Loans
shall initially be Floating Rate Loans and thereafter may be continued as
Floating Rate Loans or converted into Eurodollar Rate Loans in the manner
provided in Section 2.6.

         2.2      Making of Term Loans. Not later than 1:00 p.m. (New York time)
on the Effective Date, each Bank (other than Citicorp North America, Inc.) shall
make available its applicable Term Loan in funds immediately available in New
York to the Agent at its address specified pursuant to Section 14. No Bank's
obligation to make any Term Loan shall be affected by any other Bank's failure
to make any Term Loan. To the extent funds are received from the Banks, the
Agent shall disburse the proceeds of the Term Loans to Citicorp North America,
Inc. to reduce the outstanding principal amount of Citicorp North America Inc.'s
Outstanding Term Loan to the amount of its Term Loan Commitment. It is the
intention of the parties hereto that the making of the Term Loans and the
disbursement of the proceeds thereof in accordance with this Section 2.2 shall
not effect a payment or discharge of any portion of the Outstanding Term Loan,
but that the amount of the Outstanding Term Loan in excess of Citicorp North
America, Inc.'s Term Loan Commitment (the "Assigned Interest") shall be deemed
to have been assigned by Citicorp North America, Inc. to the other Banks on a
pro rata basis in accordance with their respective Term Loan Commitments.
Citicorp North America, Inc. represents and warrants that it is the legal and
beneficial owner of the Assigned Interest and that the Assigned Interest is free
and clear of any lien, encumbrance or other adverse claim. The Company shall pay
to Citicorp North America, Inc. on the Effective Date any funding
indemnification required by Section 4.4 as a result of the transactions on the
Effective Date contemplated hereby.

         2.3      Repayment of Term Loans. The Term Loans shall be paid in full
on the Maturity Date.

         2.4      Optional Principal Payments. The Company may, upon at least
three (3) Business Days' prior written notice to the Agent (which the Agent
shall promptly transmit to each Bank), at any time and from time to time,
without penalty or premium, prepay the Term Loans which are Floating Rate Loans,
in whole or in part. Term Loans which are Eurodollar Rate Loans may be prepaid
in whole or in part upon at least five (5) Business Days' prior written notice
to the Agent (which the Agent shall promptly transmit to each Bank), (A) on the
expiration date of the then applicable Interest Period therefor, and (B) on any
other date upon payment of the amounts required by Section 4.4, but otherwise
without penalty or premium. Any notice of prepayment given to the Agent under
this Section 2.4 shall specify the date (which shall be a Business Day) of
prepayment, the aggregate principal amount of the prepayment and any allocation
of such amount among Floating Rate Loans and Eurodollar Rate Loans. When notice
of prepayment is delivered as provided herein, the principal amount of the Term
Loans specified in the notice shall become due and payable on the prepayment
date specified in such notice. Unless the aggregate

                                       12

<PAGE>

outstanding principal balance of the Term Loans is to be prepaid in full,
voluntary prepayments of the Term Loans shall be in an aggregate minimum amount
of $10,000,000 and integral multiples of $1,000,000 in excess of that amount.
Each voluntary prepayment of the Term Loans shall be allocated first to Term
Loans which are Floating Rate Loans until paid in full and then to Term Loans
which are Eurodollar Rate Loans. Amounts prepaid hereunder may not be
reborrowed. Upon any prepayment of the Term Loans pursuant to the terms of this
Section 2.4, the Agent shall, upon request of the Company, promptly surrender to
or upon the order of the Company one or more Bonds specified by the Company;
provided that the Company remains in compliance with Section 6.10.

         2.5      Mandatory Prepayments. Within three Business Days after the
Company's receipt of any Net Cash Proceeds of Sale, the Company shall make a
written offer to the Banks to prepay the Term Loans by an amount equal to 50% of
such Net Cash Proceeds of Sale; provided, however, that (i) the Company may
retain up to an aggregate of $100,000,000 of such Net Cash Proceeds of Sale
during the term of this Agreement before it shall be required to make any such
mandatory offer, and (ii) the Company shall not be required to make any such
mandatory offer unless and until the aggregate amount of such mandatory offer
(on a cumulative basis) would be at least $1,000,000. Such offer shall be
transmitted by facsimile and by overnight courier to each Bank and shall be
deemed received on the Business Day following transmittal. Each Bank shall have
three Business Days following its receipt of such offer to submit a written
response to the Company's prepayment offer, and if any Bank shall not have
responded by the close of business on the third Business Day, it shall be deemed
to have accepted such offer. Payment shall be made to the Agent for the account
of all Banks that have accepted the prepayment offer on the fourth Business Day
following their receipt of the offer from the Company. If any Bank elects not to
accept its Pro Rata Share thereof, such prepayment shall be applied ratably to
the Term Loans of the Banks that have accepted such offer. Amounts prepaid
hereunder may not be reborrowed. Upon any prepayment of the Term Loans pursuant
to the terms of this Section 2.5, the Agent shall, upon request of the Company,
promptly surrender to or upon the order of the Company one or more Bonds
specified by the Company; provided that the Company remains in compliance with
Section 6.10.

         2.6      Conversion or Continuation. (a) The Company shall have the
option (A) to convert at any time all or any part of outstanding Floating Rate
Loans to Eurodollar Rate Loans; (B) to convert all or any part of outstanding
Eurodollar Rate Loans having Interest Periods which expire on the same date to
Floating Rate Loans on such expiration date; or (C) to continue all or any part
of outstanding Eurodollar Rate Loans having Interest Periods which expire on the
same date as Eurodollar Rate Loans, and the succeeding Interest Period of such
continued Loans shall commence on such expiration date; provided, however, no
such outstanding Loan may be continued as, or be converted into, a Eurodollar
Rate Loan (i) if the continuation of, or the conversion into, would violate any
of the provisions of this Agreement or (ii) if a Default or Event of Default
would occur or has occurred and is continuing. Any conversion into or
continuation of Eurodollar Rate Loans under this Section 2.6 shall be in a
minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess
of that amount.

         (b)      To convert or continue a Loan under Section 2.6(a), the
Company shall deliver an irrevocable notice (a "Conversion/continuation Notice")
to the Agent no later than 11:00 a.m. (New York time) at least three (3)
Business Days in advance of the proposed

                                       13

<PAGE>

Conversion/continuation date. A Conversion/Continuation Notice shall specify (A)
the proposed conversion/continuation date (which shall be a Business Day), (B)
the principal amount of the Loan to be converted/continued, (C) whether such
Loan shall be converted and/or continued, and (D) in the case of a conversion
to, or continuation of, a Eurodollar Rate Loan, the requested Interest Period.
Promptly after receipt of a Conversion/Continuation Notice under this Section
2.6(b) (or telephonic notice in lieu thereof), the Agent shall notify each Bank
by telex or telecopy, or other similar form of transmission, of the proposed
conversion/continuation. Any Conversion/Continuation Notice for conversion to,
or continuation of, a Loan (or telephonic notice in lieu thereof) shall be
irrevocable, and the Company shall be bound to convert or continue in accordance
therewith.

         2.7      Interest Rates, Interest Payment Dates. (a) Subject to Section
2.8, each Term Loan shall bear interest as follows:

                  (i)      if it is a Floating Rate Loan, at a rate per annum
         equal to the Floating Rate from time to time in effect; and

                  (ii)     if it is a Eurodollar Rate Loan, at a rate per annum
         equal to the Eurodollar Rate for each applicable Interest Period
         therein.

Changes in the rate of interest on that portion of any Term Loan maintained as a
Floating Rate Loan will take effect simultaneously with each change in the
Floating Rate.

         (b)      Interest accrued on each Floating Rate Loan shall be payable
on each Payment Date and at maturity. Interest accrued on each Eurodollar Rate
Loan shall be payable on the last day of its applicable Interest Period, on any
date on which such Eurodollar Rate Loan is prepaid and at maturity. Interest
accrued on each Eurodollar Rate Loan having an Interest Period longer than three
months shall also be payable on the last day of each three-month interval during
such Interest Period. Interest on all Term Loans shall be calculated for actual
days elapsed on the basis of a 360-day year. In computing interest on any Term
Loan, the date of the making of the Term Loan or the first day of an Interest
Period, as the case may be, shall be included and the date of payment or the
expiration date an Interest Period, as the case may be, shall be excluded;
provided, however, if a Term Loan is repaid on the same day on which it is made,
one (1) day's interest shall be paid on such Term Loan. If any payment of
principal of or interest on an Advance shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment.

         2.8      Rate after Maturity. Any Term Loan not paid by the Company at
maturity, whether by acceleration or otherwise, shall bear interest until paid
in full at a rate per annum equal to the higher of the rate otherwise applicable
thereto plus 2% or the Floating Rate plus 2%. All other Obligations that are not
paid when due (including, without limitation, overdue interest beyond the
applicable grace period) shall bear interest until paid in full at a rate per
annum equal to the Floating Rate plus 2%. In addition, in the case of overdue
interest beyond the applicable grace period, until such overdue interest is paid
in full, the principal amount to which such interest relates shall also bear
interest at a rate per annum equal to the higher of the rate otherwise
applicable thereto plus 2% or the Floating Rate plus 2%.

                                       14

<PAGE>

         2.9      Method of Payment. All payments of principal, interest and
fees hereunder shall be made in immediately available funds to the Agent at its
address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the Agent to the
Company) not later than 1:00 p.m. (New York time) on the date when due and
shall be applied ratably by the Agent among the Banks. Funds received after such
time shall be deemed received on the following Business Day unless the Agent
shall have received from, or on behalf of, the Company a Federal Reserve
reference number with respect to such payment before 1:00 p.m. (New York time)
on the date of such payment. Each payment delivered to the Agent for the account
of any Bank shall be delivered promptly by the Agent in the same type of funds
received by the Agent to such Bank at the address specified for such Bank on its
signature page to this Agreement or at any Lending Installation specified in a
notice received by the Agent from such Bank. The Agent is hereby authorized to
charge the account of the Company maintained with Citicorp, if any, for each
payment of principal, interest and fees as such payment becomes due hereunder.

         2.10     Evidence of Obligation: Telephonic Notices.

         (a)      The obligation of the Company to repay the Obligations shall
be evidenced by one or more Bonds.

         (b)      Each Bank shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Company to such Bank
resulting from each Term Loan made by such Bank from time to time, including the
amounts of principal and interest payable and paid to such Bank from time to
time hereunder.

         (c)      The Agent shall also maintain accounts in which it will record
(i) the amount of each Term Loan made hereunder, the Type thereof and the
Interest Period with respect thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Company to each
Bank hereunder, and (iii) the amount of any sum received by the Agent hereunder
from the Company and each Bank's share thereof.

         (d)      The entries maintained in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Bank to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Company to repay the Obligations
in accordance with their terms.

         (e)      The Company hereby authorizes the Banks and the Agent to make,
convert or continue Term Loans based on telephonic notices made by any person or
persons the Agent or any Bank in good faith believes to be acting on behalf of
the Company. The Company agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by a Designated Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Banks, the records of the Agent and the Banks shall govern
absent manifest error.

         2.11     Lending Installations. Subject to the provisions of Section
4.6, each Bank may book its Term Loans at any Lending Installation selected by
such Bank and may change its

                                       15

<PAGE>

Lending Installation from time to time. All terms of this Agreement shall apply
to any such Lending Installation and the Term Loans shall be deemed held by the
applicable Bank for the benefit of such Lending Installation. Each Bank may, by
written or facsimile notice to the Company, designate a Lending Installation
through which Term Loans will be made by it and for whose account payments on
the Term Loans are to be made.

         2.12     Non-Receipt of Funds by the Agent. Unless a Bank or the
Company, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Bank, the
proceeds of a Term Loan or (ii) in the case of the Company, a payment of
principal, interest or fees to the Agent for the account of the Banks, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Bank or the Company, as the case may be, has not in fact made such payment
to the Agent, the recipient of such payment shall, on demand by the Agent, repay
to the Agent the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to (i) in the case of payment by a Bank, the Federal Funds
Rate for such day or (ii) in the case of payment by the Company, the interest
late applicable to the relevant Term Loan.

                                   ARTICLE III
                                    RESERVED.

                                   ARTICLE IV
                             CHANGE IN CIRCUMSTANCES

         4.1      Yield Protection. (a) If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof by any agency or authority having
jurisdiction over any Bank,

                  (i)      subjects any Bank or any applicable Lending
         Installation to any increased tax, duty, charge or withholding on or
         from payments due from the Company (excluding taxation measured by or
         attributable to the overall net income of such Bank or applicable
         Lending Installation, whether overall or in any geographic area), or
         changes the rate of taxation of payments to any Bank in respect of its
         Term Loans or other amounts due it hereunder, or

                  (ii)     imposes or increases or deems applicable any reserve,
         assessment, insurance charge, special deposit or similar requirement
         against assets of, deposits with or for the account of, or credit
         extended by any Bank or any applicable Lending Installation (including,
         without limitation, any reserve costs under Regulation D with respect
         to Eurocurrency liabilities (as defined in Regulation D)), or

                  (iii)    imposes any other condition the result of which is to
         increase the cost to any Bank or any applicable Lending Installation of
         making, funding or maintaining Term Loans, or reduces any amount
         receivable by any Bank or any applicable Lending

                                       16

<PAGE>

         Installation in connection with Term Loans or requires any Bank or any
         applicable Lending Installation to make any payment calculated by
         reference to its Term Loans or interest received by it, by an amount
         deemed material by such Bank, or

                  (iv)     affects the amount of capital required or expected to
         be maintained by any Bank or Lending Installation or any corporation
         controlling any Bank and such Bank determines the amount of capital
         required is increased by or based upon the existence of this Agreement
         or its obligation to make Term Loans hereunder or of commitments of
         this type,

then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1) setting
forth the basis for such determination and the additional amounts reasonably
determined by such Bank for the period of up to 90 days prior to the date on
which such certificate is delivered to the Company and the Agent, to be
sufficient to compensate such Bank in light of such circumstances, the Company
shall within 30 days of such delivery of such certificate pay to the Agent for
the account of such Bank the specified amounts set forth on such certificate.
The affected Bank shall deliver to the Company and the Agent a certificate
setting forth the basis of the claim and specifying in reasonable detail the
calculation of such increased expense, which certificate shall be prima facie
evidence as to such increase and such amounts. An affected Bank may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
may make such reasonable estimates, assumptions, allocations and the like that
such Bank in good faith determines to be appropriate, and such Bank's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.

         (b)      No Bank shall be entitled to demand compensation or be
compensated hereunder to the extent that such compensation relates to any period
of time more than 90 days prior to the date upon which such Bank first notified
the Company of the occurrence of the event entitling such Bank to such
compensation (unless, and to the extent, that any such compensation so demanded
shall relate to the retroactive application of any event so notified to the
Company).

         4.2      Replacement Bank. If any Bank shall make a demand for payment
under Section 14.1 then within 30 days after such demand, the Company may, with
the approval of the Agent (which approval shall not be unreasonably withheld)
and provided that no Default or Event of Default shall then have occurred and be
continuing, demand that such Bank assign to one or more financial institutions
designated by the Company and approved by the Agent all (but not less than all)
of such Bank's outstanding Term Loans within the period ending on the later of
such 30th day and the last day of the longest of the then current Interest
Periods or maturity dates for such outstanding Term Loans. It is understood that
such assignment shall be consummated on terms satisfactory to the Company, the
Agent and the assigning Bank, provided that such assigning Bank's consent to
such an assignment shall not be unreasonably withheld.

         4.3      Availability of Eurodollar Rate Loans. If

                                       17

<PAGE>

                  (i)      any Bank determines that maintenance of a Eurodollar
         Rate Loan at a suitable Lending Installation would violate any
         applicable law, rule, regulation or directive, whether or not having
         the force of law, or

                  (ii)     the Majority Banks determine that (A) deposits of a
         type and maturity appropriate to match fund Eurodollar Rate Loans are
         not available or (B) the Base Eurodollar Rate does not accurately
         reflect the cost of making or maintaining a Eurodollar Rate Loan,

then the Agent shall suspend the availability of Eurodollar Rate Loans and, in
the case of clause (i), require any Eurodollar Rate Loans to be converted to
Floating Rate Loans on such date as is required by the applicable law, rule,
regulation or directive.

         4.4      Funding Indemnification. If any payment of a Eurodollar Rate
Loan occurs on a date which is not the last day of an applicable Interest
Period, whether because of prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Company for any reason other than default
by the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Loan; provided that the Company shall not be
liable for any of the foregoing to the extent they arise because of acceleration
by any Bank.

         4.5      Taxes.

         (a)      All payments by the Company to or for the account of any Bank
or the Agent hereunder or under any Bond shall be made free and clear of and
without deduction for any and all Taxes. If the Company shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to any Bank
or the Agent, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 45) such Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such deductions, (iii) the
Company shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.

         (b)      In addition, the Company hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Bond or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Bond ("Other Taxes").

         (c)      The Company hereby agrees to indemnify the Agent and each Bank
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this Section 4.5) paid by
the Agent or such Bank and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. Payments due under this
indemnification shall be made within 30 days of the date the Agent or such Bank
makes demand therefor pursuant to Section 4.6.

                                       18

<PAGE>

         (d)      Each Bank that is not incorporated under the laws of the
United States of America or a state thereof (each a "Non-U.S. Bank") agrees that
it will, not more than ten Business Days after the date hereof, or, if later,
not more than ten Business Days after becoming a Bank hereunder, (i) deliver to
each of the Company and the Agent two (2) duly completed copies of United States
Internal Revenue Service Form W8BEN or W8EC1, certifying in either case that
such Bank is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes, and (ii) deliver to
each of the Company and the Agent a United States Internal Revenue Form W-8 or
W-9, as the case may be, and certify that it is entitled to an exemption from
United States backup withholding tax. Each Non-U.S. Bank further undertakes to
deliver to each of the Company and the Agent (x) renewals or additional copies
of such form (or any successor form) on or before the date that such form
expires or becomes obsolete, and (y) after the occurrence of any event requiring
a change in the most recent forms so delivered by it, such additional forms or
amendments thereto as may be reasonably requested by the Company or the Agent.
All forms or amendments described in the preceding sentence shall certify that
such Bank is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form or amendment with respect
to it and such Bank advises the Company and the Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax.

         (e)      For any period during which a Non-U.S. Bank has failed to
provide the Company with an appropriate form pursuant to clause (d), above
(unless such failure is due to a change in treaty, law or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form originally was
required to be provided), such Non-U.S. Bank shall not be entitled to
indemnification under this Section 4.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Bank which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under clause (d) above, the
Company shall take such steps as such Non-U.S. Bank shall reasonably request to
assist such Non-U.S. Bank to recover such Taxes.

         (f)      Any Bank that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Bond
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Company (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.

         (g)      If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered or properly completed, because such Bank failed to notify the
Agent of a change in circumstances which rendered its exemption from withholding
ineffective, or for any other reason), such Bank shall indemnify the Agent fully
for

                                       19

<PAGE>

all amounts paid, directly or indirectly, by the Agent as tax, withholding
therefor, or otherwise, including penalties and interest, and including taxes
imposed by any jurisdiction on amounts payable to the Agent under this
subsection, together with all costs and expenses related thereto (including
attorneys fees and time charges of attorneys for the Agent, which attorneys may
be employees of the Agent). The obligations of the Banks under this Section 4.5
(g) shall survive the payment of the Obligations and termination of this
Agreement.

         4.6      Bank Certificates. Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending Installation
with respect to Eurodollar Rate Loans to reduce any liability of the Company to
such Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate
Loan under Section 4.3, so long as such designation is not disadvantageous to
such Bank. A certificate of such Bank as to the amount due under Section 4.1,
4.4 or 4.5 shall be final, conclusive and binding on the Company in the absence
of manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Eurodollar Rate Loan whether in fact
that is the case or not. Unless otherwise provided herein, the amount specified
in any certificate shall be payable on demand after receipt by the Company of
such certificate. The obligations of the Company under Sections 4.1, 4.4 and 4.5
shall survive payment of the Obligations and termination of this Agreement,
provided, that no Bank shall be entitled to compensation to the extent that such
compensation relates to any period of time more than 90 days after the
termination of this Agreement.

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

         The Company hereby represents and warrants that:

         5.1      Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan.

         5.2      Corporate Power and Authority: No Conflicts. The execution,
delivery and performance by the Company of the Loan Documents are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action and do not (i) violate the Company's charter, bylaws or any applicable
law, or (ii) breach or result in an event of default under any indenture or
material agreement, and do not result in or require the creation of any Lien
upon or with respect to any of its properties (except the lien of the Indenture
securing the Bonds).

         5.3      Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any Loan Document, except for the authorization to issue, sell or
guarantee secured and/or unsecured long-term debt granted by the Federal Energy
Regulatory Commission, which authorization has been obtained and is in full
force and effect.

                                       20

<PAGE>

         5.4      Legally Enforceable Agreements. Each Loan Document constitutes
a legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).

         5.5      Financial Statements. The audited balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 2001, and the related
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K (copies of which have been furnished to each Bank),
and the unaudited balance sheets of the Company and its Consolidated
Subsidiaries as at March 31, 2002 and June 30, 2002, and the related statements
of income and cash flows of the Company and its Consolidated Subsidiaries for
the three-month and six-month periods, respectively, then ended (copies of which
have been furnished to each Bank), fairly present the financial condition of the
Company and its Consolidated Subsidiaries as at such dates and the results of
operations of the Company and its Consolidated Subsidiaries for the periods
ended on such dates, all in accordance with GAAP, and since December 31, 2001,
there has been no Material Adverse Change (except to the extent described in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 as
filed with the SEC, copies of which have been furnished to each Bank).

         5.6      Litigation. Except (i) to the extent described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001,
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and Current
Reports on Form 8-K filed by the Company on May 29, 2002, July 30, 2002 and
September 8,2002, in each case as filed with the SEC, copies of which have been
furnished to each Bank, and (ii) such other similar actions, suits and
proceedings predicated on the occurrence of the same events giving rise to any
actions, suits and proceedings described in the Reports filed with the SEC set
forth in clause (i) hereof, there is no pending or threatened action or
proceeding against the Company or any of its Consolidated Subsidiaries before
any court, governmental agency or arbitrator, which, if adversely determined,
might reasonably be expected to materially adversely affect the financial
condition, results of operations, business, Property or prospects of the Company
and its Consolidated Subsidiaries, taken as a whole, or that would materially
adversely affect the Company's ability to perform its obligations under any Loan
Document. As of the Effective Date, there is no litigation challenging the
validity or the enforceability of any of the Loan Documents.

         5.7      Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U), and no proceeds of any Term Loan will be used to buy
or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.

         5.8      ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any of its
ERISA Affiliates is an employer under a Multiemployer Plan.

         5.9      Insurance. All insurance required by Section 6.2 is in full
force and effect.

                                       21

<PAGE>

         5.10     Taxes. The Company and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent the
Company or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.

         5.11     Investment Company Act. The Company is not an investment
company (within the meaning of the Investment Company Act of 1940, as amended).

         5.12     Public Utility Holding Company Act. The Company is exempt from
the registration requirements of the Public Utility Holding Company Act of 1935,
as amended, 15 USC 79, et seq.

         5.13     Bonds. The issuance to the Agent of Bonds as evidence of the
Obligations (i) will not violate any provision of the Indenture or any other
agreement or instrument, or any law or regulation, or judicial or regulatory
order, judgment or decree, to which the Company or any of its Subsidiaries is a
party or by which any of the foregoing is bound and (ii) will provide the Banks,
as beneficial holders of the Bonds through the Agent, the benefit of the Lien of
the Indenture equally and ratably with the holders of other First Mortgage
Bonds.

                                   ARTICLE VI
                              AFFIRMATIVE COVENANTS

         So long as any Obligations shall remain unpaid, the Company shall:

         6.1      Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property, provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole.

         6.2      Maintenance of Insurance. Maintain insurance in such amounts
and covering such risks with respect to its business and properties as is
usually carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.

         6.3      Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties, provided that the Company shall not be required to
preserve any such right or franchise or to remain so qualified unless the
failure to do so would have a material adverse effect on the financial condition
or results of operations of the Company and its

                                       22

<PAGE>

Consolidated Subsidiaries, taken as a whole, or the ability of the Company to
enter into, or to perform its obligations under, any Loan Document.

         6.4      Compliance with Laws. Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with which would materially adversely affect the financial
condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations under any Loan Document.

         6.5      Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers,

         6.6      Keeping of Books. Keep, and cause each Consolidated Subsidiary
to keep, adequate records and books of account, in which full and correct
entries shall be made of all of its financial transactions and its assets and
business so as to permit the Company and its Consolidated Subsidiaries to
present financial statements in accordance with GAAP.

         6.7      Reporting Requirements. Furnish to the Agent, with sufficient
copies for each of the Banks:

         (a)      as soon as practicable and in any event within five Business
Days after becoming aware of the occurrence of any Default or Event of Default,
a statement of a Designated Officer as to the nature thereof, and as soon as
practicable and in any event within five Business Days thereafter, a statement
of a Designated Officer as to the action which the Company has taken, is taking
or proposes to take with respect thereto;

         (b)      as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its Consolidated
Subsidiaries as at the end of and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, or statements providing
substantially similar information (which requirement shall be deemed satisfied
by the delivery of the Company's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to the absence of
footnotes and to year-end audit adjustments) by a Designated Officer as having
been prepared in accordance with GAAP, together with (i) a certificate of a
Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto, and (ii) a certificate of a Designated Officer, in
substantially the form of Exhibit C hereto, setting forth the Company's
computation

                                       23

<PAGE>

of the financial ratios specified in Sections 8.1 and 8.2 as of the end of the
immediately preceding fiscal quarter or year, as the case may be, of the
Company;

         (c)      as soon as available and in any event within 120 days after
the end of each fiscal year of the Company, a copy of the Annual Report on Form
10-K (or any successor form) for the Company for such year, including therein
the consolidated balance sheet of the Company and its Consolidated Subsidiaries
as at the end of such year and the consolidated statements of income, cash flows
and common stockholder's equity of the Company and its Consolidated Subsidiaries
as at the end of and for such year, or statements providing substantially
similar information, in each case certified by independent public accountants of
recognized national standing selected by the Company (and not objected to by the
Majority Banks), together with a certificate of such accounting firm addressed
to the Banks stating that, in the course of its examination of the consolidated
financial statements of the Company and its Consolidated Subsidiaries, which
examination was conducted by such accounting firm in accordance with GAAP, (1)
such accounting firm has obtained no knowledge that an Event of Default, insofar
as such Event of Default related to accounting or financial matters, has
occurred and is continuing, or if, in the opinion of such accounting firm, such
an Event of Default has occurred and is continuing, a statement as to the nature
thereof, and (2) such accounting firm has examined a certificate prepared by the
Company setting forth the computations made by the Company in determining, as of
the end of such fiscal year, the ratios specified in Sections 8.1 and 8.2 which
certificate shall be attached to the certificate of such accounting firm, and
such accounting firm confirms that such computations accurately reflect such
ratio;

         (d)      promptly after the sending or filing thereof, copies of all
proxy statements which the Company sends to its stockholders, copies of all
regular, periodic and special reports (other than those which relate solely to
employee benefit plans) which the Company files with the SEC and notice of the
sending or filing of (and, upon the request of the Agent or any Bank, a copy of)
any final prospectus filed with the SEC;

         (e)      as soon as possible and in any event (i) within 30 days after
the Company or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (a) of the definition of Termination Event
with respect to any Plan has occurred and (ii) within ten days after the Company
or any of its ERISA Affiliates knows or has reason to know that any other
Termination Event with respect to any Plan has occurred, a statement of the
Chief Financial Officer of the Company describing such Termination Event and the
action, if any, which the Company or such ERISA Affiliate, as the case may be,
proposes to take with respect thereto;

         (f)      promptly upon becoming aware thereof, notice of any upgrading
or downgrading of the rating of the Senior Debt by Fitch, Moody's or S&P;

         (g)      as soon as possible and in any event within five (5) days
after the occurrence of any material default under any material agreement to
which the Company or any of its Subsidiaries is a party, which default would
materially adversely affect the financial condition, business, results of
operations, Property or prospects of the Company and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the president or chief financial officer of the
Company setting forth the details of such material

                                       24

<PAGE>

default and the action which the Company or any such Subsidiary proposes to take
with respect thereto; and

         (h)      such other information respecting the business, properties or
financial condition of the Company as the Agent or any Bank through the Agent
may from time to time reasonably request.

         6.8      Use of Proceeds. The Company will use the proceeds of the Term
Loans for working capital and other general corporate purposes. The Company will
not, nor will it permit any Subsidiary to, use any of the proceeds of the Term
Loans to purchase or carry any "margin stock" (as defined in Regulation U).

         6.9      Maintenance of Properties, Etc. The Company shall, and shall
cause each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar businesses and owning
similar properties, and not permit, commit or suffer any waste or abandonment of
any such Property, and from time to time shall make or cause to be made all
material repairs, renewals and replacements thereof, including, without
limitation, any capital improvements which may be required; provided, however,
that such Property may be altered or renovated in the ordinary course of
Company's or its Subsidiaries' business; and provided, further, that the
foregoing shall not restrict the sale of any asset of the Company or any
Subsidiary to the extent not prohibited by Section 7.2.

         6.10     Bonds. Beginning on the Effective Date and continuing until
all Obligations have been paid in full, cause the aggregate amount of the Bonds
outstanding to at all times be equal to or greater than the aggregate
outstanding Term Loans.

         6.11     Recordation of Supplemental Indenture. The Company shall (i)
within ten days after the Effective Date, deliver the Supplemental Indenture in
recordable form to the appropriate recording office in all applicable
jurisdictions for recording in the real estate records and deliver to the office
of the Secretary of State of Michigan a UCC-1 financing statement with the
Supplemental Indenture as an attachment thereto for filing in such office and
(ii) within 25 days after the Effective Date, deliver to the Agent a certificate
signed by a Designated Officer certifying that the actions required by the
foregoing clause (i) have been taken.

                                   ARTICLE VII
                               NEGATIVE COVENANTS

         So long as any Obligations shall remain unpaid, the Company shall not:

         7.1      Liens. Create, incur, assume or suffer to exist any Lien upon
or with respect to any of its properties, now owned or hereafter acquired,
except:

         (a)      Liens created pursuant to the Indenture securing the First
Mortgage Bonds;

         (b)      Liens securing pollution control bonds, or bonds issued to
refund or refinance pollution control bonds (including Liens securing
obligations (contingent or otherwise) of the

                                       25

<PAGE>

Company under letter of credit agreements or other reimbursement or similar
credit enhancement agreements with respect to pollution control bonds), provided
that the aggregate face amount of any such bonds so issued shall not exceed the
aggregate face amount of such pollution control bonds, as the case may be, so
refunded or refinanced;

         (c)      Liens in (and only in) assets acquired to secure Debt
incurred to finance the acquisition of such assets;

         (d)      Statutory and common law banker's Liens on bank deposits;

         (e)      Liens in respect of accounts receivable sold, transferred or
assigned by the Company;

         (f)      Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;

         (g)      Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;

         (h)      Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;

         (i)      Judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered (subject to a customary deductible) by insurance;

         (j)      Zoning restrictions, easements, licenses, covenants,
reservations, utility company rights, restrictions on the use of real property
or minor irregularities of title incident thereto which do not in the aggregate
materially detract from the value of the property or assets of the Company or
materially impair the operation of its business;

         (k)      Liens arising in connection with the financing of the
Company's fuel resources, including, but not limited to, nuclear fuel;

         (l)      Liens arising pursuant to MCL 324.20138; provided that the
aggregate amount of all obligations secured by such Liens (excluding any such
Liens of which the Company has no knowledge or which are permitted by subsection
(f) above) shall not exceed $20,000,000;

         (m)      Liens arising in connection with the Securitized Bonds;

         (n)      Liens on the Facility LC Collateral Account (as defined in the
Credit Agreement) or any funds therein in favor of the agent under the Credit
Agreement;

                                       26

<PAGE>

         (o)      Liens on natural gas, oil and minerals, or on stock in trade,
materials or supplies manufactured or acquired for the purpose of sale and/or
resale in the usual course of business or consumable in the operation of any of
the properties of the Company; provided that (i) such liens secure obligations
not exceeding $300,000,000 in aggregate principal amount and (ii) such liens
shall also be permitted under the terms of the Credit Agreement; and

         (p)      Other Liens securing obligations in an aggregate amount not in
excess of $150,000,000.

         7.2      Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of 15% or more of its assets, calculated with reference to total assets
as reflected on the Company's consolidated balance sheet as at June 30,2002.

         7.3      Mergers, Etc. Merge with or into or consolidate with or into
any other Person, except that the Company may merge with any other Person,
provided that, in each case, immediately after giving effect thereto, (a) no
event shall occur and be continuing which constitutes a Default or Event of
Default, (b) the Company is the surviving corporation, (c) the Company shall not
be liable with respect to any Debt or allow its property to be subject to any
Lien which it could not become liable with respect to or allow its property to
become subject to under this Agreement on the date of such transaction and (d)
the Company's Net Worth shall be equal to or greater than its Net Worth
immediately prior to such merger.

         7.4      Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan of the Company or any ERISA Affiliate, which termination will result
in any material (in the reasonable opinion of the Majority Banks) liability of
the Company or such ERISA Affiliate to the PBGC.

         7.5      Change in Nature of Business. Make any material change in the
nature of its business as carried on as of the date hereof.

         7.6      Restricted Payments. The Company: (a) will not declare or pay
any dividends or make any other distributions on its capital stock (other than
dividends payable solely in such capital stock) or redeem any such capital
stock; and (b) will not, and will not permit any Subsidiary to, purchase or
otherwise acquire or retire any of the Company's capital stock or make any loans
or advances to CMS or any Subsidiary thereof (other than the Company or any
Subsidiary thereof); provided that, so long as no Default or Event of Default
exists, the Company may pay dividends in an aggregate amount not to exceed
$300,000,000 during any calendar year.

         7.7      Off-Balance Sheet Liabilities. Create, incur, assume or suffer
to exist, or permit any Subsidiary to create, incur, assume or suffer to exist,
Off-Balance Sheet Liabilities (exclusive of obligations pursuant to the
Receivables Sale Agreement and the Building Lease) in the aggregate in excess of
$150,000,000 at any time.

                                  ARTICLE VIII
                               FINANCIAL COVENANTS

                                       27

<PAGE>

         So long as any Obligations shall remain unpaid, the Company shall:

         8.1      Debt to Capital Ratio. At all times, maintain a ratio of Total
Consolidated Debt to Total Consolidated Capitalization of not greater than 0.65
to 1.0.

         8.2      Interest Coverage Ratio. Not permit the ratio, determined as
of the end of each of its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest Expense
to be less than 2.0 to 1.0.

                                   ARTICLE IX
                                EVENTS OF DEFAULT

         9.1      Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":

         (a)      The Company shall fail to pay (i) any principal of any Term
Loan when due and payable, or (ii) any interest on any Term Loan or any fee or
other Obligation payable hereunder within five (5) days after such interest or
fee or other Obligation becomes due and payable;

         (b)      Any representation or warranty made by the Company (or any of
its officers) in this Agreement or any other Loan Document or in any
certificate, document, report, financial or other written statement furnished at
any time pursuant to any Loan Document shall prove to have been incorrect in any
material respect on or as of the date made;

         (c)      The Company shall fail to perform or observe any term,
covenant or agreement contained in Section 6.10, Section 6.11(i), Article VII or
Article VIII: or the Company shall fail to perform or observe any other term,
covenant or agreement on its part to be performed or observed in this Agreement
or in any other Loan Document and such failure shall continue for 30 consecutive
days after notice thereof by means of facsimile, regular mail or written notice
delivered in person (or telephonic notice thereof confirmed in writing) shall
have been given to the Company by the Agent or the Majority Banks;

         (d)      The Company shall: (i) fail to pay any Debt (other than the
payment obligations described in subsection (a) above) in excess of $25,000,000,
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the instrument
or agreement relating to such Debt; or (ii) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Debt, unless
the obligee under or holder of such Debt shall have waived in writing such
circumstance, or such circumstance has been cured, so that such circumstance is
no longer continuing; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), in each case in accordance with the terms of such agreement or
instrument, prior to the stated maturity thereof; or (iv) generally not, or
shall admit in writing its inability to, pay its debts as such debts become due;

                                       28

<PAGE>

         (e)      The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets, or
(ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or (iii) shall have had
any such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 30 consecutive days or more; or (iv) by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its property;
or (v) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 30 days or more; or (vi) shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e);

         (f)      One or more judgments, decrees or orders for the payment of
money in excess of $25,000,000 in the aggregate shall be rendered against the
Company and either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order or (ii) there shall be any period of
more than 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;

         (g)      Any Termination Event with respect to a Plan shall have
occurred, and 30 days after notice thereof shall have been given to the Company
by the Agent, (i) such Termination Event (if correctable) shall not have been
corrected and (ii) the then present value of such Plan's vested benefits exceeds
the then current value of the assets accumulated in such Plan by more than the
amount of $25,000,000 (or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section 4001(A)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount); or

         (h)      Any Bond shall cease to be in full force and effect (except
for Bonds surrendered by the Agent pursuant to Section 2.4 or 2.5); or the
Company shall deny that it has any liability or obligation under any Bond or
purport to revoke, terminate, rescind or redeem any Bond (other than in
accordance with the terms of the Bonds and the Indenture).

         9.2      Remedies.

                  If any Event of Default shall occur and be continuing, the
Agent shall upon the request, or may with the consent, of the Majority Banks, by
notice to the Company, declare the Obligations to be forthwith due and payable,
whereupon the Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company, provided that in the case of an Event of
Default referred to in Section 9.1(e) above, the Obligations shall automatically
become due and payable without notice, presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company.

                                    ARTICLE X
                        WAIVERS, AMENDMENTS AND REMEDIES

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         10.1     Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority Banks)
and the Company may enter into written agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Banks or the Company hereunder or waiving any
Event of Default hereunder, provided that no such supplemental agreement shall,
without the consent of all of the Banks:

         (a)      Extend the maturity of any Term Loan or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest or
fees thereon.

         (b)      Modify the percentage specified in the definition of Majority
Banks.

         (c)      Increase the amount of the Term Loan Commitment of any Bank
hereunder, or permit the Company to assign its rights under this Agreement.

         (d)      Amend Section 6.10, Section 12.12 or this Section 10.1.

The Agent, as holder of the Bonds, shall not consent to or vote in favor of a
release of all or substantially all of the property subject to the lien of the
Indenture without the consent of all of the Banks. No amendment of any provision
of this Agreement relating to the Agent shall be effective without the written
consent of the Agent.

         10.2     Preservation of Rights. No delay or omission of the Banks or
the Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of a Term Loan notwithstanding the
existence of a Default or Event of Default or the inability of the Company to
satisfy the conditions precedent to such Term Loan shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Banks required pursuant to Section 10.1, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agent and the Banks until the Obligations have been paid in full.

                                   ARTICLE XI
                              CONDITIONS PRECEDENT

         11.1     Delivery of Documents. This Agreement shall not become
effective and the Banks shall not be required to make the Term Loans hereunder
on the Effective Date unless the Company has furnished to the Agent with
sufficient copies for the Banks:

         (a)      A certificate, signed by a Designated Officer of the Company,
stating that on the Effective Date no Default or Event of Default has occurred
and is continuing.

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<PAGE>

         (b)      Evidence satisfactory to the Agent of the issuance of the
Bonds in the form set forth in the Supplemental Indenture and in an aggregate
principal amount of $300,000,000 pursuant to the Bond Delivery Agreement.

         (c)      Favorable opinions of:

                  (i)      Michael D. VanHemert, Esq., Deputy General Counsel of
         CMS, as to the matters set forth in Exhibit B-1 and as to such other
         matters as the Agent may reasonably request;

                  (ii)     Skadden, Arps, Slate, Meagher & Flom LLP, special
         counsel to the Company, as to the matters set forth in Exhibit B-2 and
         as to such other matters as the Agent may reasonably request; and

                  (iii)    Miller, Canfield, Paddock and Stone, P.L.C., special
         counsel to the Company, as to the matters set forth in Exhibit B-3 and
         as to such other matters as the Agent may reasonably request.

Such opinions shall be addressed to the Agent and the Banks and shall be
satisfactory in form and substance to the Agent.

         (d)      Evidence, in form and substance satisfactory to the Agent,
that the Company has obtained all governmental approvals, if any, necessary for
it to enter into the Loan Documents.

         (e)      Such other documents as the Agent or any Bank may reasonably
request.

         11.2     Payment of Fees. It shall be a further condition precedent to
the making of the Term Loans on the Effective Date that the Company shall have
paid (i) to the Agent for the account of the Banks the fees required to be paid
on the Effective Date pursuant to the Fee Letter and (ii) to Citicorp North
America, Inc. all accrued and unpaid Commitment Fee (as defined in the Original
Agreement) to but not including the Effective Date.

         11.3     No Default, Etc. No Bank shall be required to make any Term
Loan on the Effective Date unless (i) no Default or Event of Default then
exists, (ii) the representations and warranties contained in Article V are true
and correct as of the Effective Date and (iii) all legal matters incident to the
making of such Term Loan are satisfactory to such Bank and its counsel. The
Company represents and warrants that the conditions contained in subsections (i)
and (ii) above will be satisfied on the Effective Date.

                                   ARTICLE XII
                               GENERAL PROVISIONS

         12.1     Successors and Assigns. (a) The terms and provisions of the
Loan Documents shall be binding upon and inure to the benefit of the Company and
the Banks and their respective successors and assigns, except that the Company
shall not have the right to assign its rights under the Loan Documents. Any Bank
may sell participations in all or a portion of its rights and

                                       31

<PAGE>

obligations under this Agreement pursuant to subsection (b) below and any Bank
may assign all or any part of its rights and obligations under this Agreement
pursuant to subsection (c) below.

         (b)      Any Bank may sell participations to one or more banks or other
entities (each a "Participant") in all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Term Loan Commitment and its outstanding Term Loan), provided
that (i) such Bank's obligations under this Agreement (including, without
limitation, its Term Loan Commitment to the Company hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of the Term Loans of such Bank for all purposes of this Agreement and
(iv) the Company shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Each
Bank shall retain the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of any provision of the Loan
Documents other than any amendment, modification or waiver with respect to any
Term Loan or Term Loan Commitment in which such Participant has an interest
which would require consent of all of the Banks pursuant to the terms of Section
10.1 or of any other Loan Document. The Company agrees that each Participant
shall be deemed to have the right of setoff provided in Section 12.11 in respect
of its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Bank under the Loan Documents, provided that each Bank shall retain
the right of setoff provided in Section 12.11 with respect to the amount of
participating interests sold to each Participant. The Banks agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in Section 12.11, agrees to share with each Bank, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 12.11 as if each Participant were a Bank. The Company
further agrees that each Participant shall be entitled to the benefits of
Sections 4.1, 4.3, 4.4 and 4.5 to the same extent as if it were a Bank and had
acquired its interest by assignment pursuant to Section 12.1(c); provided that
(i) a Participant shall not be entitled to receive any greater payment under
Section.4.1, 4.3, 4.4 or 4.5 than the Bank who sold the participating interest
to such Participant would have received had it retained such interest for its
own account, unless the sale of such interest to such Participant is made with
the prior written consent of the Company, and (ii) any Participant not
incorporated under the laws of the United States of America or any State thereof
agrees to comply with the provisions of Section 4.5 to the same extent as if it
were a Bank.

         (c)      Any Bank may, in the ordinary course of its business and in
accordance with applicable law, at any time assign to one or more financial
institutions all or any part of its rights and obligations under this Agreement,
provided that the minimum principal amount of any such assignment (other than
assignments to a Federal Reserve Bank, or to any other Bank or affiliate or
Approved Fund of a Bank, or to any direct or indirect contractual counterparties
in swap agreements relating to the Term Loans to the extent required in
connection with the physical settlement of any Bank's obligations pursuant
thereto) shall be $1,000,000 (or such lesser amount consented to by the Agent);
provided that, unless such Bank is assigning all of its rights and obligations
hereunder, after giving effect to such assignment the assigning Bank shall have
Term Loans in the aggregate of not less than $1,000,000 (unless otherwise
consented to by the Agent).

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<PAGE>

         (d)      Any Bank may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 12.1 disclose to the
purchaser or participant or proposed purchaser or participant any information
relating to the Company furnished to such Bank by or on behalf of the Company,
provided that prior to any such disclosure of non-public information, the
purchaser or participant or proposed purchaser or participant (which purchaser
or participant is not an affiliate of a Bank) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Company received
by it from such Bank.

         (e)      Assignments under this Section 12.1 shall be made pursuant to
an agreement (an "Assignment Agreement") substantially in the form of Exhibit D
hereto or in such other form as may be agreed to by the parties thereto and
shall not be effective until a $3,500 fee has been paid to the Agent by the
assignee, which fee shall cover the cost of processing such assignment,
provided, that such fee shall not be incurred in the event of an assignment by
any Bank of all or a portion of its rights under this Agreement to (i) a Federal
Reserve Bank or (ii) a Bank or an affiliate or Approved Fund of the assigning
Bank or (iii) to any direct or indirect contractual counterparties in swap
agreements relating to the Term Loans to the extent required in connection with
the physical settlement of any Bank's obligations pursuant thereto.

         (f)      Notwithstanding anything to the contrary contained herein, any
Bank (a "Granting Bank") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Agent and the Company, the option to provide to the Company all or any part
of any Term Loan that such Granting Bank is obligated to make to the Company
pursuant to this Agreement; provided that (i) nothing herein shall constitute a
commitment by any SPC to make any Term Loan, (ii) if an SPC elects not to
exercise such option or otherwise fails to provide all or any part of such Term
Loan, the Granting Bank shall remain obligated to make such Term Loan pursuant
to the terms hereof, (iii) the Company shall not be required to pay any amount
under Section 4.5 that is greater than the amount which it would have been
required to pay had there been no grant to an SPC and (iv) any SPC (or assignee
of an SPC) will comply, if applicable, with the provisions contained in Section
4.5. No grant by any Granting Bank to an SPC agreeing to provide a Term Loan or
the making of such Term Loan by such SPC shall operate to relieve such Granting
Bank of its liabilities and obligations hereunder, except to the extent of the
making of such Term Loan by such SPC. The making of a Term Loan by an SPC
hereunder shall utilize the Term Loan Commitment of the Granting Bank to the
same extent, and as if, such Term Loan were made by such Granting Bank. Each
party hereto hereby agrees that no SPC shall be liable for any indemnity or
similar payment obligation under this Agreement (all liability for which shall
remain with the Granting Bank). In addition, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that any SPC
may (i) with notice to, but without the prior written consent of, the Company
and the Agent and without paying any processing fee therefor, assign all or a
portion of its interests in any Term Loans to the Granting Bank or to any
financial institutions (consented to by the Agent in its sole discretion)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Term Loans and (ii) disclose on a
confidential basis any non-public information relating to its Term Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 12.1(f) may not be
amended without the written consent of any SPC that holds an option to provide
Term Loans. No recourse under any obligation, covenant, or

                                       33

<PAGE>

agreement of the SPC contained in this Agreement shall be had against any
shareholder, officer, agent or director of the SPC as such, by the enforcement
of any assessment or by any proceeding, by virtue of any statute or otherwise;
it being expressly agreed and understood that this Agreement is a corporate
obligation of the SPC and no personal liability shall attach to or be incurred
by any officer, agent or member of the SPC as such, or any of them under or by
reason of any of the obligations, covenants or agreements of the SPC contained
in this Agreement, or implied therefrom, and that any and all personal liability
for breaches by the SPC of any such obligations, covenants or agreements, either
at law or by statute or constitution, of every such shareholder, officer, agent
or director is hereby expressly waived by all parties to this Agreement as a
condition of and consideration for the SPC entering into this Agreement;
provided, however, that the foregoing shall not relieve any such person or
entity of any liability they might otherwise have as a result of fraudulent
actions or omissions taken by them. All parties to this Agreement acknowledge
and agree that the SPC shall only be liable for any claims that each of them may
have against the SPC only to the extent of the SPC's assets. The provisions of
this clause shall survive the termination of this Agreement.

         (g)      Any Bank may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Bank, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Bank from any of its obligations hereunder or
substitute any such pledgee or assignee for such Bank as a party hereto.

         12.2     Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Term Loans herein contemplated.

         12.3     Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Bank shall be obligated to extend credit to
the Company in violation of any limitation or prohibition provided by any
applicable statute or regulation.

         12.4     Taxes. Any taxes (excluding income taxes) payable or ruled
payable by any Federal or State authority in respect of the execution of the
Loan Documents shall be paid by the Company, together with interest and
penalties, if any.

         12.5     Choice of Law; Waiver of Jury Trial. THE LOAN DOCUMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT
OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT AND THE COMPANY
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING HEREUNDER OR UNDER ANY LOAN DOCUMENT.

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<PAGE>

         12.6     Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.

         12.7     Entire Agreement. The Loan Documents embody the entire
agreement and understanding between the Company, the Agent and the Banks and
supersede all prior agreements and understandings between the Company, the Agent
and the Banks relating to the subject matter thereof (other than those contained
in the fee letter described in Section 13.12 which shall survive and remain in
full force and effect during the term of this Agreement).

         12.8     Expenses; Indemnification. The Company shall (a) reimburse the
Agent and the Arranger for any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent) paid or incurred by the Agent or the Arranger in
connection with the preparation, review, execution, delivery, syndication,
distribution (including, without limitation, via the internet), amendment and
modification of the Loan Documents and (b) reimburse the Agent, the Arranger and
each Bank for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys for the
Agent or for such Bank) paid or incurred by the Agent, the Arranger or such Bank
in connection with the collection and enforcement of the Loan Documents. The
Company further agrees to indemnify the Agent, the Arranger and each Bank and
their respective directors, officers, employees, trustees, agents and advisors
against all losses, claims, damages, penalties, judgments, liabilities and
reasonable expenses (including, without limitation, all material expenses of
litigation or preparation therefor whether or not the Agent, the Arranger or any
Bank is a party thereto) which any of them may pay or incur arising out of or
relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Term Loan hereunder, provided that the
Company shall not be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Agent, the Arranger or
any Bank. The obligations of the Company under this Section shall survive the
termination of this Agreement.

         12.9     [Intentionally Omitted.]

         12.10    Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.

         12.11    Setoff. In addition to, and without limitation of, any rights
of the Banks under applicable law, if the Company becomes insolvent, however
evidenced, or any Default or Event of Default occurs, any indebtedness from any
Bank to the Company (including all account balances, whether provisional or
final and whether or not collected or available) may be offset and applied
toward the payment of the Obligations owing to such Bank, whether or not the
Obligations, or any part hereof, shall then be due. The Company agrees that any
purchaser or participant under Section 12.1 may, to the fullest extent permitted
by law, exercise all its rights

                                       35

<PAGE>

of payment with respect to such purchase or participation as if it were the
direct creditor of the Company in the amount of such purchase or participation.

         12.12    Ratable Payments. If any Bank, whether by setoff or otherwise,
has payment made to it upon its outstanding Term Loans in a greater proportion
than that received by any other Bank, such Bank agrees, promptly upon demand, to
purchase a portion of the aggregate outstanding Term Loans held by the other
Banks so that after such purchase each Bank will hold its Pro Rata Share of the
aggregate outstanding Term Loans. If any Bank, whether in connection with setoff
or amounts which might be subject to setoff or otherwise, receives collateral or
other protection for its Obligations or such amounts which may be subject to
setoff, such Bank agrees, promptly upon demand, to take such action necessary
such that all Banks share in the benefits of such collateral ratably in
proportion to their respective Pro Rata Share of the aggregate outstanding Term
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.

         12.13    Nonliability of Banks. The relationship between the Company,
on the one hand, and the Banks and the Agent, on the other hand, shall be solely
that of borrower and lender Neither the Agent, the Arranger nor any Bank shall
have any fiduciary responsibilities to the Company. Neither the Agent, the
Arranger nor any Bank undertakes any responsibility to the Company to review or
inform the Company of any matter in connection with any phase of the Company's
business or operations. The Company shall rely entirely upon its own judgment
with respect to its business, and any review, inspection, supervision or
information supplied to the Company by the Banks is for the protection of the
Banks and neither the Company nor any third party is entitled to rely thereon.
The Company agrees that neither the Agent, the Arranger nor any Bank shall have
liability to the Company (whether sounding in tort, contract or otherwise) for
losses suffered by the Company in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established by
the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a
court of competent jurisdiction that such losses resulted from the gross
negligence or willful misconduct of the party from which recovery is sought.
Neither the Agent, the Arranger nor any Bank shall have any liability with
respect to, and the Company hereby waives, releases and agrees not to sue for,
any special, indirect, consequential or punitive damages suffered by the Company
in connection with, arising out of, or in any way related to the Loan Documents
or the transactions contemplated thereby.

                                       36

<PAGE>

                                  ARTICLE XIII
                                    THE AGENT

         13.1     Appointment. Citicorp North America, Inc. is hereby appointed
Agent hereunder, and each of the Banks irrevocably authorizes the Agent to act
as the contractual representative on behalf of such Bank. The Agent agrees to
act as such upon the express conditions contained in this Article XIII. The
Agent shall not have a fiduciary relationship in respect of any Bank by reason
of this Agreement. The Agent hereby acknowledges and agrees that it shall hold
the Bonds for the ratable benefit of the Banks.

         13.2     Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent shall
not have any implied duties to the Banks or any obligation to the Banks to take
any action hereunder except any action specifically provided by this Agreement
to be taken by the Agent.

         13.3     General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.

         13.4     No Responsibility for Loans, Recitals, Etc. The Agent shall
not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Loan Document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement.

         13.5     Action on Instructions of Banks. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Majority Banks (or all of the Banks if required by Section 10.1), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks. The Banks hereby acknowledge that the Agent shall
be under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Majority Banks. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Banks pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.

         13.6     Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder by or through employees, agents and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder.

         13.7     Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it

                                       37

<PAGE>

to be genuine and correct and to have been signed or sent by the proper person
or persons, and, in respect to legal matters, upon the opinion of counsel
selected by the Agent, which counsel may be employees of the Agent.

         13.8     Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Loan Documents and
(ii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or any other document
delivered in connection with this Agreement or the transactions contemplated
hereby or the enforcement of any of the terms hereof or of any such other
documents, provided that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.

         13.9     Rights as a Lender. With respect to its Term Loan Commitment,
if any, and any Term Loan made by it, Citicorp shall have the same rights and
powers hereunder as any Bank and may exercise the same as though it were not the
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include Citicorp in its individual capacity. Citicorp may accept
deposits from, lend money to, and generally engage in any kind of banking or
trust business with the Company or any Subsidiary as if it were not the Agent.

         13.10    Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.

         13.11    Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Majority Banks. Upon any such resignation or removal, the
Majority Banks shall have the right to appoint, on behalf of the Banks, a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within thirty days after
the retiring Agent's giving notice of resignation, then the retiring Agent may
appoint, on behalf of the Banks, a successor Agent. Such successor Agent shall
be a commercial bank having capital and retained earnings of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.

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<PAGE>

         13.12    Agent and Arranger Fees. The Company agrees to pay to the
Agent and the Arranger, for their respective accounts, the fees agreed to by the
Company, the Agent and the Arranger pursuant to that certain letter agreement
dated July 12, 2002, or as otherwise agreed from time to time.

                                   ARTICLE XIV
                                     NOTICES

         14.1     Giving Notice. Except as otherwise permitted by Section 2.6
with respect to Conversion/Continuation Notices, all notices, requests and other
communications to any party hereunder shall be in writing (including electronic
transmission, facsimile transmission or similar writing) and shall be given to
such party; (x) in the case of the Company or the Agent, at its address or
facsimile number set forth on the signature pages hereof, except that
Conversion/Continuation Notices shall be sent to the Agent at 2 Penn's Way,
Suite 200, New Castle, DE 19720, Attention: Jason Trala, telephone 302-894-6086,
fax 302-894-6120, or (y) in the case of any Bank, at its address or facsimile
number set forth in its Administrative Details Form provided to the Agent. Each
such notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered (or, in the case of electronic transmission, received) at the
address specified in this Section; provided that notices to the Agent under
Article II shall not be effective until received.

         14.2     Change of Address. The Company and the Agent may each change
the address for service of notice upon it by a notice in writing to the other
parties hereto in accordance with Section 14.1. Any Bank may change the address
for service of notice upon it by a notice in writing to the Company and the
Agent in accordance with Section 14.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       39

<PAGE>

                                   ARTICLE XV
                                  COUNTERPARTS

         This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Company, the Agent
and the Banks and each party has notified the Agent by facsimile or telephone
that it has taken such action.

         IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.

                                       CONSUMERS ENERGY COMPANY

                                       By: /s/ Laura L. Mountcastle
                                           -------------------------------------
                                           Name : Laura L. Mountcastle
                                           Title: Vice President and Treasurer

                                       212 West Michigan Avenue
                                       Jackson, MI 49201
                                       Attention: James L. Loewen
                                       Facsimile No.: (517) 788-7080
                                       Confirmation Telephone No: (517) 788-2286
                                       E-Mail Address: jlloewen@cmsenergy.com

<PAGE>

                                       CITICORP NORTH AMERICA, INC., as
                                       Agent and as a Bank

                                       By: /s/ [ILLEGIBLE]
                                           -------------------------------------
                                           Name: [ILLEGIBLE]
                                           Title: Vice President

                                       390 Greenwich Street
                                       New York, NY 10023
                                       Attention: Dale Goncher
                                       Facsimile No.: (212) 723-8540
                                       Confirmation No: (212) 723-6732

<PAGE>

                                       BANK HAPOALIM B.M.

                                       By: /s/ Laura Anne Raffa
                                           -------------------------------------
                                       Name: LAURA ANNE RAFFA
                                       Title: SENIOR VICE PRESIDENT &
                                              CORPORATE MANAGER

                                       4

<PAGE>

                                       THE FOOTHILL GROUP, INC.

                                       By: /s/ Dennis R. Ascher
                                           -------------------------------------
                                       Name: Dennis R. Ascher
                                       Title: Senior Vice President

<PAGE>

                                       FOOTHILL INCOME TRUST, L.P.
                                       By FIT GP, LLC, Its General Partner

                                       By: /s/ Dennis R. Ascher
                                           -------------------------------------
                                       Name: Dennis R. Ascher
                                       Title: Managing Member

                                       2

<PAGE>

                                       PROTECTIVE LIFE

                                       By: /s/ Diane S. Griswold
                                           -------------------------------------
                                       Name: Diane S. Griswold
                                       Title: Assistant VP

                                       5

<PAGE>

                                       SOCIETE GENERALE

                                       By: /s/ David Bird
                                           -------------------------------------
                                       Name: David Bird
                                       Title: Vice President

                                       3

<PAGE>

                                    EXHIBIT A

                        [FORM OF SUPPLEMENTAL INDENTURE]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(G)
<SEQUENCE>9
<FILENAME>k75486exv10wxgy.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT DATED AS OF JUNE 1, 2002
<TEXT>
<PAGE>

                                                                   EXHIBIT 10(g)

                              EMPLOYMENT AGREEMENT

                        THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered
            into as of June 1, 2002 (the "Effective Date"), by and between CMS
            Energy Corporation, a Michigan corporation (the "Company"), and
            Kenneth Whipple (the "Executive").

                        WHEREAS, the Board of Directors of the Company (the
            "Board") desires that the Company employ the Executive and the
            Executive desires to furnish services to the Company on the terms
            and conditions hereinafter set forth; and

                        WHEREAS, the parties desire to enter into this Agreement
            setting forth the terms and conditions of the employment
            relationship of the Executive with the Company.

                        NOW, THEREFORE, in consideration of the premises and the
            mutual agreements set forth below, the Company and the Executive
            hereby agree as follows:

                        1. Employment. The Company hereby agrees to employ the
            Executive, and Executive hereby accepts such employment, on the
            terms and conditions hereinafter set forth. Within 10 days of
            signing this Agreement, Executive shall receive a one-time cash
            payment of $25,000.00 as a signing bonus.

                        2. Employment Period. The period during which the
            Executive shall furnish services to the Company hereunder shall
            commence as of the Effective Date and shall continue in effect
            through the earlier to occur of (i) a termination of the Executive's
            employment with the Company for any reason or (ii) if the Company
            hires a permanent Chief Executive Officer, the date on which such
            permanent Chief Executive Officer's employment with the Company
            becomes effective (the "Employment Period").

                        3. Position and Duties. During the Employment Period,
            the Executive shall serve as the Chairman and Chief Executive
            Officer of the Company and shall have those powers and duties of a
            management nature consistent with such position. In the performance
            of his duties hereunder, the Executive shall report to the Board and
            shall devote substantially all of his full working time, attention
            and energies to the business of the Company as shall be necessary
            for him to carry out his obligations hereunder. During the
            Employment Period, the Executive shall continue to serve as a member
            of the Board.

                        4. Place of Performance. The principal place of
            performance of the Executive's duties hereunder shall be at the
            Company's principal corporate offices, subject to reasonable travel
            requirements on behalf of the Company.

                        5. Compensation and Related Matters.

                        (a) Base Salary.

                              (i)   Cash Portion. During the Employment Period,
the Company shall pay the Executive, in cash, a base salary at the rate of
$200.00 per month (the

<PAGE>

      "Cash Base Salary"), payable in installments of $100.00 per pay period in
      accordance with the Company's regular payroll practice for its senior
      executives, as in effect from time to time.

                              (ii)  Salary Equivalent/Phantom Stock Units.
      During the Employment Period, in addition to the Cash Base Salary, the
      Company shall provide to the Executive a "salary equivalent" as follows:

                                    (1)   Number of Phantom Stock Units. On
      the first day of each month during the Employment Period (the "Grant
      Date"), the Executive shall be granted a whole number of phantom stock
      units ("Stock Units") equal to the quotient obtained by dividing (A)
      $85,159.83 by (B) the closing trading price of a share of the Company's
      common stock, par value $.01 per share ("Common Stock") as reported on the
      NYSE Composite Tape for the last trading day of the immediately preceding
      month. All Stock Units shall be fully vested in the Executive as of the
      date of grant.

                                    (2)   Dividend Equivalents. In the event a
      dividend is paid or other distribution is made with respect to the Common
      Stock, the Executive shall be granted, as of the dividend payment date (or
      the date such non-cash dividend or other non-cash distribution is made)
      (the "Dividend Grant Date"), an additional whole number of fully vested
      Stock Units equal to the quotient of (A) the amount of the cash dividend
      that would have been paid (or, in the event of a non-cash dividend or
      other non-cash distribution, the value of such dividend or other
      distribution, as determined by the Board, that would have been made) with
      respect to the number of shares of Common Stock covered by the Stock Units
      held by the Executive on the record date for such dividend or other
      distribution and (B) the closing trading price of a share of Common Stock
      on the last trading day immediately preceding such payment or distribution
      date.

                                    (3)   No Fractional Stock Units. For
      purposes of this subsection 5(a)(ii), fractional Stock Units resulting
      from the above-described computations shall be disregarded.

                                    (4)   Nontransferability. The Stock Units
      may not be sold, assigned, transferred or otherwise encumbered by the
      Executive.

                                    (5)   Equitable Adjustments. In the event
      that the Board shall determine that any recapitalization, stock split,
      reverse stock split, reorganization, merger, consolidation, spin-off,
      combination, repurchase, or share exchange, or other similar corporate
      transaction or event (other than any cash dividend or other non-cash
      dividend or distribution covered by clause (2) above), affects the Common
      Stock such that an adjustment is appropriate in order to prevent dilution
      or enlargement of the rights of the Executive with respect to Stock Units
      previously granted pursuant to this Agreement, then the Board shall make
      such equitable changes or adjustments as it deems necessary or appropriate
      to the number of Stock Units theretofore granted to the Executive
      hereunder.

                                    (6)   Rolling Cash Payments for Stock Units.
      On the first business day following the second anniversary of each Grant
      Date and each Dividend Grant Date, there shall be a "Settlement Date" on
      which the Executive shall receive from the Company a cash payment equal to
      the closing trading price of a share of the Common Stock on

                                        2

<PAGE>

      the Settlement Date times the number of Stock Units granted to the
      Executive on the Grant Date or Dividend Grant Date, as applicable, two
      years earlier pursuant to this Section 5(a)(ii), adjusted, if applicable,
      pursuant to clause (5) above; provided, however, that if the Executive's
      employment terminates by reason of his death or the Executive dies
      following the termination of his employment and prior to the final
      Settlement Date, the Executive's legal representative or estate, as the
      case may be, shall receive such cash payment as soon as practicable
      following each remaining Settlement Date, payable to the Kenneth and
      Kimberly Trust held by Comerica Bank.

                        (b) Incentive Compensation. At the end of each fiscal
      year of the Company occurring during the Employment Period and upon
      termination of the Employment Period, the Board shall review the
      performance of the Executive and shall provide the Executive such
      incentive compensation, if any, as shall be determined by the Board in its
      sole discretion.

                        (c) Other Benefits. During the Employment Period, the
      Executive shall be entitled to participate (subject to uniformly
      applicable requirements for participation) in any health, disability,
      profit sharing, retirement or insurance plans maintained by the Company
      from time to time and shall be entitled to receive such perquisites and
      fringe benefits as are provided by the Company from time to time, in each
      case for the benefit of its executive officers at Grade Level E-9,
      provided however that Executive shall also continue to receive the same
      life insurance benefit that a non-employee director of the Company
      receives.

                        (d) Business Expenses. During the Employment Period, the
      Company shall, upon submission of proper vouchers in respect thereof, pay
      or reimburse the Executive in accordance with the Company's reimbursement
      and expenses policies, as in effect from time to time, for all reasonable
      business expenses incurred by the Executive in connection with the
      Company's business.

            6.    Termination. The Executive's employment hereunder may be
terminated under the following circumstances:

                  (a)   Death. The Executive's employment shall terminate upon
his death.

                  (b) Termination by the Company or by the Executive. The
Company may terminate the Executive's employment during the Employment Period
for any reason, with or without cause, upon 10 days' prior notice. The Executive
may terminate his employment during the Employment Period for any reason, upon
10 days' prior notice. Any termination of the Executive's employment by the
Company or by the Executive pursuant to this Section 6(b) shall be communicated
by written notice of termination to the other party hereto in accordance with
Section 11.

            7. Compensation Upon Termination of the Employment Period. Upon
termination of the Employment Period, in addition to any amounts awarded to the
Executive pursuant to Section 5(b) hereof, the Company shall pay to the
Executive (or the Executive's legal representative or estate, as the case may
be), as soon as practicable thereafter, a lump sum in cash equal to any Cash
Base Salary under Section 5(a)(i) which has been earned but not yet paid, any
accrued but unpaid incentive compensation and reimbursement of any expenses
incurred by the Executive in respect of periods through the date of termination,
and shall deliver the cash payments specified in settlement of Stock Units at
the times otherwise provided herein in Section 5(a)(ii)(6).

                                        3

<PAGE>

            8.    Non-Competition, Non-Solicitation and Confidentiality
Requirements.

                  (a) Non-Competition Requirement. During the Employment Period
and during the one-year period thereafter (the "Noncompetition Period"), the
Executive, acting alone or with others, directly or indirectly, shall not
engage, whether as employee, employer, consultant, advisor or director, full or
part-time, or as an owner, investor, partner or stockholder (unless the
Executive's interest is insubstantial), in any business in an area or region in
which the Company or any of its subsidiaries or affiliates then conducts
business, which business is directly in competition with a business then
conducted by the Company or any of its subsidiaries or affiliates. For purposes
of this Section 8(a), the Executive's interest as a stockholder shall be
considered insubstantial if such interest represents beneficial ownership of
less than one percent of the outstanding class of stock, and the Executive's
interest as an owner, investor or partner shall be considered insubstantial if
such interest represents ownership, as determined by the Board in its
discretion, of less than one percent of the outstanding equity of the entity.

                  (b) Non-Solicitation Requirement. During the Noncompetition
Period, the Executive, acting alone or with others, directly or indirectly,
whether as employee, employer, consultant, advisor or director, or as an owner,
investor, partner, stockholder or otherwise (i) shall not solicit or induce any
client or customer of the Company or any of its subsidiaries or affiliates, or
entity with which the Company or any of its subsidiaries or affiliates has a
business relationship, to curtail, cancel, not renew or not continue his or her
or its business with the Company or any of its subsidiaries or affiliates, (ii)
shall not hire any person who is then, or who within 90 days prior to a
termination of the Executive's employment, was an employee of, or a consultant
or independent contractor to, the Company or any of its subsidiaries or
affiliates and (iii) shall not solicit or induce any person who is an employee
of, or a consultant or independent contractor to, the Company or any of its
subsidiaries or affiliates to curtail, cancel, not renew or not continue his or
her or its employment, consulting or other relationship with the Company or any
of its subsidiaries or affiliates.

                  (c) Confidentiality Requirement. The Executive shall not take,
disclose, use, sell or otherwise transfer, except in the course of employment
with the Company, any confidential or proprietary information of the Company or
any of its subsidiaries or affiliates, including but not limited to information
regarding current and potential customers, clients, counterparts, organization,
employees, finances and financial results, and methods of operation,
transactions and investments, so long as such information has not otherwise been
disclosed to the public or is not otherwise in the public domain, except as
required by law or pursuant to legal process. The Executive shall return to the
Company, promptly following the Executive's termination of employment or, if a
demand for such return has been made, at any other time, any information,
documents, materials, data, manuals, computer programs or device containing
information relating to the Company or any of its subsidiaries or affiliates,
and each of their customers, clients and counterparts, which came into the
Executive's possession or control during his employment.

                  (d) Injunctive Relief. The Executive acknowledges that a
breach of the restrictions contained in this Section 8 shall cause irreparable
damage to the Company, the exact amount of which shall be difficult to
ascertain, and that the remedies at law for any such breach shall be inadequate.
Accordingly, the Executive agrees that, if the Executive breaches any of the
restrictions contained in this Section 8, then the Company shall be entitled to
injunctive relief,

                                        4

<PAGE>

without posting bond or other security in addition to any other remedy or
remedies available to the Company at law or in equity. This Section 8 shall
survive the expiration or earlier termination of this Agreement and the
termination of the Executive's employment hereunder.

            9. Successors; Binding Agreement. This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives. This Agreement shall inure
to the benefit of and be binding upon the Company and its successors and
assigns. The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
have been required to perform it if no such succession had taken place. As used
in this Agreement, the "Company" shall mean both the Company as defined above or
any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.

            10. Indemnification. The Company shall indemnify, to the fullest
extent permitted by applicable state law and the by-laws of the Company, all
amounts (including without limitation judgments, fines, settlement payments,
expenses and attorney's fees) incurred or paid by the Executive in connection
with any claim, action, suit, investigation or proceeding arising out of or
relating to the performance by the Executive of services for, or the acting by
him as a director, officer or employee of the Company, any subsidiary of the
Company or any other person or enterprise at the Company's request
(collectively, "Claims"). During the Executive's employment with the Company and
following the termination of the Executive's employment with the Company for any
reason, the Executive shall be covered with respect to any Claims under any
director's and officer's liability insurance policy maintained by the Company
which covers other similarly situated executives of the Company. This Section 10
shall survive the expiration or earlier termination of this Agreement and the
termination of the Executive's employment hereunder.

            11. Notices. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:

            If to the Executive:

                  Kenneth Whipple
                  1115 Country Club Rd.
                  Bloomfield Hills, MI 48304

                  If to the Company:

                  CMS Energy Corporation
                  Fairlane Plaza South, Suite 1100
                  330 Town Center Drive
                  Dearborn, Michigan 48126
                  Attention:  Corporate Secretary

                                        5

<PAGE>

or to such other address as any party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

            12. Amendment or Modification, Waiver. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by the Executive and an authorized
officer of the Company. No waiver by any party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by any such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

            13. Miscellaneous. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto and any prior agreement
of the parties hereto in respect to the subject matter contained herein. This
Agreement will be governed by and construed in accordance with the laws of the
State of Michigan, without regard to its conflicts of law principles. All
descriptive headings of sections and paragraphs in this Agreement are intended
solely for convenience, and no provision of this Agreement is to be construed by
reference to the heading of any section or paragraph. All payments to the
Executive under this Agreement shall be reduced by all applicable withholding
required by federal, state or local law, This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.

            IN WITNESS WHEREOF, the parties have executed this Agreement as of
the Effective Date.

                             CMS ENERGY CORPORATION

                             By: /s/ JOHN F. DRAKE
                                --------------------------------
                                 Name:  John F. Drake
                                 Title: Senior Vice President,
                                        Human Resources and
                                        Business Services

                             /s/ KENNETH WHIPPLE
                             -----------------------------------
                             Kenneth Whipple

                                        6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>10
<FILENAME>k75486exv12.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF CONSUMERS RATIO
<TEXT>
<PAGE>




























                                  EXHIBIT (12)




<PAGE>

                                                                    EXHIBIT (12)

                            CONSUMERS ENERGY COMPANY
      Ratio of Earnings to Fixed Charges and Preferred Securities Dividends
                               and Distributions
                              (Millions of Dollars)



<TABLE>
<CAPTION>
                                                                              Years Ended December 31 --

                                                                 2002       2001      2000       1999       1998
                                                                -------------------------------------------------
                                                                   (d)        (c)                             (b)
<S>                                                             <C>       <C>        <C>        <C>        <C>
Earnings as defined (a)
- -----------------------
Consolidated net income                                          $363     $  199     $ 284      $ 340      $ 306
Income taxes                                                      180         97       137        172        135
Exclude equity basis subsidiaries                                 (38)       (30)      (47)       (40)       (38)
Fixed charges as defined, adjusted to exclude capitalized
  interest of $12, $6, $2, $-, and $1 million for years
  ended December 31, 2002, 2001, 2000, 1999, and 1998,
  respectively                                                    178        197       194        192        185
                                                                -------------------------------------------------
Earnings as defined                                             $ 683      $ 463     $ 568      $ 664      $ 588
                                                                =================================================

Fixed charges as defined (a)
- ----------------------------
Interest on long-term debt                                      $ 153      $ 151     $ 141      $ 140      $ 138
Estimated interest portion of lease rental                         10         11        11         11         10
Other interest charges                                             27         41        44         41         38
Preferred securities dividends and
  distributions                                                    47         44        37         30         47
                                                                -------------------------------------------------
Fixed charges as defined                                        $ 237      $ 247     $ 233      $ 222      $ 233
                                                                =================================================

Ratio of earnings to fixed charges and
 preferred securities dividends and distributions                2.88       1.87      2.44       2.99       2.52
                                                                =================================================
</TABLE>

NOTES:

(a) Earnings and fixed charges as defined in instructions for Item 503 of
Regulation S-K.

(b) Excludes a cumulative effect of change-in-accounting after-tax gain of $43
million; if included, ratio would be 2.81.

(c) Excludes a cumulative effect of change-in-accounting after-tax loss of $11
million; if included, ratio would be 1.81.

(d) Excludes a cumulative effect of change-in-accounting after tax gain of $18
million; if included, ratio would be unchanged, since the change-in-accounting
resulted from the equity based subsidiary MCV Partnership. The total net income
of equity based subsidiaries are excluded from determining earnings as defined.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>11
<FILENAME>k75486exv23.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
                                  EXHIBIT 23


<PAGE>
                                                                   EXHIBIT 23



                         Consent of Independent Auditors


We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-76347) pertaining to the Employee Savings and Incentive Plan of
Consumers Energy Company and in the Registration Statement (Form S-3 No.
333-73922) of Consumers Energy Company and in the related Prospectus of our
report dated March 14, 2003, except for Note 3, as to which the date is March
28, 2003, with respect to the consolidated financial statements and schedule of
Consumers Energy Company and subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 2002.



                                                   /s/ Ernst & Young LLP

Detroit, Michigan
March 28, 2003


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(B)
<SEQUENCE>12
<FILENAME>k75486exv23wxby.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>
<PAGE>
                                 EXHIBIT 23(B)
<PAGE>
                                                                   EXHIBIT 23(b)

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-76347) and on Form S-3 (No. 333-73922) of
Consumers Energy Company of our report dated January 17, 2003 relating to the
financial statements of Midland Cogeneration Venture L.P. which appears in the
Consumers Energy Company Form 10-K for the year ended December 31, 2002.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Detroit, Michigan
March 28, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>13
<FILENAME>k75486exv24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
<PAGE>
                                                                      EXHIBIT 24

March 28, 2003

Mr. S. Kinnie Smith, Jr.
Mr. Thomas J. Webb
Mr. Michael D. VanHemert
Consumers Energy Company
212 West Michigan Avenue
Jackson, MI 49201

Consumers Energy Company is required to file an Annual Report on Form 10-K for
the year ended December 31, 2002 with the Securities and Exchange Commission
within 90 days after the end of the year.

We hereby make, constitute and appoint each of you our true and lawful attorney
for each of us and in each of our names, places and steads to sign and cause to
be filed with the Securities and Exchange Commission said Annual Report with any
necessary exhibits, and any amendments thereto that may be required.

Very truly yours,


    /s/  Kenneth Whipple                       /s/ Michael T. Monahan
 --------------------------------        ---------------------------------------
         Kenneth Whipple                           Michael T. Monahan


                                               /s/ Joseph F. Paquette, Jr
 --------------------------------        ---------------------------------------
         John M. Deutch                            Joseph F. Paquette, Jr.


    /s/ James J. Duderstadt
 --------------------------------        ---------------------------------------
        James J. Duderstadt                        William U. Parfet


    /s/ Kathleen R. Flaherty                   /s/ Percy A. Pierre
 --------------------------------        ---------------------------------------
        Kathleen R. Flaherty                       Percy A. Pierre


                                               /s/ S. Kinnie Smith, Jr.
 --------------------------------        ---------------------------------------
        Earl D. Holton                             S. Kinnie Smith, Jr.



    /s/ David W. Joos                          /s/ Kenneth L. Way
 --------------------------------        ---------------------------------------
        David W. Joos                              Kenneth L. Way


                              /s/ John B. Yasinksy
                          ----------------------------
                                John B. Yasinsky

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>14
<FILENAME>k75486exv99.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 906
<TEXT>
<PAGE>
                                  EXHIBIT (99)





<PAGE>
                                                                    EXHIBIT (99)

                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report on Form 10-K of Consumers Energy Company
(the "Company") for the annual period ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Kenneth
Whipple, as Chairman of the Board and Chief Executive Officer of the Company,
and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of
the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:

         (1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



 /s/  Kenneth Whipple
- ---------------------------------------
Name:    Kenneth Whipple
Title:   Chairman of the Board and
         Chief Executive Officer
Date:    March 28, 2003



 /s/  Thomas J. Webb
- ---------------------------------------
Name:    Thomas J. Webb
Title:   Executive Vice President and
         Chief Financial Officer
Date:    March 28, 2003





This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been
provided to Consumers Energy Company and will be retained by Consumers Energy
Company and furnished to the Securities and Exchange Commission or its staff
upon request.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
