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<SEC-DOCUMENT>0000950124-03-003536.txt : 20031112
<SEC-HEADER>0000950124-03-003536.hdr.sgml : 20031111
<ACCEPTANCE-DATETIME>20031112061906
ACCESSION NUMBER:		0000950124-03-003536
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		17
CONFORMED PERIOD OF REPORT:	20030930
FILED AS OF DATE:		20031112

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-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05611
		FILM NUMBER:		03990258

	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

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CMS ENERGY CORP
		CENTRAL INDEX KEY:			0000811156
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC & OTHER SERVICES COMBINED [4931]
		IRS NUMBER:				382726431
		STATE OF INCORPORATION:			MI
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09513
		FILM NUMBER:		03990257

	BUSINESS ADDRESS:	
		STREET 1:		FAIRLANE PLZ S STE 1100
		STREET 2:		330 TOWN CENTER DR
		CITY:			DEARBORN
		STATE:			MI
		ZIP:			48126
		BUSINESS PHONE:		3134369261

	MAIL ADDRESS:	
		STREET 1:		FAIRLANE PLAZA SOUTH, SUITE 1100
		STREET 2:		330 TOWN CENTER DRIVE
		CITY:			DEARBORN
		STATE:			MI
		ZIP:			48126
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>k80589e10vq.txt
<DESCRIPTION>QUARTERLY REPORT DATED SEPTEMBER 30, 2003
<TEXT>
<PAGE>

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

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q
       [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                                       OR

       [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the transition period from_______ to

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

  1-9513                  CMS ENERGY CORPORATION                    38-2726431
                         (A Michigan Corporation)
                One Energy Plaza, Jackson, Michigan  49201
                             (517) 788-0550

  1-5611                  CONSUMERS ENERGY COMPANY                  38-0442310
                         (A Michigan Corporation)
                One Energy Plaza, Jackson, Michigan  49201
                             (517) 788-0550

Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the Registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act).
CMS ENERGY CORPORATION: Yes [X] No [ ]

CONSUMERS ENERGY COMPANY: Yes [ ] No [X]

Number of shares outstanding of each of the issuer's classes of common stock at
November 1, 2003:

<TABLE>
<S>                                                                                      <C>
CMS ENERGY CORPORATION:
   CMS Energy Common Stock, $.01 par value                                               161,130,925
CONSUMERS ENERGY COMPANY, $10 par value, privately held by CMS Energy Corporation         84,108,789
</TABLE>

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

<PAGE>

                             CMS ENERGY CORPORATION
                                       AND
                            CONSUMERS ENERGY COMPANY

                      QUARTERLY REPORTS ON FORM 10-Q TO THE
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2003

This combined Form 10-Q is separately filed by CMS Energy Corporation and
Consumers Energy Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Energy Company makes no
representation as to information relating to any other companies affiliated with
CMS Energy Corporation.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                              --------
<S>                                                                                                           <C>
Glossary..................................................................................................           4

PART I:  FINANCIAL INFORMATION

CMS Energy Corporation
     Management's Discussion and Analysis
          Forward-Looking Statements and Risk Factors.....................................................    CMS -  1
          Critical Accounting Policies....................................................................    CMS -  1
          Results of Operations...........................................................................    CMS - 14
          Capital Resources and Liquidity.................................................................    CMS - 20
          Outlook.........................................................................................    CMS - 26
          Other Matters...................................................................................    CMS - 40
     Consolidated Financial Statements
          Consolidated Statements of Income...............................................................    CMS - 44
          Consolidated Statements of Cash Flows...........................................................    CMS - 46
          Consolidated Balance Sheets.....................................................................    CMS - 48
          Consolidated Statements of Common Stockholders' Equity..........................................    CMS - 50
          Condensed Notes to Consolidated Financial Statements:
          1.   Corporate Structure and Summary of Significant Accounting Policies.........................    CMS - 51
          2.   Asset Sales and Restructuring..............................................................    CMS - 54
          3.   Discontinued Operations....................................................................    CMS - 57
          4.   Uncertainties..............................................................................    CMS - 61
          5.   Financings and Capitalization..............................................................    CMS - 82
          6.   Earnings Per Share.........................................................................    CMS - 89
          7.   Risk Management Activities and Financial Instruments.......................................    CMS - 91
          8.   Equity Method Investments..................................................................    CMS - 95
          9.   Reportable Segments........................................................................    CMS - 96
          10.  Implementation of New Accounting Standards.................................................    CMS - 98
</TABLE>

                                       2
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                              --------
<S>                                                                                                           <C>
Consumers Energy Company
     Management's Discussion and Analysis
          Forward-Looking Statements and Risk Factors.....................................................     CE - 1
          Critical Accounting Policies....................................................................     CE - 1
          Results of Operations...........................................................................     CE - 11
          Capital Resources and Liquidity.................................................................     CE - 14
          Outlook.........................................................................................     CE - 19
          Other Matters...................................................................................     CE - 28
     Consolidated Financial Statements
          Consolidated Statements of Income...............................................................     CE - 32
          Consolidated Statements of Cash Flows...........................................................     CE - 33
          Consolidated Balance Sheets.....................................................................     CE - 34
          Consolidated Statements of Common Stockholder's Equity..........................................     CE - 36
          Condensed Notes to Consolidated Financial Statements:
          1.  Corporate Structure and Summary of Significant Accounting Policies..........................     CE - 38
          2.  Uncertainties...............................................................................     CE - 40
          3.  Financings and Capitalization...............................................................     CE - 56
          4.  Financial and Derivative Instruments........................................................     CE - 61
          5.  Implementation of New Accounting Standards..................................................     CE - 64

Quantitative and Qualitative Disclosures about Market Risk................................................     CO - 1

PART II:  OTHER INFORMATION

     Item 1. Legal Proceedings............................................................................     CO - 1
     Item 2. Changes in Securities and Use of Proceeds....................................................     CO - 3
     Item 5. Other Information............................................................................     CO - 3
     Item 6. Exhibits and Reports on Form 8-K.............................................................     CO - 3
     Signatures...........................................................................................     CO - 5
</TABLE>

                                       3
<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, a non-affiliated company
ALJ..........................................          Administrative Law Judge
Alliance.....................................          Alliance Regional Transmission Organization
AMT..........................................          Alternative minimum tax
APB..........................................          Accounting Principles Board
APB Opinion No. 18...........................          APB Opinion No. 18, "The Equity Method of Accounting for
                                                       Investments in Common Stock"
APB Opinion No. 20...........................          APB Opinion No. 20, "Accounting Changes"
APB Opinion No. 30...........................          APB Opinion No. 30, "Reporting Results of Operations -
                                                       Reporting the Effects of Disposal of a Segment of a Business"
APT..........................................          Australian Pipeline Trust
ARO..........................................          Asset retirement obligation
Attorney General.............................          Michigan Attorney General

bcf..........................................          Billion cubic feet
BG LNG Services..............................          BG LNG Services, Inc., a subsidiary of BG Group of the United
                                                       Kingdom
Big Rock.....................................          Big Rock Point nuclear power plant, owned by Consumers
Board of Directors...........................          Board of Directors of CMS Energy
Bookouts.....................................          Unplanned netting of transactions from multiple contracts

Centennial...................................          Centennial Pipeline, LLC, in which Panhandle, formerly a
                                                       wholly owned subsidiary of CMS Gas Transmission, owned a
                                                       one-third interest
CEO..........................................          Chief Executive Officer
CFO..........................................          Chief Financial Officer
Clean Air Act................................          Federal Clean Air Act, as amended
CMS Electric and Gas.........................          CMS Electric and Gas Company, a subsidiary of Enterprises
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 Field Services...........................          CMS Field Services, formerly a wholly owned subsidiary of CMS
                                                       Gas Transmission.  The sale of this subsidiary closed in July
                                                       2003.
CMS Gas Transmission.........................          CMS Gas Transmission Company, a subsidiary of Enterprises
CMS Generation...............................          CMS Generation Co., a subsidiary of Enterprises
</TABLE>

                                       4
<PAGE>

<TABLE>
<S>                                                    <C>
CMS Holdings.................................          CMS Midland Holdings Company, a subsidiary of Consumers
CMS Land.....................................          CMS Land Company, a subsidiary of Enterprises
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
CMS Pipeline Assets..........................          CMS Enterprises pipeline assets in Michigan and Australia
CMS Viron....................................          CMS Viron Energy Services, formerly a wholly owned subsidiary
                                                       of CMS MST.  The sale of this subsidiary closed in July 2003.
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 Receivables Funding II.............          Consumers Receivables Funding II LLC, 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 as of 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

Detroit Edison...............................          The Detroit Edison Company, a non-affiliated company
DIG..........................................          Dearborn Industrial Generation, LLC, a wholly owned
                                                       subsidiary of CMS Generation
DOE..........................................          U.S. Department of Energy
Dow..........................................          The Dow Chemical Company, a non-affiliated company
Duke Energy..................................          Duke Energy Corporation, a non-affiliated company

EITF.........................................          Emerging Issues Task Force
EITF Issue No. 02-03.........................          Issues Involved in Accounting for Derivative Contracts Held
                                                       for Trading Purposes and Contracts Involved in Energy Trading
                                                       and Risk Management Activities
El Chocon....................................          The 1,200 MW hydro power plant located in Argentina, which
                                                       CMS Generation holds a 17.23 percent ownership interest
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
Exchange Act.................................          Securities Exchange Act of 1934, as amended

FASB.........................................          Financial Accounting Standards Board
FERC.........................................          Federal Energy Regulatory Commission
</TABLE>

                                       5
<PAGE>

<TABLE>
<S>                                                    <C>
FIN 46.......................................          FASB Interpretation No. 46, "Consolidation of Variable
                                                       Interest Entities"
FMB..........................................          First Mortgage Bonds
FMLP.........................................          First Midland Limited Partnership, a partnership that holds a
                                                       lessor interest in the MCV facility
FondElec.....................................          FondElec Essential Services Growth Fund, an investment at
                                                       Enterprises, formed in 1997 to invest in companies whose
                                                       business is to invest in communications and utility sectors,
                                                       primarily in Latin America
FTC..........................................          Federal Trade Commission

GCR..........................................          Gas cost recovery
GTNs.........................................          CMS Energy General Term Notes(R), $200 million Series D, $400
                                                       million Series E and $300 million Series F
Guardian.....................................          Guardian Pipeline, LLC, in which CMS Gas Transmission
                                                       formerly owned a one-third interest
GWh..........................................          Gigawatt-hour

Health Care Plan.............................          The medical, dental, and prescription drug programs offered
                                                       to eligible employees of Consumers and CMS Energy
HL Power.....................................          H.L. Power Company, a California Limited Partnership, owner
                                                       of the Honey Lake generation project in Wendel, California

INGAA........................................          Interstate Natural Gas Association of America
Integrum.....................................          Integrum Energy Ventures, LLC
IPP..........................................          Independent Power Production
IRA..........................................          Individual Retirement Account
ISO..........................................          Independent System Operator
ITC..........................................          Investment tax credit

JEC..........................................          Jubail Energy Company
JOATT........................................          Joint Open Access Transmission Tariff
Jorf Lasfar..................................          The 1,356 MW coal-fueled power plant in Morocco, jointly
                                                       owned by CMS Generation and ABB Energy Venture, Inc.

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

LIBOR........................................          London Inter-Bank Offered Rate
Loy Yang.....................................          The 2,000 MW brown coal fueled Loy Yang A power plant and an
                                                       associated coal mine in Victoria, Australia, in which CMS
                                                       Generation holds a 50 percent ownership interest
LNG..........................................          Liquefied natural gas
Ludington....................................          Ludington pumped storage plant, jointly owned by Consumers
                                                       and Detroit Edison

MACT.........................................          Maximum Achievable Control Technology
MAPL.........................................          Marathon Ashland Petroleum, LLC, partner in Centennial
</TABLE>

                                       6
<PAGE>

<TABLE>
<S>                                                    <C>
Marysville...................................          CMS Marysville Gas Liquids Company, a Michigan corporation
                                                       and a subsidiary of CMS Gas Transmission that holds a 100
                                                       percent interest in Marysville Fractionation Partnership and
                                                       a 51 percent interest in St. Clair Underground Storage
                                                       Partnership
mcf..........................................          Thousand cubic feet

MCV Expansion, LLC...........................          An agreement entered into with General Electric Company to
                                                       expand the MCV Facility
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, formerly a subsidiary
                                                       of Consumers Energy and now an indirect subsidiary of
                                                       Trans-Elect
Michigan Gas Storage.........................          Michigan Gas Storage Company, a former subsidiary of
                                                       Consumers that merged into Consumers in November 2002
Michigan Power...............................          CMS Generation Michigan Power, LLC, owner of the Kalamazoo
                                                       River Generating Station and the Livingston Generating Station
MISO.........................................          Midwest Independent System Operator
Moody's......................................          Moody's Investors Service, Inc.
MPSC.........................................          Michigan Public Service Commission
MSBT.........................................          Michigan Single Business Tax
MTH..........................................          Michigan Transco Holdings, Limited Partnership
MW...........................................          Megawatts

NEIL.........................................          Nuclear Electric Insurance Limited, an industry mutual
                                                       insurance company owned by member utility companies
NMC..........................................          Nuclear Management Company, LLC, 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
NOPR.........................................          Notice of Proposed Rulemaking
NPS..........................................          National Power Supply Company, Ltd., owner of two generating
                                                       facilities in Thailand.  CMS Generation sold its 66.2 percent
                                                       interest in NPS in 2002
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, which is owned by Consumers
</TABLE>

                                       7
<PAGE>

<TABLE>
<S>                                                    <C>
Panhandle....................................          Panhandle Eastern Pipe Line Company, including its
                                                       subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage,
                                                       and Panhandle Holdings.  Panhandle was a wholly owned
                                                       subsidiary of CMS Gas Transmission.  The sale of this
                                                       subsidiary closed in June 2003.
Panhandle Eastern Pipe Line..................          PanhandleEastern Pipe Line Company, formerly a wholly owned
                                                       subsidiary of CMS Gas Transmission.  The sale of this
                                                       subsidiary closed in June 2003.
PCB..........................................          Polychlorinated biphenyl
Pension Plan.................................          The trusteed, non-contributory, defined benefit pension plan
                                                       of Panhandle, Consumers and CMS Energy
PJM..........................................          PJM Interconnection, a non-affiliated company
Powder River.................................          CMS Oil & Gas previously owned a significant interest in
                                                       coalbed methane fields or projects developed within the
                                                       Powder River Basin which spans the border between Wyoming and
                                                       Montana. The Powder River properties have been sold.
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
Public Act 141...............................          Public Act 141, Customer Choice and Electricity Reliability
                                                       Act
Public Act 142...............................          Public Act 142, Securitization Act
PURPA........................................          Public Utility Regulatory Policies Act of 1978
ROA..........................................          Retail Open Access
RTO..........................................          Regional Transmission Organization

SEC..........................................          U.S. Securities and Exchange Commission
Securitization...............................          A financing method authorized by statute and approved by the
                                                       MPSC which allows a utility to set aside and pledge a portion
                                                       of the rate payments received by its customers 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. 34..................................          SFAS No. 34, "Capitalization of Interest Cost"
SFAS No. 52..................................          SFAS No. 52, "Foreign Currency Translation"
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. 88..................................          SFAS No. 88, "Employers' Accounting for Settlements and
                                                       Curtailments of Defined Benefit Pension Plans and for
                                                       Termination Benefits"
</TABLE>

                                       8
<PAGE>

<TABLE>
<S>                                                    <C>
SFAS No. 106.................................          SFAS No. 106, "Employers' Accounting for Postretirement
                                                       Benefits Other Than Pensions"
SFAS No. 115.................................          SFAS No. 115, "Accounting for Certain Investments in Debt and
                                                       Equity Securities"
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. 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. 148.................................          SFAS No. 148, "Accounting for Stock-Based Compensation -
                                                       Transition and Disclosure"
SFAS No. 149.................................          SFAS No. 149, "Amendment of Statement No. 133 on Derivative
                                                       Instruments and Hedging Activities"
SFAS No. 150.................................          SFAS No. 150, "Accounting for Certain Financial Instruments
                                                       with Characteristics of Both Liabilities and Equity"
SIPS.........................................          State Implementation Plans
Southern Union...............................          Southern Union Company, a non-affiliated company
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, 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

Taweelah.....................................          Al Taweelah A2, a power and desalination plant of Emirates
                                                       CMS Power Company, a forty percent owned subsidiary of CMS
                                                       Generation
TEPPCO.......................................          TE Products Pipeline Company, Limited Partnership
Toledo Power.................................          Toledo Power Company, the 135 MW coal and fuel oil power
                                                       plant located on Cebu Island, Phillipines, in which CMS
                                                       Generation held a 47.5 percent interest. Toledo Power was
                                                       sold to Mirant Toledo Holdings Corporation on April 24, 2002.
Transition Costs.............................          Stranded Costs, as defined, plus the costs incurred in the
                                                       transition to competition.
</TABLE>

                                       9
<PAGE>

<TABLE>
<S>                                                    <C>
Trunkline....................................          Trunkline Gas Company, LLC, formerly a subsidiary of CMS
                                                       Panhandle Holdings, LLC
Trunkline LNG................................          Trunkline LNG Company, LLC, formerly a subsidiary of LNG
                                                       Holdings, LLC
Trust Preferred Securities...................          Securities representing an undivided beneficial interest in
                                                       the assets of statutory business trusts, the interests of
                                                       which 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>

                                       10
<PAGE>

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                                       11

<PAGE>
                                                          CMS Energy Corporation

                             CMS ENERGY CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

CMS Energy is the parent holding company of Consumers and Enterprises. Consumers
is a combination electric and gas utility company serving Michigan's Lower
Peninsula. Enterprises, through subsidiaries, is engaged in domestic and
international diversified energy businesses including: natural gas transmission,
storage and processing; independent power production; and energy services.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The MD&A of this Form 10-Q should be read along with the MD&A and other parts of
CMS Energy's 2002 Form 10-K/A, filed on July 1, 2003. This MD&A refers to CMS
Energy's Condensed Notes to Consolidated Financial Statements and should be read
in conjunction with such Consolidated Financial Statements and Notes. This Form
10-Q and other written and oral statements that CMS Energy may make contain
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995. CMS Energy's intention with the use of the words
"anticipates," "believes," "estimates," "expects," "intends," and "plans," and
variations of such words and similar expressions, is solely to identify
forward-looking statements that involve risk and uncertainty. These
forward-looking statements are subject to various factors that could cause CMS
Energy's actual results to differ materially from the results anticipated in
such statements. CMS Energy 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. CMS
Energy does, however, discuss certain risk factors, uncertainties and
assumptions in this MD&A and in Item 1 of the 2002 Form 10-K/A, filed on July 1,
2003, in the section entitled "Forward-Looking Statements Cautionary Factors and
Uncertainties" and in various public filings it periodically makes with the SEC.
CMS Energy designed this discussion of potential risks and uncertainties, which
is by no means comprehensive, to highlight important factors that may impact CMS
Energy's business and financial outlook. This Form 10-Q also describes material
contingencies in CMS Energy's Condensed Notes to Consolidated Financial
Statements, and CMS Energy encourages its readers to review these Notes. All
note references within this MD&A refer to CMS Energy's Notes to the Consolidated
Financial Statements.

CRITICAL ACCOUNTING POLICIES

CMS Energy's consolidated financial statements are based on the application of
accounting principles generally accepted in the United States. The application
of these principles often requires management to make certain judgments,
assumptions and estimates that may result in different financial presentations.
CMS Energy believes that certain accounting principles are critical in terms of
understanding its consolidated financial statements. These principles include
the use of estimates in accounting for contingencies and long-lived assets,
accounting for derivatives and financial instruments, mark-to-market accounting,
international operations and foreign currency, regulatory accounting, and
pension and postretirement benefits.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Certain accounting principles require subjective and
complex judgments used in the preparation of financial statements. Accordingly,
a different financial presentation could result depending on the judgment,
estimates

                                     CMS-1
<PAGE>

                                                          CMS Energy Corporation

or assumptions that are used. Such estimates and assumptions include, but are
not specifically limited to: depreciation, amortization, interest rates,
discount rates, currency exchange rates, future commodity prices, mark-to-market
valuations, investment returns, impact of new accounting standards,
international economic policy, future costs associated with long-term
contractual obligations, future compliance costs associated with environmental
regulations and continuing creditworthiness of counterparties. Actual results
could differ materially from those estimates.

Periodically, in accordance with SFAS No. 144 and APB Opinion No. 18, long-lived
assets and equity method investments of CMS Energy and its subsidiaries are
evaluated to determine whether conditions, other than those of a temporary
nature, indicate that the carrying value of an asset may not be recoverable.
Management bases its evaluation on impairment indicators such as the nature of
the assets, future economic benefits, domestic and foreign state and federal
regulatory and political environments, historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. If such indicators are present or other factors exist that indicate
that the carrying value of the asset may not be recoverable, CMS Energy
determines whether impairment has occurred under SFAS No. 144 through the use of
an undiscounted cash flow analysis of assets at the lowest level for which
identifiable cash flows exist and under APB Opinion No. 18 by analyzing the
ability to recover the carrying amount of the equity method investment and/or
the ability of the investee to sustain an earnings capacity that justifies the
carrying amount of the investment. If impairment, other than of a temporary
nature, has occurred, CMS Energy recognizes a loss for the difference between
the carrying value and the estimated fair value of the asset. The fair value of
the asset is measured using discounted cash flow analysis or other valuation
techniques. The analysis of each long-lived asset is unique and requires
management to use certain estimates and assumptions that are deemed prudent and
reasonable for a particular set of circumstances. Of CMS Energy's total assets,
valued at $12 billion at September 30, 2003, approximately 58 percent represent
the carrying value of long-lived assets and equity method investments that are
subject to this type of analysis. If future market, political or regulatory
conditions warrant, CMS Energy and its subsidiaries may be subject to
write-downs in future periods. Conversely, if market, political or regulatory
conditions improve, accounting standards prohibit the reversal of previous
write-downs.

CMS Energy has recorded write-downs of non-strategic or under-performing
long-lived assets as a result of implementing a new strategic direction. See
Outlook section of this MD&A. CMS Energy is pursuing the sale of all of these
non-strategic and under-performing assets, including some assets that were not
determined to be impaired. Upon the sale of these assets, the proceeds realized
may be materially different from the remaining carrying value of these assets.
Even though these assets have been identified for sale, management cannot
predict when, nor make any assurances that these asset sales will occur, or the
amount of cash or the value of consideration to be received.

Similarly, the recording of estimated liabilities for contingent losses within
the financial statements is guided by the principles in SFAS No. 5 that require
a company to record estimated liabilities in the financial statements when it is
probable that a loss payment will be made in the future as a result of a current
event, and when that amount can be reasonably estimated. CMS Energy has used
this accounting principle to record 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.

The EPA has issued regulations regarding nitrogen oxide emissions from certain
generators, including some of Consumers' electric generating facilities. These
regulations require Consumers to make significant capital expenditures estimated
to be $770 million. As of September 30, 2003, Consumers has incurred $437
million

                                     CMS-2
<PAGE>

                                                          CMS Energy Corporation

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 and
their cost can change substantially. As new environmental standards become
effective, Consumers will need additional capital expenditures to comply with
the standards. Capital expenditures will depend upon the composition of the
final regulations.

The EPA has proposed changes to the rules that govern generating plant cooling
water intake systems. The proposed rules will require significant abatement of
fish mortality. The proposed rules are scheduled to become final in the first
quarter of 2004 and some of Consumers' facilities would be required to comply by
2006. Consumers is studying the proposed rules to determine the most
cost-effective solutions for compliance. Until the method of compliance is
determined, Consumers is unable to estimate the cost of compliance with the
proposed rules.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek permits from the EPA.
Consumers has received and responded to information requests from the EPA on
this subject. Consumers believes that it has properly interpreted the
requirements of "routine maintenance". If Consumers' interpretation is
eventually found to be incorrect, it may be required to install additional
pollution controls at some or all of its coal-fired plants and could call into
question the viability of certain plants remaining in operation.

For further information on electric environmental matters see Note 4,
Uncertainties, "Consumers' Electric Utility 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 using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. A revised cost
estimate, completed in September 2003, estimated remaining costs to be between
$37 million and $90 million. The range reflects multiple alternatives with
various assumptions for resolving the environmental issues at each site. The
estimates are based on discounted 2003 costs using a discount rate of three
percent. The discount rate represents a ten-year average of U.S. Treasury bond
rates reduced for increases in the consumer price index. 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 4, Uncertainties,
"Consumers' Gas Utility 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 the term of the PPA ending 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 and a fixed energy charge, and also to pay 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 and fixed energy charges in rates. After

                                      CMS-3
<PAGE>

                                                          CMS Energy Corporation

September 2007, the PPA's regulatory out 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. The remaining estimated future PPA liability associated with the
loss totaled $34 million at September 30, 2003 and $59 million at September 30,
2002. 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
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.

Under Michigan's electric restructuring law, Consumers will return to unfrozen
rates for large industrial customers beginning January 1, 2004, including the
resumption of the PSCR process. Under the PSCR process, Consumers will recover
from customers capacity and fixed energy charges on the basis of availability,
to the extent that availability does not exceed 88.7 percent availability
established in previous MPSC orders. Recovery of capacity and fixed energy
charges will be subject to certain rate caps as discussed in Note 4,
Uncertainties, "Consumers' Electric Utility Rate Matters - Electric
Restructuring." For capacity and energy 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. The regulatory out provision
relieves Consumers of the obligation to pay more for capacity and energy
payments than the MPSC allows Consumers to collect from its customers. Consumers
estimates 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. If the MCV Facility's generating
availability remains at the maximum 98.5 percent level, Consumers' cash
underrecoveries associated with the PPA could be as follows:

<TABLE>
<CAPTION>
                                                                                 In Millions
- --------------------------------------------------------------------------------------------
                                                   2003      2004   2005      2006      2007
- --------------------------------------------------------------------------------------------
<S>                                                <C>       <C>    <C>       <C>       <C>
Estimated cash underrecoveries at 98.5% (a)        $57       $56    $56       $55       $39

Amount to be charged to operating expense          $28       $27    $56       $55       $39
Amount to be charged to PPA liability              $29       $29    $ -       $ -       $ -
===========================================================================================
</TABLE>

(a) For the nine months ended September 30, 2003, Consumers' cash
underrecoveries associated with the PPA were $43 million.

As previously noted, until September 2007, the PPA and settlement require
Consumers to pay capacity costs based on the MCV Facility's actual availability
up to the 98.5 percent cap. After September 2007, Consumers expects to exercise
the "regulatory out" clause in the PPA, limiting its capacity payments to the
MCV Partnership to the amount collected from its customers. Depending on the
MPSC's future actions with respect to the capacity payments recoverable from its
customers subsequent to September 2007, the earnings of the MCV Partnership and
the value of Consumers' equity interest in the MCV Partnership, may be affected
negatively.

                                      CMS-4
<PAGE>

                                                          CMS Energy Corporation

Further, under the PPA, energy payments to the MCV Partnership are based on the
cost of coal burned in Consumers' coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with Consumers' coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.

As of January 1, 2004, Consumers intends to return to forced (uneconomic)
dispatch of the MCV Facility in order to maximize recovery of its capacity
payments. As such, if the spread between MCV Facility's variable electricity
production costs and its energy payment revenues stays constant or widens, the
negative impacts on MCV Partnership's financial performance, and on the value of
Consumers' equity interest in the MCV Partnership, will be worse.

Consumers cannot estimate, at this time, the impact of these issues on its
future earnings or cash flow from its interest in the MCV Partnership. The
forward price of natural gas for the next 22 years and the MPSC decision in 2007
or later related to Consumers' recovery of capacity payments are the two most
significant variables in the analysis of MCV Partnership's future financial
performance. Natural gas prices have historically been volatile and presently
there is no consensus in the marketplace on the price or range of prices of
natural gas beyond the next five years. Further, it is not presently possible
for Consumers to predict the actions of the MPSC in 2007 or later. For these
reasons, at this time Consumers cannot predict the impact of these issues on its
future earnings, cash flows, or on the value of its $404 million equity interest
in the MCV Partnership.

Consumers is exploring possible alternatives for utilizing the MCV Facility
without increasing costs to customers. Any changes regarding the recovery of MCV
capacity costs would require MPSC approval. Consumers cannot predict the outcome
of this matter.

For further information see Note 4, Uncertainties, "Consumers' Other Electric
Utility Uncertainties - The Midland Cogeneration Venture."

ACCOUNTING FOR DERIVATIVE AND FINANCIAL INSTRUMENTS AND MARKET RISK INFORMATION

DERIVATIVE INSTRUMENTS: CMS Energy uses the criteria in SFAS No. 133, as amended
and interpreted, to determine if certain contracts must be accounted for as
derivative instruments. The rules for determining whether a contract meets the
criteria for derivative accounting are numerous and complex. As a result,
significant judgment is required to determine whether a contract requires
derivative accounting, and similar contracts can sometimes be accounted for
differently.

The types of contracts CMS Energy typically classifies as derivative instruments
are interest rate swaps, foreign currency exchange contracts, certain electric
call options, gas fuel options, fixed priced weather-based gas supply call
options, fixed price gas supply call and put options, gas futures, and gas and
power swaps and forward purchases and sales. CMS Energy does not account for
electric capacity and energy contracts, gas supply contracts, coal and nuclear
fuel supply contracts, or purchase orders for numerous supply items as
derivatives.

Certain of Consumers' 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

                                     CMS-5
<PAGE>

                                                          CMS Energy Corporation

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 accumulated 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 determine the fair value of contracts that are accounted for as
derivative instruments, Consumers uses a combination of quoted market prices and
mathematical valuation models. Valuation 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 certain contracts. At September 30, 2003, Consumers
assumed a market-based interest rate of one percent (six-month U.S. Treasury)
and an average volatility rate of 55 percent to calculate the fair value of its
gas 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 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: CMS Energy accounts for its investments in debt and
equity 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. CMS Energy's investments in equity
securities are classified as available-for-sale securities. They are reported at
fair value with any unrealized gains or losses resulting from changes in fair
value reported in equity as part of accumulated other comprehensive income and
are excluded from earnings unless such changes in fair value are other than
temporary. Unrealized gains or losses resulting from changes in the fair value
of Consumers' nuclear decommissioning investments are reported as regulatory
liabilities. The fair value of these investments is determined from quoted
market prices.

MARKET RISK INFORMATION: CMS Energy is exposed to market risks including, but
not limited to, changes in interest rates, commodity prices, currency exchange
rates, and equity security prices. CMS Energy's 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. Established
policies and procedures are used to manage the risks associated with market
fluctuations.

CMS Energy may use 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. CMS Energy 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. CMS
Energy minimizes such risk by performing financial

                                     CMS-6
<PAGE>

                                                          CMS Energy Corporation

credit reviews using, among other things, publicly available credit ratings of
such counterparties.

In accordance with SEC disclosure requirements, CMS Energy 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, CMS Energy
and its subsidiaries rely on the experience and judgment of senior management to
revise strategies and adjust positions, as they deem necessary. Changes 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: CMS Energy is exposed to interest rate risk resulting from
the issuance of fixed-rate and variable-rate financing, including interest rate
risk associated with trust preferred securities, and from interest rate swap
agreements. CMS Energy uses a combination of these instruments to manage and
mitigate interest rate risk exposure when deemed appropriate, based upon market
conditions. These strategies are designed to provide and maintain a balance
between risk and the lowest cost of capital.

As of September 30, 2003, CMS Energy had outstanding variable-rate financing of
$633 million, a $1.015 billion decrease (62 percent) from the December 31, 2002
balance of $1.648 billion. The decline in variable-rate financing is primarily
due to a shift toward fixed-rate financing. As of September 30, 2003, assuming a
hypothetical 10 percent adverse change in market interest rates, CMS Energy's
before tax annual earnings exposure on its variable-rate financing would be $1
million.

As of September 30, 2003, CMS Energy had outstanding fixed-rate financing,
including trust preferred securities, of $6.772 billion, a $768 million increase
(13 percent) over the December 31, 2002 balance of $6.004 billion. As of
September 30, 2003, the fair value of CMS Energy's fixed-rate financing was
$6.861 billion, a $1.364 billion increase (25 percent) over the December 31,
2002 fair value of $5.497 billion. The change in the fair value of the
fixed-rate financing is due to both an increase in outstanding fixed-rate debt
obligations as well as a decline in market interest rates. At September 30,
2003, assuming a hypothetical 10 percent adverse change in market interest
rates, the fair value of CMS Energy's fixed rate financing and trust preferred
securities would increase by $252 million.

At September 30, 2003 and December 31, 2002, the fair value of CMS Energy's
floating to fixed interest rate swaps with notional amounts of $14 million and
$294 million, were negative $1 million and negative $7 million, which represent
the amounts CMS Energy would pay to settle. The swaps mature at various times
through 2006 and are designated as cash flow hedges for accounting purposes.

Commodity Price Risk: CMS Energy is exposed to market fluctuations in the price
of energy commodities, including natural gas, oil, electricity, coal, natural
gas liquids and other commodities. CMS Energy employs established policies and
procedures to manage these risks and may use various commodity derivatives,
including futures contracts, options and swaps (which require a net cash payment
for the difference between a fixed and variable price), for non-trading
purposes. The prices of these energy commodities can fluctuate because of, among
other things, changes in the supply of and demand for those commodities. To
minimize adverse price changes, CMS Energy may also hedge certain inventory and
purchases and sales contracts. Based on a sensitivity analysis, CMS Energy
estimates that if energy commodity prices change by an average 10 percent,
operating income for the subsequent three months would change by $0.8 million.
These hypothetical 10 percent shifts in quoted commodity prices would not have
had a material impact on CMS Energy's consolidated financial position or cash
flows. The analysis does not quantify short-term exposure to hypothetically
adverse price fluctuations in inventories.

                                     CMS-7
<PAGE>

                                                          CMS Energy Corporation

For purposes other than trading, Consumers entered into electric call options,
fixed priced weather-based gas supply call options and fixed priced gas supply
call and 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 weather-based gas
supply call options, and the gas supply call and put options are used to
purchase reasonably priced gas supply. Call options allow Consumers the right
but not the obligation to purchase gas supply at predetermined fixed prices. Put
options allow third-party suppliers the right but not the obligation to sell
Consumers gas supply at predetermined fixed prices.

As of September 30, 2003 and December 31, 2002, the fair value of
electricity-related call option contracts, based on quoted market prices and
mathematical valuation models using current and historical pricing data, was $3
million and $9 million, respectively. As of September 30, 2003 assuming a
hypothetical 10 percent adverse change in market prices, the potential reduction
in fair value associated with these contracts would be $1 million. As of
September 30, 2003 and December 31, 2002, Consumers had an asset of $21 million
and $30 million, respectively, related to premiums incurred for electric call
option contracts. Consumers' maximum exposure associated with the call option
contracts is limited to the premiums incurred. As of September 30, 2003, the
fair value of the fixed priced weather-based gas supply call options and fixed
priced gas supply call and put options, based on quoted market prices and
mathematical valuation models, was less than $1 million. As of September 30,
2003, assuming a hypothetical 10 percent adverse change in market prices, the
potential reduction in fair value associated with these contracts would be $1
million.

Currency Exchange Risk: CMS Energy is exposed to currency exchange risk arising
from investments in foreign operations as well as various international projects
in which CMS Energy has an equity interest and which have debt denominated in
U.S. dollars. CMS Energy typically uses forward exchange contracts and other
risk mitigating instruments to hedge currency exchange rates. The impact of the
hedges on the investments in foreign operations is reflected in accumulated
other comprehensive income as a component of foreign currency translation
adjustment. For the nine months ended September 30, 2003, there was no
mark-to-market adjustment included in the total net foreign currency translation
adjustment of $39 million. At September 30, 2003, there were no foreign exchange
hedges.

Equity Security Price Risk: CMS Energy and certain of its subsidiaries have
equity investments in companies in which they hold less than a 20 percent
interest. At September 30, 2003, a hypothetical 10 percent adverse shift in
equity securities prices would not have a material effect on CMS Energy's
consolidated financial position, results of operations or cash flows.

For further information on market risk and derivative activities, see Note 7,
Risk Management Activities and Financial Instruments.

MARK-TO-MARKET ACCOUNTING

Through December 31, 2002, CMS MST's wholesale power and gas trading activities
were accounted for under the mark-to-market method of accounting. Effective,
January 1, 2003, EITF Issue No. 98-10 was rescinded by EITF Issue No. 02-03 and
as a result, only energy contracts that meet the definition of a derivative in
SFAS No. 133 can be carried at fair value. The impact of this change for CMS MST
was recognized as a cumulative effect of a change in accounting principle loss
of $23 million, net of tax. See Note 10, Implementation of New Accounting
Standards. Under mark-to-market accounting, energy trading contracts are
reflected at fair market value, net of reserves, with unrealized gains and
losses recorded as an asset or liability in the consolidated balance sheets.
These assets and liabilities are affected by the timing of settlements related
to these contracts, current-period changes from newly originated transactions
and the impact of price movements.

                                     CMS-8
<PAGE>

                                                          CMS Energy Corporation

Changes in fair value of the energy trading contracts are recognized as revenues
in the consolidated statements of income in the period in which the changes
occur. Market prices used to value outstanding financial instruments reflect
management's consideration of, among other things, closing exchange and
over-the-counter quotations. In certain contracts, long-term commitments may
extend beyond the period in which market quotations for such contracts are
available and volumetric obligations may not be defined. Mathematical models are
developed to determine various inputs into the fair value calculation including
price, anticipated volumetric obligations and other inputs that may be required
to adequately address the determination of fair value of the contracts. Realized
cash returns on these commitments may vary, either positively or negatively,
from the results estimated through application of the mathematical model. CMS
Energy believes that its mathematical models utilize state-of-the-art
technology, pertinent industry data and prudent discounting in order to forecast
certain elongated pricing curves. Market prices are adjusted to reflect the
impact of liquidating the company's position in an orderly manner over a
reasonable period of time under present market conditions.

In connection with the market valuation of its energy trading contracts, CMS
Energy maintains reserves for credit risks based on the financial condition of
counterparties. The creditworthiness of these counterparties will impact overall
exposure to credit risk; however, CMS Energy maintains credit policies that
management believes minimize overall credit risk with regard to its
counterparties. Determination of its counterparties' credit quality is based
upon a number of factors, including credit ratings, financial condition, and
collateral requirements. Where contractual terms permit, CMS Energy employs
standard agreements that allow for netting of positive and negative exposures
associated with a single counterparty. Based on these policies, its current
exposures and its credit reserves, CMS Energy does not anticipate a material
adverse effect on its financial position or results of operations as a result of
counterparty nonperformance.

The following tables provide a summary of the fair value of CMS Energy's energy
trading contracts as of September 30, 2003.

<TABLE>
<CAPTION>
                                                                                      In Millions
- -------------------------------------------------------------------------------------------------
<S>                                                                                      <C>
Fair value of contracts outstanding as of December 31, 2002                                  $ 81
Fair value of new contracts when entered into during the period                                 -
Implementation of EITF Issue No. 02-03 (a)                                                    (36)
Fair value of derivative contracts sold and received from asset sales (b)                     (30)
Changes in fair value attributable to changes in valuation techniques and assumptions           -
Contracts realized or otherwise settled during the period                                      (9)
Other changes in fair value (c)                                                                 8
- -------------------------------------------------------------------------------------------------
Fair value of contracts outstanding as of September 30, 2003                                 $ 14
=================================================================================================
</TABLE>

(a)  Reflects the removal of contracts that do not qualify as derivatives
     under SFAS No. 133 as of January 1, 2003.

(b)  Reflects $(60) million of price risk management assets sold and $30
     million of price risk management assets received related to the sales
     of the gas and power books.

(c)  Reflects changes in price and net increase/(decrease) in position size
     of forward positions as well as changes to mark-to-market and credit
     reserves.

                                     CMS-9
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
Fair Value of Contracts at September 30, 2003                                                             In Millions
- ---------------------------------------------------------------------------------------------------------------------
                                               Total                                              Maturity (in years)
Source of Fair Value                        Fair Value     Less than 1      1 to 3      4 to 5      Greater than 5
- ---------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>              <C>         <C>       <C>
Prices actively quoted                        $ (39)         $ (5)          $ (17)      $ (15)           $ (2)
Prices based on models and
   other valuation methods                       53            11              27          13               2
- ---------------------------------------------------------------------------------------------------------------------
Total                                         $  14          $  6           $  10       $  (2)           $  -
=====================================================================================================================
</TABLE>

INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY

CMS Energy, through its subsidiaries and affiliates, has acquired investments in
energy-related projects throughout the world. As a result of a change in
business strategy, over the last two years, CMS Energy has been divesting its
non-strategic or under-performing foreign investments.

BALANCE SHEET: CMS Energy's subsidiaries and affiliates whose functional
currency is other than the U.S. dollar translate their assets and liabilities
into U.S. dollars at the exchange rates in effect at the end of the fiscal
period. The revenue and expense accounts of such subsidiaries and affiliates are
translated into U.S. dollars at the average exchange rate during the period. The
gains or losses that result from this process, and gains and losses on
intercompany foreign currency transactions that are long-term in nature that CMS
Energy does not intend to settle in the foreseeable future, are reflected as a
component of stockholders' equity in the consolidated balance sheets as "Foreign
Currency Translation" in accordance with the accounting guidance provided in
SFAS No. 52. As of September 30, 2003, the cumulative Foreign Currency
Translation decreased stockholders' equity by $419 million. Included in this
amount is an unrealized loss of $118 million related to CMS Energy's investment
in Loy Yang. This loss, and the impact of certain deferred taxes associated with
the Loy Yang investment will be realized upon sale, full liquidation, or other
disposition of CMS Energy's investment in Loy Yang, for a total loss of
approximately $168 million. In July 2003, a conditional share sale agreement for
CMS Energy's investment in Loy Yang was executed. See Outlook, "Corporate
Outlook" section in this MD&A for further discussion.

Argentina: In January 2002, the Republic of Argentina enacted the Public
Emergency and Foreign Exchange System Reform Act. This law repealed the fixed
exchange rate of one U.S. dollar to one Argentina peso, converted all
dollar-denominated utility tariffs and energy contract obligations into pesos at
the same one-to-one exchange rate, and directed the President of Argentina to
renegotiate such tariffs.

Effective April 30, 2002, CMS Energy adopted the Argentine peso as the
functional currency for most of its Argentine investments. CMS previously had
used the U.S. dollar as the functional currency for its Argentine investments.
As a result, on April 30, 2002, CMS Energy translated the assets and liabilities
of its Argentine entities into U.S. dollars, in accordance with SFAS No. 52,
using an exchange rate of 3.45 pesos per U.S. dollar, and recorded an initial
charge to the Foreign Currency Translation component of Common Stockholders'
Equity of approximately $400 million.

While CMS Energy's management cannot predict the most likely future, or average
peso to U.S. dollar exchange rates, it does expect that these non-cash charges
reduce substantially the risk of further material balance sheet impacts when
combined with anticipated proceeds from international arbitration currently in
progress, political risk insurance, and the eventual sale of these assets. At
September 30, 2003, the net foreign currency loss due to the unfavorable
exchange rate of the Argentine peso recorded in the Foreign Currency Translation
component of Common Stockholders' Equity using an exchange rate of 2.975 pesos
per U.S. dollar was $259 million. This amount also reflects the effect of
recording U.S. income taxes with respect to

                                     CMS-10
<PAGE>

                                                          CMS Energy Corporation

temporary differences between the book and tax basis of foreign investments,
including the foreign currency translation associated with CMS Energy's
Argentine investments, that were determined to no longer be essentially
permanent in duration.

INCOME STATEMENT: For subsidiaries operating in highly inflationary economies or
that meet the U.S. functional currency criteria outlined in SFAS No. 52, the
U.S. dollar is deemed to be the functional currency. Gains and losses that arise
from exchange rate fluctuations on transactions denominated in a currency other
than the U.S. dollar, except those that are hedged, are included in determining
net income.

HEDGING STRATEGY: CMS Energy may use forward exchange and option contracts to
hedge certain receivables, payables, long-term debt and equity value relating to
foreign investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from risk associated with adverse changes
in currency exchange rates that could affect materially cash flow. These
contracts would not subject CMS Energy to risk from exchange rate movements
because gains and losses on such contracts are inversely correlated with the
losses and gains, respectively, on the assets and liabilities being hedged.
Foreign currency adjustments for other CMS Energy international investments were
not significant.

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 normally would 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 be refunded to customers. Judgment is required to
discern the recoverability of items recorded as regulatory assets and
liabilities. As of September 30, 2003, Consumers had $1.113 billion recorded as
regulatory assets and $461 million recorded as regulatory liabilities.

In 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. However,
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 allowed
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business beginning in the fourth quarter of 2002, including regulatory
accounting treatment of costs required to be recognized in accordance with SFAS
No. 143. See Note 10, Implementation of New Accounting Standards, "SFAS No. 143,
Accounting for Asset Retirement Obligations."

                                     CMS-11
<PAGE>

                                                          CMS Energy Corporation

For further information on industry regulation, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, "Utility Regulation".

ACCOUNTING FOR PENSION AND OPEB

CMS Energy provides postretirement benefits under its Pension Plan, and
postretirement health and life insurance benefits under its OPEB plans to
substantially all its retired employees. CMS Energy 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 affiliates
which are not distinguishable from the Pension Plan's total assets. In June
2003, CMS Energy completed the sale of Panhandle to Southern Union Panhandle
Corp. No portion of the Pension Plan was transferred with the sale. Panhandle
employees are no longer eligible to accrue additional benefits. The Pension Plan
retained pension payment obligations for Panhandle employees that were vested
under the Pension Plan. Because of the significant change in the makeup of the
plan, SFAS No. 87 required a remeasurement of the obligation at the date of
sale. The estimated remeasurement resulted in an increase in pension expense of
approximately $4 million and OPEB expense of approximately $6 million for 2003,
as well as an additional charge to accumulated other comprehensive income of
approximately $30 million ($20 million after tax), as a result of the increase
in the additional minimum pension liability. Additionally, a significant number
of Panhandle employees elected to retire as of July 1, 2003 under the CMS Energy
Employee Pension Plan. As a result, CMS Energy has recorded a $13 million
after-tax settlement loss pursuant to the provisions of SFAS No. 88, which is
reflected in discontinued operations. The actuary is in the process of
finalizing the effects of the mid-year remeasurement. Although actual results
may differ from the estimates recorded, CMS Energy does not expect those
differences to be material.

CMS Energy estimates consolidated OPEB expense will approximate $58 million in
2003, $66 million in 2004, and $63 million in 2005. Additionally, CMS Energy
estimates consolidated pension expense will approximate $47 million in 2003, $51
million in 2004 and $53 million in 2005. 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. In August 2003, CMS Energy made its planned contribution of $210 million
to the Pension Plan.

CMS Energy has announced amendments to the Pension Plan for salaried employees,
whereby, 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 not earn
any additional 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. In addition, CMS Energy has implemented a cash balance plan for
employees hired on or after July 1, 2003. Under a cash balance plan, an
employee's retirement account is credited annually with a percentage of base
pay. Accounts will be valued at the end of each year, using an annual variable
interest rate to determine growth. Employees who leave the company and are
vested in the cash balance version of the pension plan can either start
receiving the benefit immediately, postpone receiving benefits until a future
date while receiving an earnings credit on the account (payment cannot be
deferred beyond age 70-1/2), or roll 100 percent of the cash balance account
into an IRA or another qualified plan. If a participant is not vested (less than
five years of service under the terms of the plan), the cash balance account is
forfeited.

                                     CMS-12
<PAGE>

                                                          CMS Energy Corporation

In 2003, a large majority of retiring employees elected the lump sum payment
option instead of receiving pension benefits as an annuity over time. As a
result, CMS Energy may be required to record a settlement loss in accordance
with SFAS No. 88, which requires a settlement loss to be recognized when the
cost of all settlements paid during the year exceeds the sum of the service and
interest costs for the same year. CMS Energy cannot yet determine if the amount
of lump sum payments for 2003 will exceed the threshold, but estimates that, if
the threshold is exceeded, between $60 million and $70 million could be
recognized as a loss in the fourth quarter of 2003.

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. The MPSC orders received in March and December of 1999 for Big Rock and
Palisades plants, respectively, provided for fully funding the decommissioning
trust funds for both sites. The December 1999 order set the annual
decommissioning surcharge for the Palisades decommissioning at $6 million.
Consumers estimates that at the time of the decommissioning of Palisades, its
decommissioning trust fund will be fully funded. This conclusion assumes 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 cost estimates use various inflation rates for labor,
non-labor, and contaminated equipment disposal costs.

In December 2000, funding of the Big Rock trust fund was stopped since it was
considered fully funded, subject to further review. A portion of future
decommissioning cost will result from the failure of the DOE to remove fuel from
the site. These costs, and similar costs incurred at Palisades, would not be
necessary if the DOE took possession of the spent fuel as required by the
Nuclear Waste Policy Act of 1982. A number of utilities, including Consumers,
which filed its complaint in December 2002, have commenced litigation in the
Court of Claims. The Chief Judge of the Court of Claims identified six lead
cases to be used as vehicles for resolving dispositive motions. Consumers' case
is not a lead case. It is unclear what impact this decision by the Chief Judge
will have on the outcome of Consumers' litigation. 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. However, there is no assurance that the litigation against the
DOE will be successful.

The funds provided by the trusts and additional potential 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 and the adequacy of the decommissioning
trust funds. For further information see Note 4, Uncertainties, "Other
Consumers' Electric Utility Uncertainties - Nuclear Matters."

In March 2003, the Michigan Environmental Council, the Public Interest Research
Group in Michigan, and the Michigan Consumer Federation submitted a complaint to
the MPSC, which was served on Consumers by the MPSC in April 2003. The complaint
asks the MPSC to commence a generic investigation and contested case to review
all facts and issues concerning costs associated with spent nuclear fuel storage
and disposal. The complaint seeks a variety of relief with respect to Consumers,
Detroit Edison, Indiana & Michigan Electric Company, Wisconsin Electric Power
Company and Wisconsin Public Service Corporation, including establishing
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 related to the storage and disposal of spent nuclear fuel. In May 2003,
Consumers and the other named utilities each filed a motion to dismiss the
complaint. Consumers is unable to predict the outcome of this matter.


                                     CMS-13
<PAGE>

                                                          CMS Energy Corporation


RESULTS OF OPERATIONS

CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                      In Millions (except for per share amounts)
- --------------------------------------------------------------------------------
Three months ended September 30                              2003          2002
- --------------------------------------------------------------------------------
<S>                                                        <C>            <C>
CMS Energy Net Income (Loss)                               $   (77)       $   37
CMS Energy Basic Earnings (Loss) per Share                 $ (0.51)       $ 0.26
CMS Energy Diluted Earnings (Loss) Per Share               $ (0.51)       $ 0.26
- --------------------------------------------------------------------------------
</TABLE>

CMS Energy's results of operations continue to reflect the implementation of a
back-to-basics strategy that focuses on a growing healthy utility and divesting
under performing or other non-strategic assets. The strategy is designed to
generate cash to pay down debt, to reduce business risk, and to provide for more
predictable future operating revenues and earnings. Through this strategy, CMS
Energy is continuing to rightsize and to restructure its business operations. In
2003, CMS Energy has experienced increased competition, cooler summer
temperatures, slow general economic recovery in Michigan, costs associated with
debt retirement and refinancing, and the loss of earnings from businesses and
assets sold.

<TABLE>
<CAPTION>
                                              In Millions (except for per share amounts)
- ----------------------------------------------------------------------------------------
   Three months ended September 30                      2003         2002         Change
- ----------------------------------------------------------------------------------------
<S>                                                    <C>           <C>          <C>
Electric Utility                                       $  59         $ 88         $ (29)
Gas Utility                                              (19)         (18)           (1)
Enterprises                                               13           58           (45)
Corporate Interest and Other                             (87)        (117)           30
- ----------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations                 (34)          11           (45)
- ----------------------------------------------------------------------------------------
Discontinued Operations                                  (43)          25           (68)
Accounting Changes                                         -            1            (1)
- ----------------------------------------------------------------------------------------
Net Income (Loss)                                      $ (77)        $ 37         $(114)
========================================================================================
</TABLE>

For the three months ended September 30, 2003, CMS Energy's net loss totaled $77
million. The net loss reflects a $42 million after-tax asset impairment charge
at Enterprises, $28 million after-tax of debt retirement and refinancing costs,
and cooler summer weather.

COMPARISON TO COMPARABLE PERIOD IN 2002

Results from continuing operations ($34 million loss) were $45 million worse
than the $11 million of income earned in 2002. The decrease in results from
continuing operations reflects decreased Electric Utility deliveries due to a
cooler summer in 2003 and more industrial and commercial customers choosing
different electricity suppliers (see Electric Utility section in Results of
Operations). The decrease also reflects lower Enterprises' earnings due to the
absence of a $15 million after-tax gain on 2002 asset sales and the loss of

                                     CMS-14
<PAGE>

                                                          CMS Energy Corporation

earnings from businesses and assets sold (see Enterprises Outlook section in
MD&A). These reductions in earnings were partially offset by a $30 million
after-tax reduction in Corporate Interest and Other expenses. This expense
reduction reflects the absence of a $41 million after-tax income tax valuation
allowance recorded in 2002 attributable to a reduction in AMT carryforwards (see
Corporate Interest and Other section in Results of Operations).

Loss from discontinued operations was $43 million, a decrease of $68 million
from the comparable period in 2002, due to a $42 million after-tax asset
impairment at Enterprises and reduced earnings resulting from the sale of CMS
Oil and Gas in 2002, Panhandle in 2003, and other businesses as CMS Energy
continues to implement its back-to-basics strategy.

<TABLE>
<CAPTION>
                                                     In Millions (except for per share amounts)
- -----------------------------------------------------------------------------------------------
    Nine months ended September 30                                           2003         2002
- -----------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>
CMS Energy Net Income (Loss)                                               $   (43)      $    5
CMS Energy Basic Earnings (Loss) per Share                                 $ (0.29)      $ 0.04
CMS Energy Diluted Earnings (Loss) Per Share                               $ (0.29)      $ 0.04
</TABLE>

<TABLE>
<CAPTION>
                                                 In Millions (except for per share amounts)
- -------------------------------------------------------------------------------------------
    Nine months ended September 30                        2003         2002        Change
- -------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Electric Utility                                         $ 145        $ 222        $  (77)
Gas Utility                                                 40           13            27
Enterprises                                                 48          126           (78)
Corporate Interest and Other                              (196)        (221)           25
- -------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations                    37          140          (103)
- -------------------------------------------------------------------------------------------
Discontinued Operations                                    (56)        (153)           97
Accounting Changes                                         (24)          18           (42)
- -------------------------------------------------------------------------------------------
Net Income (Loss)                                        $ (43)       $   5        $  (48)
===========================================================================================
</TABLE>

For the nine months ended September 30, 2003, CMS Energy's net loss totaled $43
million. The net loss reflects a $42 million after-tax asset impairment at
Enterprises, a $30 million after-tax loss on the Panhandle sale, $25 million
after-tax of debt retirement and refinancing costs, cooler summer weather, and
improved Gas Utility earnings.

COMPARISON TO COMPARABLE PERIOD IN 2002

Income from continuing operations was $103 million lower than the $140 million
of income earned in 2002. The decrease in income from continuing operations
primarily reflects a decline at the Electric Utility resulting from reduced
electric deliveries due to a cooler summer in 2003 and more industrial and
commercial customers choosing different electricity suppliers, the absence of
after-tax gains of $31 million primarily from the sale of transmission assets in
2002, and a scheduled refueling outage at Palisades (see Electric Utility
Results of Operations). The decrease is also due to a decline in Enterprises'
earnings reflecting the absence of an after-tax gain of $15 million associated
with asset sales in 2002 and the continuing implementation of the back-to-basics
strategy and the resulting loss of earnings from businesses and assets sold (see
Enterprises Results of Operations and Enterprises Outlook section in the MD&A).
The decrease was partially offset by improved Gas Utility earnings reflecting
increased gas deliveries and the impacts of a final gas rate order issued in
2002 that increased tariff rates; and Enterprises' foreign currency gains from
the stabilization of the Argentine Peso.

For the nine months ended September 30, 2003, Loss From Discontinued Operations
which totaled $56 million includes a $30 million after-tax loss resulting from
the sale of Panhandle and a $42 million after-tax asset

                                     CMS-15
<PAGE>

                                                          CMS Energy Corporation

impairment at CMS Electric and Gas, an improvement of $97 million from the
comparable period in 2002. Loss from Discontinued Operations for the nine months
ended September 30, 2002 reflects an after-tax gain on the sale of CMS Energy's
ownership interests in Equatorial Guinea properties of $310 million, and the
cumulative effect on a change in accounting for goodwill impairments, net of
tax, at both Panhandle of $(369) million and CMS Viron of $(10) million. The
change in results also reflects the loss of earnings of businesses and assets
sold and asset impairments and writedowns.

The nine months ended September 30, 2003 net income includes a $23 million
charge related to the cumulative effect of a change in accounting resulting from
the implementation of EITF Issue No. 02-03 and a $1 million charge associated
with the implementation of SFAS No. 143. The nine months ended September 30,
2002 net income reflects $18 million of after-tax earnings due to an accounting
change to adjust the fair value of certain long-term contracts held at the MCV
Partnership recorded in the second quarter of 2002.

CONSUMERS' ELECTRIC UTILITY RESULTS OF OPERATIONS

ELECTRIC UTILITY NET INCOME:

<TABLE>
<CAPTION>
                                                                  In Millions
- ------------------------------------------------------------------------------
   September 30                          2003            2002          Change
- ------------------------------------------------------------------------------
<S>                                      <C>             <C>           <C>
Three months ended                       $ 59            $ 88           $(29)
Nine months ended                        $145            $222           $(77)
==============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                            Three Months Ended             Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------
        Reasons for change                             September 30, 2003 vs. 2002     September 30, 2003 vs. 2002
- ------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                             <C>
Electric deliveries                                               $ (34)                         $ (38)
Power supply costs and related revenue                                2                             14
Other operating expenses and non-commodity revenue                   (5)                           (43)
Asset sales                                                           -                            (38)
General taxes                                                        (3)                            12
Fixed charges                                                        (5)                           (18)
Income taxes                                                         16                             34
                                                       -----------------------------------------------------------
Total change                                                      $ (29)                         $ (77)
==================================================================================================================
</TABLE>

ELECTRIC DELIVERIES: For the three months ended September 30, 2003, electric
delivery revenues decreased by $34 million from the previous year. Electric
deliveries, including transactions with other wholesale market participants and
other electric utilities, were 10.3 billion kWh, a decrease of 0.6 billion kWh
or 4.9 percent from 2002. The decrease in revenue is primarily the result of
decreased deliveries to the higher margin residential sector due to milder
summer temperatures in 2003 compared to the same period in 2002, which included
record setting monthly sendout and monthly hourly peak demand volumes.
Commercial and industrial customers switching to alternative electric suppliers
as allowed by the Customer Choice Act further reduced electric delivery
revenues.

For the nine months ended September 30, 2003, electric delivery revenues
decreased by $38 million from the previous year. Electric deliveries, including
transactions with other wholesale market participants and other electric
utilities, were 29.3 billion kWh, a decrease of 0.2 billion kWh or 0.6 percent
from 2002.

                                     CMS-16
<PAGE>

                                                          CMS Energy Corporation

The decrease in delivery revenues can be attributed to the continuing switch by
commercial and industrial customers to alternative electric suppliers allowed by
the Customer Choice Act. Also contributing to decreased electric deliveries was
a reduction in residential consumption due to milder summer temperatures in 2003
compared to the same period in 2002, which included record setting monthly send
out and monthly hourly peak demand volumes.

POWER SUPPLY COSTS AND RELATED REVENUE: For the three months ended September 30,
2003, power supply costs and related revenues increased electric net income by
$2 million from 2002.

For the nine months ended September 30, 2003, power supply costs and related
revenues increased electric net income by $14 million from 2002. This increase
is primarily the result of increased intersystem revenues due to higher market
prices and sales made from additional surplus capacity.

OTHER OPERATING EXPENSES AND NON-COMMODITY REVENUE: For the three months ended
September 30, 2003, net operating expenses and non-commodity revenue decreased
operating income by $5 million compared to 2002. This decrease relates primarily
to increased amortization expense from securitized assets and reduced
miscellaneous electric service revenues.

For the nine months ended September 30, 2003, operating expenses increased
compared to 2002. This increase can be attributed to storm restoration expenses,
a scheduled refueling outage at Palisades, which began on March 16, 2003 and
ended on April 20, 2003, and higher transmission costs due to the loss of a
financial return on the Consumers' transmission system asset sold in May 2002.
Slightly offsetting these increased operating expenses were increased
non-commodity revenues associated with miscellaneous service revenues.

ASSET SALES: For the nine months ended September 30, 2003, pretax income from
asset sales decreased $38 million from the comparable period in 2002. This is
the result of the $31 million pretax gain associated with the May 2002 sale of
Consumers' electric transmission system and the $7 million pretax gain
associated with the June 2002 sale of nuclear equipment from the cancelled
Midland project.

GENERAL TAXES: For the three months ended September 30, 2003, general taxes
increased $3 million compared to 2002 primarily due to larger property tax
expense from increased investment.

For the nine months ended September 30, 2003, general taxes decreased $12
million from the comparable period in 2002. This decrease is due to reduced MSBT
expenses related to the years 2000 and 2001. This is the result of CMS Energy
receiving approval to file consolidated tax returns for the years 2000 and 2001.
These returns were filed during the second quarter of 2003.

FIXED CHARGES: For the three and nine months ended September 30, 2003, fixed
charges increased $5 million and $18 million, respectively, from the comparable
period in 2002. These increases can be attributed to increased financing
activities.

INCOME TAXES: For the three and nine months ended September 30, 2003, income tax
expense decreased $16 million and $34 million, primarily due to a decrease in
earnings by the electric utility compared to 2002.


                                     CMS-17
<PAGE>

                                                          CMS Energy Corporation

CONSUMERS' GAS UTILITY RESULTS OF OPERATIONS

GAS UTILITY NET INCOME:

<TABLE>
<CAPTION>
                                                            In Millions
- -----------------------------------------------------------------------
  September 30                              2003      2002       Change
- -----------------------------------------------------------------------
<S>                                        <C>        <C>        <C>
Three months ended                         $(19)      $(18)       $ (1)
Nine months ended                          $ 40       $ 13        $ 27
=======================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                         Three Months Ended                Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------
      Reasons for change                             September 30, 2003 vs. 2002       September 30, 2003 vs. 2002
- ------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                               <C>
Gas deliveries                                                 $  (14)                            $ 14
Gas rate increase                                                   5                               35
Gas wholesales and retail services                                  1                                4
Operation and maintenance                                           8                               (6)
General taxes, depreciation, and other income                      (1)                              (2)
Fixed charges                                                      (1)                              (4)
Income taxes                                                        1                              (14)
                                                               ---------------------------------------------------
Total change                                                   $   (1)                            $ 27
==================================================================================================================
</TABLE>

GAS DELIVERIES: For the three months ended September 30, 2003, gas delivery
revenues decreased by $14 million from the previous year. The decrease primarily
reflects $7 million of increased expense associated with Consumers' annual
analysis of gas losses related to the gas transmission and distribution system.
The adjustment is recorded as a reduction to accrued gas revenues. System
deliveries, including miscellaneous transportation, totaled 38.2 bcf, a decrease
of 1.9 bcf or 4.8 percent compared with 2002.

For the nine months ended September 30, 2003, gas delivery revenues increased by
$14 million from the previous year. System deliveries, including miscellaneous
transportation, totaled 272.7 bcf, an increase of 18 bcf or 7.1 percent compared
with 2002. This increase is primarily due to colder weather during the first
quarter that resulted in increased deliveries to the residential and commercial
sectors in 2003.

GAS RATE INCREASE: 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 this order, for the three and nine months ended September 30, 2003,
Consumers recognized increased gas revenues of $5 million and $35 million,
respectively.

OPERATION AND MAINTENANCE: For the three months ended September 30, 2003,
operation and maintenance expenses decreased $8 million when compared to 2002.
This decrease reflects the absence of gas storage inventory losses recorded in
2002.

For the nine months ended September 30, 2003, operation and maintenance expenses
increased $6 million when compared to 2002. This increase reflects the
recognition of additional expenditures on safety, reliability and customer
service.

INCOME TAXES: For the three months ended September 30, 2003, income tax expense
decreased primarily

                                     CMS-18
<PAGE>

                                                          CMS Energy Corporation

due to decreased earnings of the gas utility compared to 2002.

For the nine months ended September 30, 2003, income tax expense increased
primarily due to improved earnings of the gas utility.

ENTERPRISES RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    In Millions
- -------------------------------------------------------------------------------
  September 30                                 2003         2002        Change
- -------------------------------------------------------------------------------
<S>                                            <C>         <C>          <C>
Three months ended                             $ 13        $  58        $ (45)
Nine months ended                              $ 48        $ 126        $ (78)
- -------------------------------------------------------------------------------
</TABLE>

For the three months ended September 30, 2003, Enterprises' net income was $13
million, a decrease of $45 million from the comparable period in 2002. The
decrease in earnings reflects the absence of a $15 million after-tax benefit
associated with the sale of an ownership interest in NPS in 2002, foreign
currency losses in 2003, and the shift in business strategy and sale of
Enterprises assets and businesses (see the Enterprises Outlook section in the
MD&A).

For the nine months ended September 30, 2003, Enterprises' net income was $48
million, a decrease of $78 million from the comparable period in 2002. The
decrease in earnings reflects the absence of a $15 million after-tax benefit
associated with the sale of an ownership interest in NPS in 2002, and the shift
in business strategy and sale of Enterprises assets and businesses (see the
Enterprises Outlook section in the MD&A). The decrease was partially offset by
foreign currency gains related to the stabilization of the Argentine Peso and
increased earnings at CMS Generation due to lower depreciation expenses.

OTHER RESULTS OF OPERATIONS

CORPORATE INTEREST AND OTHER:

<TABLE>
<CAPTION>
                                                                     In Millions
- --------------------------------------------------------------------------------
  September 30                                  2003          2002      Change
- --------------------------------------------------------------------------------
<S>                                           <C>           <C>         <C>
Three months ended                            $  (87)       $ (117)      $ 30
Nine months ended                             $ (196)       $ (221)      $ 25
- --------------------------------------------------------------------------------
</TABLE>

For the three months ended September 30, 2003, corporate interest and other net
expenses were $87 million, a decrease of $30 million from the comparable period
in 2002. The decrease is primarily due to a $41 million reduction of income tax
expense due to the absence of a 2002 valuation allowance recorded on AMT credit
carryfowards, and a $26 million after-tax reduction in restructuring charges.
These decreases were offset by a $28 million after-tax increase in debt
retirement and refinancing costs, and an increase in other corporate interest
expenses.

For the nine months ended September 30, 2003, corporate interest and other net
expenses were $196 million, a decrease of $25 million from the comparable period
in 2002. The decrease is primarily due to a $41 million reduction of income tax
expense due to the absence of a 2002 valuation allowance recorded on AMT credit
carryfowards, a $28 million after-tax reduction of restructuring charges, and
$20 million of MSBT refunds received in 2003. These decreases were offset
partially by a $25 million after-tax increase in debt retirement and refinancing
costs, the establishment in June 2003 of a $24 million deferred tax asset
valuation allowance that may not be used in the future due to changes in CMS
Energy's tax planning strategy, and an increase in other corporate interest
expenses.

                                     CMS-19
<PAGE>

                                                          CMS Energy Corporation

DISCONTINUED OPERATIONS: For the nine months ended September 30, 2003,
discontinued operations included International Energy Distribution and
Marysville, as well as Panhandle, CMS Viron, and CMS Field Services through
their respective dates of sale. For the nine months ended September 30, 2002,
discontinued operations included Panhandle, CMS Viron, CMS Field Services,
International Energy Distribution, and Marysville, and CMS Oil and Gas through
its respective date of sale. For more information, see Note 3, Discontinued
Operations.

CAPITAL RESOURCES AND LIQUIDITY

CASH POSITION, INVESTING, AND FINANCING

CMS Energy's primary ongoing source of cash is dividends and other distributions
from subsidiaries, including proceeds from asset sales. For the first nine
months of 2003, Consumers paid $162 million in common dividends and Enterprises
paid $179 million in common dividends and other distributions to CMS Energy.
Included in Enterprises' distributions to CMS Energy was a $16 million stock
dividend, discussed below. In October 2003, Consumers declared a $57 million
common dividend to CMS Energy, payable in November 2003. CMS Energy's
consolidated cash requirements are met by its operating, investing, and
financing activities. Consistent with CMS Energy's liquidity objectives, $869
million consolidated cash was on hand at September 30, 2003, which includes $205
million of restricted cash. Restricted cash includes cash collateral for letters
of credit to satisfy certain debt agreements and is classified as a current
asset as all restricted cash relates to letters of credit maturing within one
year.

The following discussion of operating, investing, and financing activities
summarizes CMS Energy's Consolidated Statements of Cash Flows found in CMS
Energy's consolidated financial statements.

OPERATING ACTIVITIES: CMS Energy's net cash provided by operating activities is
derived mainly from the processing, storage, transportation and sale of natural
gas and the generation, distribution and sale of electricity. For the first nine
months, cash used in operations after interest charges totaled $14 million in
2003 and cash provided from operations after interest charges totaled $333
million in 2002. The $347 million decrease in cash from operations resulted
primarily from an increased pension contribution, an increase in inventories,
and a decrease in accounts payable and accrued expenses. CMS Energy uses cash
derived from its operating activities primarily to maintain and expand its
businesses and to pay interest on and retire portions of its long-term debt.

INVESTING ACTIVITIES: For the first nine months, CMS Energy's net cash provided
by investing activities totaled $501 million in 2003 and $884 million in 2002.
The $383 million decrease in cash provided primarily reflects a decrease of $685
million in proceeds received from the sale of assets. CMS Energy's expenditures,
including investments and assets placed under capital lease, in the first nine
months of 2003 for its utility and diversified energy businesses were $326
million and $46 million, respectively, compared to $461 million and $187
million, respectively, for the first nine months of 2002.

FINANCING ACTIVITIES: For the first nine months, CMS Energy's net cash used in
financing activities totaled $184 million in 2003 and $1,008 million in 2002.
The $824 million change in financing cash flow resulted primarily from an
increase in proceeds received from notes, bonds and other long-term debt of
$1.576 billion, a decrease in the retirement of trust preferred securities of
$111 million, and a decrease in the payment of common stock dividends of $124
million. These improvements in financing activities were offset partially by a
decrease in the proceeds received from the issuance of common stock of $133
million, an increase in retirement of notes, bonds and other long-term debt of
$378 million, and a decrease in notes payable of $324 million.

                                     CMS-20
<PAGE>

                                                          CMS Energy Corporation

OTHER INVESTING AND FINANCING MATTERS: In January 2003, the Board of Directors
suspended the payment of CMS Energy's common stock dividend in order to improve
liquidity.

In June 2003, Enterprises transferred its 1,967,640 shares of CMS Energy Common
Stock, valued at $16 million, to CMS Energy in the form of a stock dividend.
There was no impact on shares outstanding or the consolidated income statement.

OBLIGATIONS AND COMMITMENTS

The following information on CMS Energy's contractual obligations, off-balance
sheet arrangements and commercial commitments is provided to collect information
in a single location so that a picture of liquidity and capital resources is
readily available. For further information see Note 4, Uncertainties and Note 5,
Financings and Capitalization.

The following table shows a summary of CMS Energy's contractual obligations,
including off-balance sheet commitments at September 30, 2003.

<TABLE>
<CAPTION>
Contractual Obligations                                                                                       In Millions
- -------------------------------------------------------------------------------------------------------------------------
                                                                              Payments Due
                                                 ------------------------------------------------------------------------
      September 30                   Total         2003        2004         2005         2006         2007        Beyond
- -------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>          <C>
On-balance sheet
   Long-term debt                   $ 6,291      $     -      $   205      $   602      $   513      $   537      $ 4,434
   Current portion of debt              172           43          129            -            -            -            -
   Notes payable                          4            1            3            -            -            -            -
   Capital Lease Obligations            128            4           15           14           13           12           70
- -------------------------------------------------------------------------------------------------------------------------
Total on-balance sheet              $ 6,595      $    48      $   352      $   616      $   526      $   549      $ 4,504
- -------------------------------------------------------------------------------------------------------------------------

Off-balance sheet:
   Non-recourse debt                $ 2,647      $   229      $   152      $   116      $   409      $    13      $ 1,728
   Operating leases                      92            7           14           12           12           10           37
   Sale of accounts receivable          254          254            -            -            -            -            -
   Unconditional purchase
     Obligations                     17,897          601        1,577        1,197          905          743       12,874
- -------------------------------------------------------------------------------------------------------------------------
Total off-balance sheet             $20,890      $ 1,091      $ 1,743      $ 1,325      $ 1,326      $   766      $14,639
=========================================================================================================================
</TABLE>

LONG-TERM DEBT

CMS Energy Long-Term Financings: In July 2003, CMS Energy issued, in a private
placement to institutional investors, $150 million of 3.375 percent convertible
senior notes due July 15, 2023. The notes are putable to CMS Energy by the note
holders at par on July 15, 2008, July 15, 2013 and July 15, 2018. The notes are
convertible into CMS Energy common stock at the option of the holder under
certain circumstances. The initial conversion price is $10.671 per share, which
translates into 93.7137 shares of common stock for each $1,000 principal note
converted, and a total of 14,057,055 shares of CMS Energy common stock if all
notes are converted. CMS has agreed to file a shelf registration statement with
the SEC by October 14, 2004 relating to the resale of the notes and the common
stock issuable upon conversion thereof. Also in July 2003, CMS Energy issued
$300 million of 7.75 percent senior notes due 2010. CMS Energy has agreed to
file a registration statement with the SEC by March 14, 2004 to permit holders
of these notes to exchange the notes for new notes that will be registered under
the Securities Act of 1933. The approximately $433 million of

                                     CMS-21
<PAGE>

                                                          CMS Energy Corporation

proceeds from these issuances were used to retire a portion of debt outstanding
under CMS Energy's Second Amended and Restated Senior Credit Agreement and to
redeem a portion of CMS Energy's 6.75 percent Senior Notes due January 2004.

In July 2003, CMS Energy retired $150 million principal amount of CMS Energy's
8.375 percent Reset Put Securities due 2013. As a result, CMS Energy recorded a
charge in July 2003 of approximately $19 million after-tax related to the
accelerated amortization of debt issuance costs and the premium paid associated
with the discharge of these securities. In October 2003, $82 million of the 6.75
percent senior notes were called and redeemed. In October 2003, approximately
$15 million of Series E GTNs were called and redeemed.

Consumers Long-Term Financings: The following is a summary of Consumers'
Long-Term debt issuances during 2003:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
 Facility         Principal                                                          Use of
  Type           (millions)   Issue Rate    Issue Date       Maturity Date           Proceeds      Collateral
- -------------------------------------------------------------------------------------------------------------
<S>              <C>          <C>           <C>              <C>                     <C>           <C>
Term Loan         $   140       LIBOR +     March 2003       March 2009                GCP           FMB (f)
                               475 bps
Term Loan             150       LIBOR +     March 2003       March 2006 (c)            GCP           FMB (f)
                               450 bps
FMB (a)               375       5.375%      April 2003       April 2013                (c)              -
FMB (a)               250       4.250%      April 2003       April 2008                (c)              -
FMB (a)               250       4.000%      May 2003         May 2010                  (d)              -
FMB (b)               200       4.800%      August 2003      February 2009             (e)              -
FMB (b)               200       6.000%      August 2003      February 2014             (e)              -
                  -------
Total             $ 1,565
=============================================================================================================
</TABLE>

(GCP - General Corporate Purposes)

(FMB - First Mortgage Bonds)

(bps - basis points)

(a) Consumers has agreed to file a registration statement with the SEC by
December 26, 2003 to permit holders of these first mortgage bonds to exchange
the bonds for new bonds that will be registered under the Securities Act of
1933.

(b) Consumers has agreed to file a registration statement with the SEC by April
14, 2004 to permit holders of these first mortgage bonds to exchange the bonds
for new bonds that will be registered under the Securities Act of 1933.

(c) Consumers used the net proceeds to replace a $250 million senior reset put
bond that matured in May 2003, to pay an associated $32 million option call
payment and for general corporate purposes that included paying down additional
debt.

(d) Consumers used the net proceeds to prepay a portion of a term loan that was
due to mature in July 2004.

(e) Consumers used the net proceeds to pay off the $150 million term loan
negotiated in March 2003 that was due to mature in March 2006 as well as the
remaining $50 million balance on a term loan that was due to mature in March
2004, and for general corporate purposes.

(f) Refer to "Regulatory Authorization for Financings" below for information
about Consumers' remaining FERC debt authorization.

As part of Consumers' ongoing cost reduction measures in an attempt to reduce
its financing costs, Consumers will continue to monitor financial markets.

                                     CMS-22
<PAGE>

                                                          CMS Energy Corporation



Short-Term Financings: On March 30, 2003, CMS Energy entered into an amendment
and restatement of its then existing $300 million and $295.8 million revolving
credit facilities under which $409 million was outstanding. The Second Amended
and Restated Senior Credit Agreement included a $159 million tranche with a
maturity date of April 30, 2004 and a $250 million tranche with a maturity date
of September 30, 2004. The facility was underwritten by several banks at a total
annual cost to CMS Energy of approximately ten percent which included the
initial commitment fee. Any proceeds of debt or equity issuances by CMS Energy
and its subsidiaries or any asset sales by CMS Energy or its subsidiaries, other
than Consumers, were required to be used to prepay this facility. This facility
was collateralized primarily by the stock of Consumers, Enterprises and certain
Enterprises subsidiaries. In July 2003, the facility was paid down to $5 million
with a combination of a portion of the proceeds of the sale of CMS Field
Services and a portion of the proceeds of the issuance of the $300 million 7.75
percent Senior Notes due 2010. On September 12, 2003, this credit agreement was
amended and restated in the amount of $5 million. The amended and restated
credit facility does not include any restrictive financial covenants. As of
September 30, 2003, $5 million is outstanding on this facility.

In March 2003, Consumers obtained a replacement revolving credit facility in the
amount of $250 million secured by first mortgage bonds. In September 2003, this
facility was amended and restated as a $400 million revolving credit facility.
The interest rate of the facility was reduced from LIBOR plus 350 to LIBOR plus
175 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.
At September 30, 2003, all of the $400 million is available for general
corporate purposes.

In May 2003, CMS Energy entered into a revolving credit facility in an aggregate
amount of $185 million. The maturity date of this facility is May 21, 2004. This
facility is primarily used to provide letter of credit support for Enterprises'
subsidiary activities - principally credit support for project debt. Enterprises
provides funds to cash collateralize all letters of credit issued through this
facility. As of September 30, 2003, approximately $167 million of letters of
credit were issued under this facility and the cash that collateralizes the
letters of credit is included on the balance sheet as restricted cash.

Regulatory Authorization for Financings: At September 30, 2003, Consumers had
FERC authorization, through June 2004, to issue or guarantee up to $1.1 billion
of short-term securities outstanding at any one time. As of September 30, 2003,
Consumers had $400 million outstanding as collateral for the revolving credit
facility (discussed below) and had an additional $700 million available for
future issuances of short-term securities. At September 30, 2003, Consumers also
had remaining FERC authorization, through June 2004, to issue up to $800 million
of long-term securities for refinancing or refunding purposes, $560.3 million of
long-term securities for general corporate purposes, and $2.06 billion of
long-term first mortgage bonds to be issued solely as collateral for other
long-term securities. Also, FERC has granted waivers of its competitive
bid/negotiated placement requirements applicable to the long-term securities
authorization indicated above.

Required Ratios: CMS Energy's amended and restated $5 million credit facility
does not include any restrictive financial covenants. Consumers' credit
facilities have restrictive financial covenants that require Consumers to
maintain, as of the last day of each fiscal quarter, the following:


                                     CMS-23
<PAGE>

                                                          CMS Energy Corporation
<TABLE>
<CAPTION>
      Required Ratio                                   Limitation              Ratio at September 30, 2003
- ----------------------------------------------------------------------------------------------------------
<S>                                            <C>                              <C>
CONSUMERS:
Debt to Capital Ratio(a)(b)                    not more than 0.65 to 1.00              0.58 to 1.00

Interest Coverage Ratio-Revolver(a)            not less than 2.00 to 1.00              3.34 to 1.00
==========================================================================================================
</TABLE>

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

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

In 1994, CMS Energy executed an indenture with JPMorgan Chase Bank, ultimate
successor to The Chase Manhattan Bank, pursuant to CMS Energy's general term
notes program. The indenture, through supplements, contains certain provisions
that can trigger a limitation on CMS Energy's consolidated indebtedness. The
limitation can be activated when CMS Energy's consolidated leverage ratio, as
defined in the indenture (essentially the ratio of consolidated debt to
consolidated capital), exceeds 0.75 to 1.0. At September 30, 2003, CMS Energy's
consolidated leverage ratio was 0.76 to 1.0. As a result, CMS Energy will not
and will not permit certain material subsidiaries, excluding Consumers and its
subsidiaries, to become liable for new indebtedness. However, CMS Energy and the
material subsidiaries may incur revolving indebtedness to banks of up to $1
billion in the aggregate and may refinance existing debt that was incurred while
CMS Energy was in compliance with the consolidated leverage ratio.

In 1992, CMS Energy executed an indenture with Bank One Trust Company, N.A.
(successor to NBD Bank, National Association) pursuant to which CMS Energy
issues its senior notes. The indenture, through supplements, contains certain
provisions that can trigger a limitation on consolidated indebtedness and the
ability of Consumers to incur indebtedness. The limitation can be activated when
CMS Energy's consolidated coverage ratio, as defined in the indenture, is below
1.70 to 1.0. At September 30, 2003, CMS Energy's consolidated coverage ratio was
2.02 to 1.0.

Consumers is subject to covenants in its financing agreements that could limit
its ability to incur additional indebtedness. Consumers has agreed in several of
its financing agreements to maintain specified levels of cash coverage of its
interest requirements and to not allow its indebtedness to exceed specified
levels of its consolidated capitalization (the "Debt Percentage Tests").
Consumers is in compliance with these requirements as of the most recent
measurement date, September 30, 2003. These covenants make use of both generally
accepted accounting principles and defined contractual terms in specifying how
the relevant calculations are made. Consumers sought and received amendments to
certain of its financing agreements to modify the terms of the Debt Percentage
Tests in order to, among other things, remove the effect of the adoption of SFAS
No. 150, portions of which have now been deferred indefinitely, regarding Trust
Preferred Securities on the calculations.

Restricted Payments: Under the provisions of its articles of incorporation,
Consumers had $412 million of unrestricted retained earnings available to pay
common dividends at September 30, 2003. However, covenants in Consumers' debt
facilities cap common stock dividend payments at $300 million in a calendar
year. Through September 30, 2003, Consumers paid $162 million in common
dividends. In October 2003, Consumers declared a $57 million common dividend
payable in November 2003.

For information on the potential cap on common dividends payable included in the
MPSC Securitization order see Consumers' Electric Utility Business Outlook,
"Competition and Regulatory Restructuring - Securitization." Also, for
information on the potential cap on common dividends payable included in the
MPSC Staff's recommendation in Consumers' 2003 gas rate case see Consumers' Gas
Utility Business Outlook, "2003 Gas Rate Case."



                                     CMS-24
<PAGE>

                                                          CMS Energy Corporation

PREFERRED SECURITIES

In August 2003, 8,800,000 units of outstanding 7.25% Premium Equity
Participating Security Units (CMS Energy Trust III) were converted to 16,643,440
newly issued shares of CMS Energy Common Stock.

OTHER BALANCE SHEET OBLIGATIONS

CMS Energy has other contractual obligations including notes payable and capital
lease obligations. Notes payable include Consumers' $400 million revolving
credit agreement. Capital leases include leased service vehicles and the new
headquarters building.

On November 7, 2003, Consumers closed a three-year $60 million term loan at an
interest rate of LIBOR plus 135 basis points. The term loan is secured by First
Mortgage bonds. The proceeds of the loan were used to purchase Consumers'
headquarters building lease from the lessor, resulting in cost savings to
Consumers.

OFF-BALANCE SHEET ARRANGEMENTS

CMS Energy's use of long-term contracts for the purchase of commodities and
services, the sale of Consumers' accounts receivable, and operating leases are
considered to be off-balance sheet arrangements. CMS Energy's operating leases
are predominately railroad coal car leases, vehicles and miscellaneous office
equipment. The full lease obligation becomes due in case of lease payment
default. In addition, CMS Energy, through its subsidiary companies, has equity
investments in partnerships and joint ventures in which they have a minority
ownership interest. CMS Energy's proportionate share of unconsolidated debt
associated with these investments is non-recourse to CMS Energy.

In July 2003, CMS Energy and the National Power Company, through their joint
venture, Jubail Energy Company, closed a $170 million project financing for
construction of a co-generation plant designed to produce up to 250 MW of
electricity and 510 tons of industrial steam per hour. This financing did not
require any additional project investment by CMS Energy. The debt is
non-recourse to CMS Energy and its subsidiaries and is not included on CMS
Energy's balance sheet. At September 30, 2003, $14 million of this facility is
drawn and is included in non-recourse debt in the "Contractual Obligations"
table above.

Sale of Accounts Receivable: Under a revolving accounts receivable sales
program, Consumers currently sells certain accounts receivable to a wholly
owned, consolidated, bankruptcy remote special purpose entity, Consumers
Receivables Funding II. In turn, Consumers Receivables Funding II may sell an
undivided interest in up to $325 million of the receivables to a bank-sponsored
commercial paper conduit. The amount sold to the conduit was $254 million at
September 30, 2003 and $325 million at September 30, 2002. These amounts are
excluded from accounts receivable in Consumers' consolidated balance sheets.
Consumers continues to service the receivables sold; however, the purchaser of
the receivables has no recourse against Consumers' other assets for failure of a
debtor to pay when due and the purchaser has no right to any receivables not
sold. No gain or loss has been recorded on the receivables sold and Consumers
retains no interest in the 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 $47 million per month for the
remaining three months of 2003, including $34 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 Consumers' Electric Utility Results of Operations above and Note 4,
Uncertainties, "Consumers' Electric Utility Rate Matters - Power Supply Costs"
and "Other Consumers' Electric Utility Uncertainties - The Midland Cogeneration
Venture" for further information concerning power supply costs.



                                     CMS-25
<PAGE>

                                                          CMS Energy Corporation

COMMERCIAL COMMITMENTS

As of September 30, 2003, CMS Energy, Enterprises, and their subsidiaries have
guaranteed payment of obligations through guarantees, indemnities and letters of
credit, of unconsolidated affiliates and related parties approximating $477
million. Included in this amount, Enterprises, in the ordinary course of its
business, has guaranteed contracts of CMS MST that contain certain schedule and
performance requirements. As of September 30, 2003, the actual amount of
financial exposure covered by these guarantees and indemnities was $52 million.
Management monitors and approves these obligations and believes it is unlikely
that CMS Energy would be required to perform or otherwise incur any material
losses associated with these guarantees. Indemnities are three-party agreements
used to assure performance of contracts by CMS Energy. Letters of credit are
issued by banks guaranteeing CMS Energy's payments of its drafts. Drafts are for
a stated amount and for a specified period; they substitute the bank's credit
for CMS Energy's and reduce the credit risk for the other party.

<TABLE>
<CAPTION>
Commercial Commitments                                                                               In Millions
- ----------------------------------------------------------------------------------------------------------------
                                                                        Commitment Expiration
- ----------------------------------------------------------------------------------------------------------------
    September 30                       Total           2003       2004      2005       2006      2007     Beyond
- ----------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>        <C>       <C>        <C>       <C>      <C>
Off-balance sheet:
   Guarantees                          $ 208           $ -        $  -      $  -        $ 4       $ -     $ 204
   Indemnities                            65             -           -        35          -         -        30
   Letters of Credit (a)                 204             5         195         -          -         -         4
- ----------------------------------------------------------------------------------------------------------------
Total                                  $ 477           $ 5        $195      $ 35        $ 4       $ -     $ 238
================================================================================================================
</TABLE>

(a)  At September 30, 2003, CMS Energy had $176 million of cash collateralized
     letters of credit and the cash used to collateralize the letters of credit
     is included in Restricted Cash on the consolidated balance sheet.

For further information, see Note 5, Financings and Capitalization.

OUTLOOK

CAPITAL RESOURCES AND LIQUIDITY

CMS Energy's liquidity and capital requirements generally are a function of its
results of operations, capital expenditures, contractual obligations, working
capital needs and collateral requirements. CMS Energy has historically met its
consolidated cash needs through its operating and investing activities and, as
needed, through access to bank financing and the capital markets.

CMS Energy has contractual obligations and planned capital expenditures that
would require substantial amounts of cash. As of January 2003, CMS Energy at the
parent level had approximately $598 million and Consumers and its subsidiaries
had approximately $727 million of publicly issued and credit facility debt
maturing in 2003. During 2003, CMS Energy and Consumers have taken steps to
address their 2003 maturities, as described below. As of September 30, 2003, CMS
Energy at the parent level had approximately $28 million, Consumers and its
subsidiaries had approximately $7 million, and Enterprises had approximately $8
million of publicly issued and credit facility debt maturing in 2003. In
addition, CMS Energy could become subject to liquidity demands pursuant to
commercial commitments under guarantees, indemnities and letters of credit.

CMS ENERGY PARENT LEVEL LIQUIDITY

CMS Energy has reduced debt through asset sales and securitization proceeds,
with a total of approximately $3.5 billion in cash proceeds from such events
over the two preceding calendar years. For the nine months

                                     CMS-26
<PAGE>

                                                          CMS Energy Corporation

ended September 30, 2003, CMS Energy has received gross cash proceeds of
approximately $848 million and stock valued at September 30, 2003 of
approximately $54 million as a result of additional asset sales as described
below. Refer to Capital Resources and Liquidity, "Long-Term Debt" above for
information about CMS Energy's 2003 debt financings.

In January 2003, CMS Energy closed on the sale of a substantial portion of CMS
MST's natural gas trading contracts for $17 million of gross cash proceeds. The
sale of Centennial, resulting in gross proceeds to CMS Energy of $40 million,
closed in February 2003. In March 2003, CMS MST sold the majority of its
wholesale power book and related supply portfolio to Constellation Power Source,
Inc. for gross cash proceeds of $34 million. The sale contains a potential to
increase proceeds to $40 million dependent upon future years' performance of the
sold assets. Additionally, during the first quarter of 2003, CMS MST sold its 50
percent joint venture ownership interest in Texon, its 50 percent interest in
Premstar and its Tulsa retail contracts, resulting in net cash proceeds of
approximately $6 million.

In June 2003, CMS Energy completed the sale of its one-third membership interest
in the Guardian Pipeline, L.L.C., to a subsidiary of WPS Resources Corporation.
Gross proceeds from the sale were $26 million and were used to reduce debt. In
conjunction with the sale, approximately $63 million of cash that CMS Energy had
committed to collateralize a letter of credit was released. CMS Energy recorded
a loss on the sale of Guardian of $4 million ($3 million, net of tax) in the
second quarter of 2003.

In June 2003, CMS Energy completed the previously announced sale of all of the
outstanding capital stock of Panhandle to Southern Union Panhandle Corp., a
newly formed entity owned by Southern Union. CMS Energy received gross cash
proceeds of approximately $582 million and three million shares of Southern
Union common stock, worth approximately $49 million based on the June 11, 2003
closing price of $16.48 per share. The sale agreement allowed CMS Energy to sell
the stock 90 days after the closing date of June 11, 2003. The Southern Union
common stock was recorded as a current asset on CMS Energy's balance sheet. In
July 2003, Southern Union declared a five percent common stock dividend payable
July 31, 2003, to shareholders of record as of July 17, 2003. As a result of the
stock dividend, on September 30, 2003, CMS Energy held 3.15 million shares of
Southern Union common stock, worth approximately $54 million, based on the
closing price of $17.00 per share. The increase in CMS Energy's value of the
Southern Union common stock of approximately $2 million was recorded in dividend
income. In October 2003, CMS Energy sold its 3.15 million shares of Southern
Union common stock to a private investor for $17.77 per share. The proceeds from
the stock sale of approximately $56 million will be used to reduce debt.

Southern Union Panhandle Corp. also assumed approximately $1.166 billion of
Panhandle debt. CMS Energy used the initial cash proceeds from the sale of
Panhandle to pay off and terminate Enterprises' $441 million and $75 million
revolving credit facilities. The $30 million after-tax loss on the sale is
included in discontinued operations.

In June 2003, CMS MST's energy conservation unit, CMS Viron closed on the sale
of the majority of its assets associated with its non-federal business to
Chevron Energy Solutions Company, a division of Chevron U.S.A. and in April
2003, closed on the sale of its assets associated with its federal business to
Pepco Energy Services. The total loss on the sale of CMS Viron was $14 million
($9 million, net of tax).

In July 2003, CMS Energy completed the sale of CMS Field Services to Cantera
Resources Inc. for gross cash proceeds of approximately $113 million and a $50
million face value note of Cantera Resources Inc. The note is payable to CMS
Energy for up to $50 million subject to the financial performance of the Fort
Union and Bighorn natural gas gathering systems from 2004 through 2008. The sale
resulted in a $5 million loss ($1 million, net of tax), which is included in
discontinued operations. The net sales proceeds of approximately $100 million
were used to reduce debt.

                                     CMS-27
<PAGE>

                                                          CMS Energy Corporation

CMS Energy believes that further targeted asset sales, together with its planned
reductions in operating expenses, capital expenditures, and the suspension of
the common dividend also will contribute to improved liquidity. CMS Energy
believes that its present level of cash, along with anticipated cash flows from
operating and investing activities will be sufficient to meet its liquidity
needs through 2003. CMS Energy believes, but can provide no assurance, that it
will have sufficient liquidity to meet its debt maturities through 2004.

CONSUMERS ENERGY LIQUIDITY

Consumers' liquidity and capital requirements generally are a function of its
results of operations, capital expenditures, contractual obligations, debt
maturities, working capital needs and collateral requirements. 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. 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 addition,
certain commodity suppliers to Consumers have requested advance payments or
other forms of assurances, including margin calls, in connection with
maintenance of ongoing deliveries of gas and electricity. This will also affect
Consumers' liquidity position.

Historically, Consumers has met its consolidated cash needs through its
operating and financing activities and access to bank financing and the capital
markets. In 2003, Consumers has contractual obligations and planned capital
expenditures that would require substantial amounts of cash. Consumers may also
become subject to liquidity demands pursuant to commercial commitments under
guarantees, indemnities and letters of credit as indicated above. Consumers
plans to meet its liquidity and capital requirements in 2003 through a
combination of borrowings, reduced capital expenditures, cash flow generated
from operations, and other measures. Refer to Capital Resources and Liquidity,
"Long Term Debt" above for information about Consumers' 2003 debt financings.

Consumers believes that its present level of cash and borrowing capacity
(assuming access to capital markets), along with anticipated cash flows from
operating and investing activities, will be sufficient to meet its liquidity
needs through 2004.

CORPORATE OUTLOOK

During 2003, CMS Energy continues to implement a back-to-basics strategy that
focuses on a growing healthy utility and divesting under-performing or other
non-strategic assets. The strategy is designed to generate cash to pay down
debt, to reduce business risk, and to provide for more predictable future
operating revenues and earnings.

Consistent with its back-to-basics strategy, CMS Energy is pursuing actively the
sale of non-strategic and under-performing assets and has received approximately
$3.5 billion of cash from asset sales, securitization proceeds and proceeds from
LNG monetization since 2001. These assets are recorded at current fair value,
however, upon the sale of additional non-strategic and under-performing assets,
the proceeds realized may be different than the recorded value of those assets
if market conditions change. Even though these assets have been identified for
sale, management cannot predict when, nor make any assurance that, these asset
sales will occur. CMS Energy anticipates, however, that the sales, if any, will
result in additional cash proceeds that will be used to retire existing debt of
CMS Energy or Consumers.

Earnings (loss) from equity method investments in Jorf Lasfar and the MCV
Partnership were $11 million and $(7) million, respectively for the three
months ended September 30, 2003 and $46 million and $19 million, respectively
for the nine months ended September 30, 2003.  As CMS Energy continues to
implement its back-to-basics strategy and further reduces its ownership of
non-utility assets, the percentage of CMS Energy's future earnings relating to
Jorf Lasfar and the MCV Partnership may increase and CMS Energy's total future
earnings may depend more significantly upon the performance of Jorf Lasfar and
the MCV Partnership.

An affiliate of CMS Generation owns a 49.6 percent interest in the Loy Yang
Power Partnership ("LYPP"), which owns the 2,000 MW Loy Yang coal-fired power
project in Victoria, Australia. Due to unfavorable

                                     CMS-28
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                                                          CMS Energy Corporation

power prices in the Australian market, the LYPP is not generating cash flow
sufficient to meet its debt-service obligations. LYPP has A$500 million of term
bank debt that, pursuant to extensions from the lenders, is scheduled to mature
on February 12, 2004. The partners in LYPP (including affiliates of CMS
Generation, NRG Energy Inc. and Horizon Energy Australia Investments) have been
exploring the possible sale of the project (or control of the project) and a
restructuring of the finances of LYPP.

In July 2003, a conditional share sale agreement was executed by the LYPP
partners and partners of the Great Energy Alliance Corporation ("GEAC") to sell
the project to GEAC for A$3.5 billion (approximately $2.4 billion in U.S.
dollars), including A$165 million (approximately $111 million in U.S. dollars)
for the project equity. The Australian Gas Light Company, the Tokyo Electric
Power Company, Inc. and a group of financial investors led by the Commonwealth
Bank of Australia formed GEAC earlier this year to explore the possible
acquisition of Loy Yang. The conditions to completion of the sale to GEAC
include consents from LYPP's lenders to a restructuring of the project's debt,
satisfactory resolution of regulatory issues and approvals, rulings on tax and
stamp duty obligations, and approvals from the investors in Horizon Energy
Australia Investments and the creditors committee of NRG Energy Inc. It should
be noted in particular that the Australian federal antitrust regulator has
disapproved the transaction because of its perceived anticompetitive effects,
and GEAC has brought an action for declaratory relief against the regulator to
reverse that disapproval. Closing was targeted for early September 2003, but
given the regulatory uncertainties, the parties to the share sale agreement have
agreed to extend the date for resolution of the regulatory conditions to closing
to not later than December 19, 2003, assuming satisfactory interim resolution of
other closing conditions. The share sale agreement provides GEAC a period of
exclusivity while the conditions of the purchase are satisfied. The ultimate net
proceeds to CMS Energy for its equity share in LYPP may be subject to reduction
based on the ultimate resolution of many of the factors described above as
conditions to completion of the sale, as well as closing adjustments and
transaction costs, and could likely range between $20 million and a nominal
amount.

CMS Energy cannot predict whether this sale to GEAC will be consummated or, if
not, whether any of the other initiatives will be successful, and it is possible
that CMS Generation may lose all or a substantial part of its remaining equity
investment in the LYPP. CMS Energy previously has written off its equity
investment in the LYPP, and further write-offs would be limited to cumulative
net foreign currency translation losses. The amount of such cumulative net
foreign currency translation losses is approximately $168 million at
September 30, 2003. Any such write-off would flow through CMS Energy's income
statement but would not result in a reduction in shareholders' equity or cause
CMS Energy to be in noncompliance with its financing agreements.

CONSUMERS' ELECTRIC UTILITY 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 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 experienced higher electric deliveries in 2002 as a result
of warmer than normal summer weather. For 2003, a slight decline in electric
deliveries from 2002 is anticipated. This short-term outlook for 2003 assumes
higher levels of manufacturing activity than in 2002 and normal weather
conditions in the last three months of the year.

                                     CMS-29
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                                                          CMS Energy Corporation

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 Consumers' 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 October
2003, alternative electric suppliers are providing 603 MW of generation supply
to retail open access 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 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. According to the MPSC, "net"
Stranded Costs are 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 for 2000 and $43 million for 2001. Consumers in its hearing brief, filed
in August 2002, revised its request for Stranded Costs to $7 million for 2000
and $4 million for 2001. 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. As discussed below in
"Securitization", Consumers filed a request with the MPSC for authority to issue
Securitization bonds that would allow recovery of the Clean Air Act expenditures
that were excluded from the Stranded Cost calculation.

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to resolve numerous
issues regarding the "net" Stranded Cost methodology in a way 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 have also filed rehearing
petitions with the MPSC. Consumers has also initiated an appeal at the Michigan
Court of Appeals related to the MPSC's December 2001 "net" Stranded Cost order.

In March 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 Palisades expenditures
previously not securitized were approved as proposed in its securitization case
as discussed below in "Securitization", then Consumers' "net" Stranded Costs
incurred in 2002 would be approximately $35 million. If the proposal to
securitize those costs is not approved, then Consumers indicated that the costs
would be

                                     CMS-30
<PAGE>

                                                          CMS Energy Corporation

properly included in the 2002 "net" Stranded Cost calculation, which would
increase Consumers' 2002 "net" Stranded Costs to approximately $103 million.

In June 2003, the MPSC issued a financing order in the securitization case,
authorizing the issuance of Securitization bonds in the amount of approximately
$554 million. Included in this amount were Clean Air Act expenditures. However,
the MPSC rejected Palisades expenditures previously not securitized as eligible
securitized costs. As a result, the Palisades expenditures previously not
securitized should be included as a component of "net" Stranded Costs and will
be included as a component of a future electric rate case proceeding with the
MPSC. With the inclusion of the Palisades expenditures previously not
securitized, Consumers' "net" Stranded Costs incurred in 2002 are estimated to
be approximately $50 million.

In July 2003, Consumers filed a petition for rehearing and clarification on a
number of features in the MPSC's financing order on securitization. Once a final
financing order by the MPSC on securitization is issued, the amount of
Consumers' request for "net" Stranded Cost recovery for 2002 will be known.
Consumers cannot predict how the MPSC will rule on its request for the
recoverability of Stranded Costs, and therefore Consumers 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 has participated in this collaborative process. In July 2003, the
staff suspended formal discussion while it considers possible conclusions and
recommendations.

Implementation Costs: 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
- --------------------------------------------------------------------------------------
<C>              <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        Pending          Pending
======================================================================================
</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 order received for the year 2001, the MPSC also reserved the right to review
again the 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 September 30, 2003, Consumers incurred and deferred as a regulatory asset, $2
million of additional implementation costs and has also recorded a regulatory
asset of $16 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 is expected to begin after the rate freeze or rate cap
period has expired. As discussed below, Consumers has asked to include
implementation costs through December 31, 2000 in the pending securitization
case. If approved, the sale of Securitization bonds will allow for the recovery
of these costs. Consumers cannot predict the amounts the MPSC will approve as
allowable costs.

                                     CMS-31
<PAGE>

                                                          CMS Energy Corporation

Also, Consumers is 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. In May 2003, the FERC
issued an order denying MISO's request for authorization to reimburse Consumers.
In June 2003, Consumers and MISO filed a joint petition for rehearing with the
FERC. In September 2003, the FERC denied Consumers' and MISO's joint request.
Consumers plans to appeal the FERC ruling at the United States Court of Appeals
for the District of Columbia and pursue other potential means of recovery. In
November 2003, in conjunction with Consumers' appeal of the September Order
denying recovery, Consumers persuaded MISO to file a request with the FERC
seeking authority to reimburse METC, the legal successor in interest to the
Alliance RTO start-up costs. As part of the contract for sale of Consumers'
former transmission system, should the Commission approve the new MISO filing,
METC is contractually obligated to flow-through to Consumers the full amount of
any Alliance RTO start-up costs that it is authorized to recover through FERC.
Consumers cannot predict the outcome of the appeal process, the MISO request,
or the amount of implementation costs, if any; the FERC ultimately will allow
to be collected.

Securitization: In March 2003, Consumers filed an application with the MPSC
seeking approval to issue Securitization bonds in the amount of approximately
$1.084 billion. The application sought recovery of costs associated with Clean
Air Act expenditures, Palisades expenditures previously not securitized, retail
open access implementation costs through December 31, 2003, certain pension fund
costs, and expenses associated with the issuance of the bonds. In June 2003, the
MPSC issued a financing order authorizing the issuance of Securitization bonds
in the amount of approximately $554 million. This amount relates to Clean Air
Act expenditures and associated return on those expenditures through December
31, 2002, retail open access implementation costs and previously authorized
return on those expenditures through December 31, 2000, and the "up front" other
qualified costs related to issuance of the Securitization bonds. The MPSC
rejected Palisades expenditures previously not securitized as eligible
securitized costs. Therefore, Palisades expenditures previously not securitized
should be included as a component of "net" Stranded Costs and will be included
as a component of a future electric rate case proceeding with the MPSC.

In the June 2003 financing order, the MPSC also adopted a rate design that would
allow retail open access customers to pay a securitization charge (and related
tax charge) that are a small fraction of the amounts paid by full service
bundled sales customers and special contract customers of the utility. The
financing order provides that the securitization charges (and related tax
charges) for the full service and bundled sales customers are increased under
the rate design in the financing order in order to be sufficient to repay the
principal, interest and all other "ongoing" qualified costs related to servicing
the Securitization bonds. The financing order also restricts the amount of
common dividends payable by Consumers to its "earnings." In July 2003, Consumers
filed for rehearing and clarification on a number of features in the financing
order, including the rate design, accounting treatment of unsecuritized
qualified costs and dividend restriction. Also in July 2003, the Attorney
General filed a claim of appeal related to the financing order and the Attorney
General indicated it would challenge the lawfulness of the rate design. In
October 2003, the Court of Appeals dismissed the appeal and indicated that the
Attorney General could resubmit the appeal after the MPSC acted on Consumers'
rehearing request. Subsequently, the Attorney General filed a motion of
rehearing asking for reconsideration of the Court of Appeals' dismissal. The
financing order will become effective after rehearing, resolution of appeals and
upon acceptance by Consumers.

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 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. After December 31, 2003,
the statute would allow customers to petition the MPSC for rate reductions below
the cap. Consumers would have the opportunity to respond to such a petition
before rates could be reduced.

                                     CMS-32
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                                                          CMS Energy Corporation

As a result of Consumers meeting the transmission capability expansion
requirements and the market power test, as discussed in Note 4, Uncertainties,
"Consumers' Electric Utility Rate Matters - Electric Restructuring", Consumers
has met the requirements under Public Act 141 to return to the PSCR process. On
September 30, 2003, Consumers submitted a PSCR filing to the MPSC that would
reinstate the PSCR process for customers whose rates will no longer be frozen or
capped as of January 1, 2004. The proposed PSCR charge allows Consumers to
recover a portion of its increased power supply costs from large commercial and
industrial customers effective January 1, 2004. This is the first customer class
for which the rate freeze and cap expire. Consumers will, pursuant to its right
under applicable law, self-implement the proposed PSCR charge on January 1,
2004, unless the MPSC issues an order before that date establishing a different
charge. The charge is subject to subsequent change by the MPSC during the PSCR
period (calendar-year 2004). The revenues received pursuant to the PSCR charge
by statute are also subject to subsequent reconciliation when the year is
finished and actual costs have been reviewed for reasonableness and prudence.
Consumers cannot predict the outcome of this filing.

Included in Consumers' retail electric customers' frozen rates is a nuclear
decommissioning surcharge related to the decommissioning of Big Rock. The MPSC
authorized collection of the surcharge through December 2000. Consumers has
continued to collect the Big Rock nuclear decommissioning surcharge consistent
with the provisions of the Customer Choice Act rate freeze in effect through
December 31, 2003. Beginning in January 2004, the Big Rock decommissioning
surcharge will be eliminated, reducing Consumers' annual electric revenues by
approximately $35 million in 2004. A portion of this reduction is expected to be
offset by the collection of increased PSCR revenues.

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, totaling a maximum of approximately 685 MW of load, as part
of its phased introduction to competition. Unless terminated or restructured,
the majority of these contracts are in effect through 2005. As of September 30,
2003, contracts for 200 MW of load have terminated. Of the contracts that have
terminated, contracts for 64 MW have gone to an alternative electric supplier,
and contracts for 136 MW have returned to bundled tariff rates. Consumers cannot
predict the ultimate financial impact of changes related to these power supply
contracts, or whether additional special 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 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 electric and gas revenues. In October 2002, the MPSC denied
waivers for three programs that provided approximately $32 million in gas
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. In November
2002, the Michigan

                                     CMS-33
<PAGE>

                                                          CMS Energy Corporation

Court of Appeals denied Consumers' request for a stay. Consumers 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 gas
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 down the guidelines 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. In July 2003,
legislation was introduced in the Michigan legislature that, if enacted, would
clarify the application of the code of conduct in a manner that would allow
Consumers to continue to offer the appliance service plan. In October 2003, the
Michigan Senate passed legislation to preserve the appliance service plan. The
House of Representatives of Michigan is scheduled to review the legislation in
early 2004; however, in the interim passed a bill to extend the MPSC's waiver
for the program to July 1, 2004.

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

Transmission: In May 2002, Consumers sold its electric transmission system for
approximately $290 million to MTH, a non-affiliated limited partnership whose
general partner is a subsidiary of Trans-Elect, Inc. The pretax gain was $31
million ($26 million, net of tax). Remaining open issues are not expected to
substantially impact the amount of the gain.

As a result of the sale, Consumers anticipates its after-tax earnings will
decrease by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a 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.

Under an 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 until May 1, 2007 under a
contract with MTH.


                                     CMS-34
<PAGE>

                                                          CMS Energy Corporation



There are multiple proceedings and a proposed rulemaking pending before the FERC
regarding transmission pricing mechanisms and standard market design for
electric bulk power markets and transmission. The results of these proceedings
and proposed rulemaking could significantly affect the trend of transmission
costs and increase the delivered power costs to Consumers and the retail
electric customers it serves. The specific financial impact on Consumers of such
proceedings, rulemaking and trends are not currently quantifiable.

In addition, 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.

August 14, 2003 Blackout: On August 14, 2003, the electric transmission grid
serving parts of the Midwest and the Northeast experienced a significant
disturbance, which impacted electric service to millions of homes and businesses
throughout a vast region. In Michigan, more than 2 million electric customers
were without electricity. Consumers had five fossil-fueled generating unit
outages and, of Consumers' 1.7 million electric customers, approximately
100,000 were without power for approximately 24 hours as a result of the
disturbance. The impact was felt most heavily in the southeastern part of
Consumers' service territory.

As discussed above in "Transmission", Consumers sold its electric transmission
system in May 2002 to MTH, with Consumers providing transmission system
maintenance under a five-year contract with MTH. MTH now owns, controls, and
plans for the transmission system that serves Consumers. Consumers incurred
approximately $1 million of immediate financial impact as a result of the
blackout. Consumers continues to cooperate with investigations of the blackout
by several federal and state agencies. Consumers cannot predict the outcome of
these investigations.

In November 2003, the MPSC released its report on the August 14, 2003 blackout,
which found no evidence to suggest that the events in Michigan or actions taken
by the Michigan utilities or transmission operators were factors contributing to
the cause of the blackout. As a result of its investigation, the MPSC is
recommending that Congress pass legislation that would empower the FERC, where
necessary, to order membership into a RTO and that Congress should provide the
FERC with the authority to develop and enforce mandatory transmission
reliability standards with penalties for noncompliance.

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 4, Uncertainties,
"Consumers' Electric Utility Rate Matters - Electric Restructuring" and
"Consumers' Electric Utility 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) pending litigation filed by
PURPA qualifying facilities; 5) uncertainties relating to the storage and
ultimate disposal of spent nuclear fuel; 6) electric industry restructuring
issues, including those described above; 7) 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; 8) the recovery of electric restructuring

                                     CMS-35
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                                                          CMS Energy Corporation

implementation costs; 9) Consumers' status as an electric transmission customer
and not as an electric transmission owner/operator; 10) sufficient reserves for
transmission rate refunds; 11) the effects of derivative accounting and
potential earnings volatility; 12) increased costs for safety and homeland
security initiatives that are not recoverable on a timely basis from customers;
13) potentially rising pension costs due to market losses and lump sum payments
(as discussed above in Accounting for Pension and OPEB); 14) Consumers' ability
to recover any of its "net" Stranded costs under the regulatory policies being
followed by the MPSC; 15) the effects of lost electric supply load from retail
open access and the recovery of associated margin loss; 16) the uncertain
effects, including exposure to liability, increased regulatory requirement and
new legislation, due to the future conclusions about the causes of the August
14, 2003 blackout. For further information about these trends or uncertainties,
see Note 4, Uncertainties.

CONSUMERS' GAS UTILITY 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,
the level of natural gas consumption per customer, and the recent significant
increases in gas commodity prices.

GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation case with the MPSC, Consumers expects to recover all of its gas
costs. In June 2003, Consumers filed a reconciliation of GCR costs and revenues
for the 12-months ended March 2003. Consumers proposes to recover from its
customers a net under-recovery of approximately $6 million using a roll-in
methodology. The roll-in methodology incorporates the under-recovery in the GCR
factor charged in the next GCR year. The roll-in tariff provision was approved
by the MPSC in a November 2002 order.

In July 2003, the MPSC approved a settlement agreement authorizing Consumers to
increase its gas cost recovery factor for the remainder of the current GCR plan
year (August 2003 through March 2004) and to implement a quarterly ceiling price
adjustment mechanism, based on a formula that tracks changes in NYMEX natural
gas prices. Consistent with the terms of the settlement, the ceiling price is
$6.11 per mcf. However, Consumers will utilize a GCR factor of $5.41 per mcf
commencing in November 2003 bills. All recoveries pursuant to such factors are
subject to final reconciliation by the MPSC.

2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. In November 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 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: In March 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 return on equity, based on a 2004 test year.
Contemporaneously with this filing, Consumers has requested interim rate relief
in the same amount. In August 2003, the MPSC Staff recommended interim rate
relief of $80 million be granted in this proceeding, subject to Consumers
voluntarily agreeing to limit its dividends to its parent, CMS Energy, to a
maximum of $190 million in any calendar year.

                                     CMS-36
<PAGE>

                                                          CMS Energy Corporation

In September 2003, Consumers filed an update to its gas rate case that lowered
the requested revenue increase from $156 million to $139 million and revised the
return on common equity from 13.5 percent to 12.75 percent. The majority of the
reduction is related to lower debt costs and changes in the projected capital
structure. The MPSC Staff and ABATE filed their cases in early October. The
Staff made no change to its interim position of $80 million and continued to
propose the same dividend limitation. ABATE did not make a specific
recommendation for a final rate increase, but did discuss the rate design used
to recover any rate increase granted. A proposal for decision is expected from
the administrative law judge in January 2004.

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 $36 million in annual
gas revenues, may be restricted by the new code of conduct issued by the MPSC,
as discussed above in Consumers' Electric Utility Business Outlook, "Competition
and Regulatory Restructuring - Code of Conduct."

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) an inadequate regulatory response to applications for requested
rate increases; 5) market and regulatory responses to increases in gas costs,
including a reduced average consumption per residential customer; 6) increase in
costs for pipeline integrity, safety, and homeland security initiatives that are
not recoverable on a timely basis from customers; 7) potentially rising pension
costs due to market losses and lump sum payments (as discussed above in
Accounting for Pension and OPEB); and 8) potential adverse appliance service
plan ruling or related legislation. For further information about these
uncertainties, see Note 4, Uncertainties.

CONSUMERS' OTHER OUTLOOK

SECURITY COSTS: 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 September 30, 2003,
Consumers has incurred approximately $7 million in incremental security costs,
including operating, capital, and decommissioning and removal costs, mainly
relating to its nuclear facilities. Consumers estimates it may incur additional
incremental security costs for the last three months of 2003 of approximately $3
million, of which $2 million relates to nuclear security costs. 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 nuclear electric division
security costs incurred during the rate freeze and cap periods imposed by the
Customer Choice Act. In February 2003, the MPSC adopted filing requirements for
the recovery of enhanced security costs.

ENTERPRISES OUTLOOK

CMS Energy's IPP subsidiary plans to complete the restructuring of its
operations by narrowing the scope of its existing operations and commitments to
two regions: North America and the Middle East/North Africa. In addition, its
plans include selling, over time, designated assets and investments that are
under-performing, non-

                                     CMS-37
<PAGE>

                                                          CMS Energy Corporation

region focused and non-synergistic with other CMS Energy business units. The IPP
business unit will continue to optimize the operations and management of its
remaining portfolio of assets in order to contribute to CMS Energy's earnings
and to maintain its reputation for solid performance in the construction and
operation of power plants.

CMS MST has continued to streamline its portfolio in order to reduce its
business risk and outstanding credit guarantees. CMS MST's future activities are
centered around meeting contractual obligations, as well as purchasing fuel for
and marketing the merchant power from DIG, Michigan Power, LLC and other IPPs as
their current power purchase agreements expire.

For the nine months ended September 30, 2003, CMS Energy's operating revenue was
$4.059 billion, a decrease of $2.784 billion from the comparable period in 2002.
This decrease in operating revenue was due primarily to the sale of CMS MST's
gas and power books in the first quarter of 2003.

CMS Gas Transmission continues to narrow its scope of existing operations and
commitments. In doing so, CMS Energy is pursuing actively the sale, liquidation,
or other disposition of certain of its assets and investments, but management
cannot predict when, nor make any assurances that, these asset and investment
sales will occur.

UNCERTAINTIES: The results of operations and financial position of CMS Energy's
diversified energy businesses may be affected by a number of trends or
uncertainties that have, or CMS Energy reasonably expects could have, a material
impact on income from continuing operations, cash flows and balance sheet and
credit improvement. Such trends and uncertainties include: 1) the ability to
sell or optimize assets or businesses in accordance with its financial plan; 2)
the international monetary fluctuations, particularly in Argentina, as well as
Brazil and Australia; 3) the changes in foreign laws, governmental and
regulatory policies that could significantly reduce the tariffs charged and
revenues recognized by certain foreign investments; 4) the imposition of stamp
taxes on certain South American contracts that could increase substantially
project expenses; 5) the impact of any future rate cases or FERC actions or
orders on regulated businesses and the effects of changing regulatory and
accounting related matters resulting from current events; and 6) the impact of
ratings downgrades on CMS Energy's liquidity, costs of operating, and cost of
capital.

OTHER OUTLOOK

SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions by
CMS MST, CMS Energy's Board of Directors established a Special Committee 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 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. Previously, CMS Energy
terminated its speculative trading business and revised its risk management
policy. The Board of Directors adopted, and CMS Energy has implemented the
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. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within 45 days that they have taken certain specified remedial measures with
respect to the reporting of natural gas trading data to publications that
compile and

                                     CMS-38
<PAGE>

                                                          CMS Energy Corporation

publish price indices. CMS MST made a written submission to the FERC on June 11,
2003 in compliance with the FERC's directives. On July 29, 2003, the FERC issued
an order stating that CMS MST met the requirements of the FERC's April 30, 2003
order. Other than the FERC investigation, CMS Energy is unable to predict the
outcome of these matters, and 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 were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan by shareholders who allege that they purchased
CMS Energy's securities during a purported class period. The cases were
consolidated into a single lawsuit and an amended and consolidated class action
complaint was filed on May 1, 2003. The consolidated complaint contains a
purported class period beginning on May 1, 2000 and running through March 31,
2003. It generally seeks unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about CMS Energy's business and
financial condition, particularly with respect to revenues and expenses recorded
in connection with round-trip trading by CMS MST. The companies intend to defend
vigorously against this action but cannot predict the outcome of this
litigation.

DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS: The Board of Directors of CMS
Energy received a demand, on behalf of a shareholder of CMS Energy Common Stock,
that it commence civil actions (i) to remedy alleged breaches of fiduciary
duties by CMS Energy officers and directors in connection with round-trip
trading by CMS MST, and (ii) to recover damages sustained by CMS Energy as a
result of alleged insider trades alleged to have been made by certain current
and former officers of CMS Energy and its subsidiaries. If the Board elects not
to commence such actions, the shareholder has stated that he will initiate a
derivative suit, bringing such claims on behalf of CMS Energy. CMS Energy has
elected two new members to its Board of Directors who are serving as an
independent litigation committee to determine whether it is in the best interest
of CMS Energy to bring the action demanded by the shareholder. Counsel for the
shareholder has agreed to extend the time for CMS Energy to respond to the
demand. CMS Energy cannot predict the outcome of this litigation.

ERISA LAWSUITS: CMS Energy is a named defendant, along with Consumers, 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 was 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 defended vigorously. CMS Energy cannot predict the outcome
of this litigation.

GAS INDEX PRICE REPORTING INVESTIGATION: CMS Energy has notified appropriate
regulatory and governmental agencies that some employees at CMS MST and CMS
Field Services appeared to have provided inaccurate information regarding
natural gas trades to various energy industry publications which compile and
report index prices. CMS Energy is cooperating with investigations by the
Commodity Futures Trading Commission, Department of Justice and FERC regarding
this matter. CMS Energy is unable to predict the outcome of these matters and
what effect, if any, these investigations will have on its business.

GAS INDEX PRICE REPORTING LITIGATION: In August 2003, Cornerstone Propane
Partners, L.P. ("Cornerstone") filed a putative class action complaint in the
United States District Court for the Southern District of New York against CMS
Energy and 40 other energy companies. The complaint alleges that false natural
gas price reporting by the defendants manipulated the prices of NYMEX natural
gas futures and options. The complaint contains two counts under the Commodity
Exchange Act, one for manipulation and one for aiding and abetting

                                     CMS-39
<PAGE>

                                                          CMS Energy Corporation

violations. Cornerstone has agreed to provide a blanket 60-day extension of time
for all defendants to answer or otherwise respond to the complaint. CMS Energy
intends to defend vigorously against this action but cannot predict the outcome
of this litigation.

INTEGRUM LAWSUIT: A complaint was filed in Wayne County, Michigan Circuit Court
on July 17, 2003 by Integrum against CMS Energy, Enterprises and APT. Integrum
alleges several causes of action against APT, CMS Energy and Enterprises in
connection with an offer by Integrum to purchase the CMS Pipeline Assets. In
addition to seeking unspecified money damages, Integrum is seeking an order
enjoining Enterprises and CMS Energy from selling and APT from purchasing the
CMS Pipeline Assets and an order of specific performance mandating that CMS
Energy, Enterprises and APT complete the sale of the CMS Pipeline Assets to APT
and Integrum. An officer and director of Integrum is a former officer and
director of CMS Energy, Consumers and certain of its subsidiaries. The
individual was not employed by CMS Energy, Consumers or its subsidiaries when
Integrum made the offer to purchase the CMS Pipeline Assets. CMS Energy and
Enterprises intend to vigorously defend against this action. CMS Energy and
Enterprises cannot predict the outcome of this litigation.

OTHER MATTERS

CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES: CMS Energy's management, with the
participation of its CEO and CFO, has evaluated the effectiveness of CMS
Energy's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, CMS Energy's CEO and CFO have
concluded that, as of the end of such period, CMS Energy's disclosure controls
and procedures are effective.

INTERNAL CONTROL OVER FINANCIAL REPORTING: There have not been any changes in
CMS Energy's internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, CMS Energy's internal control over
financial reporting.

CONTROL WEAKNESSES AT CMS MST

In late 2001 and during 2002, CMS Energy identified a number of deficiencies in
CMS MST's systems of internal accounting controls. The internal control
deficiencies related to, among other things, a lack of account reconciliations,
unidentified differences between subsidiary ledgers and the general ledger, and
procedures and processes surrounding the CMS Energy accounting for energy
trading contracts, including mark-to-market accounting.

Senior management, the Audit Committee of the Board of Directors, the Board of
Directors, and the independent auditors were notified of these deficiencies as
they were discovered, and CMS Energy commenced a plan of remediation that
included the replacement of certain key personnel and the deployment of
additional internal and external accounting personnel to CMS MST. Certain
aspects of the remediation plan, which includes the implementation of
improvements and changes to CMS MST's internal accounting controls, were
postponed to enable CMS Energy to prepare restated financial statements for 2000
and 2001. While a number of these control improvements and changes were
implemented in late 2002, the most important ones occurred in the first quarter
of 2003.

The implementation of certain elements of its remediation plan enabled CMS
Energy to prepare reliable restated financial statements for CMS MST for
December 31, 2000, 2001 and 2002, as well as for the quarterly periods of 2001
and 2002.

                                     CMS-40
<PAGE>

                                                          CMS Energy Corporation

Management believes that the improvements to its system of internal accounting
controls are appropriate and responsive to the internal control deficiencies
that were identified. Management will continue to monitor the operation of the
improved internal controls to assess their sustained effectiveness through 2003.

CASH MANAGEMENT

In August 2002, FERC issued a NOPR concerning the management of funds by certain
FERC-regulated companies. The proposed rule could establish limits on the amount
of funds that may be swept from a regulated subsidiary to a non-regulated parent
under cash management programs. The proposed rule would require written cash
management arrangements that would specify the duties and restrictions of the
participants, the methods of calculating interest and allocating interest income
and expenses, and the restrictions on deposits or borrowings by money pool
members. These cash management agreements also may require participants to
provide documentation of certain transactions. In the NOPR, FERC proposed that
to participate in a cash management or money pool arrangement, FERC-regulated
entities would be required to maintain a minimum proprietary capital balance
(stockholder's equity) of 30 percent and both the FERC-regulated entity and its
parent would be required to maintain investment grade credit ratings. In October
2003, a final rule was issued by FERC. The rule will require Consumers, as a
FERC-regulated company, to file its cash management agreements with the FERC and
to notify the FERC within 45 days after the end of each calendar quarter when
their proprietary capital ratio drops below 30 percent, and when it subsequently
returns to or exceeds 30 percent. The rule also requires certain information
about cash management agreements and transactions to be maintained. The rule
becomes effective in late November 2003. Consumers operates its cash management
program independent of CMS Energy and, therefore, does not anticipate additional
reporting requirements as a result of this final rule.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS NO. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES: Issued by the FASB in April 2003, this statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for contracts
entered into or modified after June 30, 2003. Implementation of this statement
has not had an impact on CMS Energy's Consolidated Financial Statements.

SFAS NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY: Issued by the FASB in May 2003, this statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement requires an issuer to classify financial instruments within its scope
as liabilities. Those instruments were previously classified as mezzanine
equity. SFAS No. 150 became effective July 1, 2003.

CMS Energy has one, and Consumers has four, trust preferred securities
outstanding as of September 30, 2003. The trust preferred securities are issued
by consolidated subsidiaries of CMS Energy and Consumers. Each trust holds a
subordinated debenture from the parent company. The terms of the debentures are
identical to those of the trust preferred securities, except that the debenture
has an explicit maturity date. The trust documents, in turn, require that the
trust be liquidated upon the repayment of the debenture. The preferred
securities are redeemable upon the liquidation of the subsidiary; and therefore,
are considered equity in the financial statements of the subsidiary.

At their October 29, 2003 Board meeting, the FASB deferred the implementation of
the portion of SFAS

                                     CMS-41
<PAGE>

                                                          CMS Energy Corporation

No. 150 relating to mandatorily redeemable noncontrolling interests in
subsidiaries when the noncontrolling interests are classified as equity in the
financial statements of the subsidiary. CMS Energy and Consumers trust preferred
securities are included in the deferral. As such, the CMS Energy and Consumers
trust preferred securities continue to be accounted for under existing
accounting guidance and are included in mezzanine equity. CMS Energy and
Consumers continue to study the FASB developments regarding the SFAS No. 150
deferral.

EITF ISSUE NO. 01-08, DETERMINING WHETHER AN ARRANGEMENT CONTAINS A LEASE: In
May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a
lease at its inception. The guidance in the consensus is designed to mandate
reporting revenue as rental or leasing income that otherwise would be reported
as part of product sales or service revenue. EITF Issue No. 01-08 requires both
parties to an arrangement to determine whether a service contract or similar
arrangement is or includes a lease within the scope of SFAS No. 13, Accounting
for Leases.

Historically, CMS Energy has entered into power purchase and similar service
arrangements. Prospective accounting under EITF Issue No. 01-08, could affect
the timing and classification of revenue and expense recognition. Certain
product sales and service revenue and expenses may be required to be reported as
rental or leasing income and/or expenses. The consensus is to be applied
prospectively to arrangements agreed to, modified, or acquired in business
combinations in fiscal periods beginning July 1, 2003. The adoption of EITF
Issue No. 01-08 has not impacted CMS Energy's results of operations, cash flows,
or financial position. CMS Energy will evaluate new or modified contracts under
EITF Issue No. 01-08 prospectively.

ACCOUNTING STANDARDS NOT YET EFFECTIVE

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, FIN 46 requires the primary beneficiary of a
variable interest entity's activities to consolidate the variable interest
entity. The primary beneficiary is the party that absorbs a majority of the
expected losses and/or receives a majority of the expected residual returns of
the variable interest entity's activities. The consolidation requirements of the
interpretation apply immediately to variable interest entities created after
January 31, 2003. CMS Energy has not created any variable interest entities in
2003. Therefore, this portion of the interpretation has no impact on its
consolidated financial statements. Public companies, whose fiscal year is a
calendar year, were originally required to implement the guidance in this
interpretation by the third quarter of 2003. However, on October 9, 2003, the
FASB issued FASB Staff Position No. 46-6, Effective Date of FASB Interpretation
No. 46, and deferred implementation of FIN 46 until the fourth quarter of 2003
for variable interest entities and potential variable interest entities created
before February 1, 2003.

CMS Energy is evaluating all of its interests in entities, including
approximately 30 minority-held investments that are not currently consolidated,
to determine their treatment under FIN 46. The majority of these investments are
electric generation and gas transmission projects. CMS Energy's investment in
these entities totaled approximately $1,425 million as of September 30, 2003.
Jorf Lasfar and the MCV Partnership are the two largest entities impacting CMS
Energy's operations. For further information see Note 8, Equity Method
Investments.

If the completed analysis were to require CMS Energy to disclose information
about or consolidate in its financial statements, the assets, liabilities and
activities of the MCV Partnership and the First Midland Limited Partnership,
including the recognition of the debt of the MCV Partnership on CMS Energy's
financial statements, this could impact negatively CMS Energy's and Consumers'
various financial covenants under their financing agreements. As a result, CMS
Energy and Consumers may have to seek amendments to the relevant financing
agreements to modify the terms of certain of these covenants in order to remove
the effect of this potential consolidation or refinance the relevant debt. As of
September 30, 2003, Consumers' investments

                                     CMS-42
<PAGE>

                                                          CMS Energy Corporation

in the MCV Partnership and in the FMLP were $404 million and $222 million,
respectively. For a further description of the nature, purpose, size and
activities of the MCV Partnership see Note 4, Uncertainties, Other Consumers'
Electric Utility Uncertainties, "The Midland Cogeneration Venture" and Note 8,
Equity Method Investments. CMS Energy is continuing to study the implementation
of this interpretation and has yet to determine the effects, if any, on its
consolidated financial statements.

EITF ISSUE 03-04, ACCOUNTING FOR CASH BALANCE PENSION PLANS: In May 2003, the
EITF reached consensus in EITF Issue No. 03-04 to specifically address the
accounting for certain cash balance pension plans. EITF Issue No. 03-04
concluded that certain cash balance plans be accounted for as defined benefit
plans under SFAS No. 87, Employers' Accounting for Pensions. EITF No. 03-04
requires the use of the traditional unit credit method for the purposes of
measuring the benefit obligation and annual cost of benefits earned as opposed
to the projected unit credit method. The EITF concluded that the requirements of
this Issue be applied as of the next plan measurement date, which is December
31, 2003 for CMS Energy. CMS Energy commenced a cash balance pension plan that
covers employees hired after June 30, 2003. CMS Energy does account for this
plan as a defined benefit plan under SFAS No. 87. CMS Energy continues to
evaluate the impact, if any, this Issue will have upon adoption.

STATEMENT OF POSITION, ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO
PROPERTY, PLANT, AND EQUIPMENT: At its September 9, 2003 meeting, the Accounting
Standards Executive Committee voted to approve the Statement of Position,
Accounting for Certain Costs and Activities Related to Property, Plant, and
Equipment. The Statement of Position is expected to be presented for FASB
clearance late in the fourth quarter of 2003 and would be applicable for fiscal
years beginning after December 15, 2004. The Accounting Standards Executive
Committee concluded that at transition, a company would have the flexibility to
adopt a property, plant and equipment component accounting policy for
transition-date property, plant and equipment accounts. The property, plant and
equipment component accounting policy may differ from the componentization
policy, if any, previously used by the enterprise. Selecting a policy that
differs from the company's prior level of componentization at the date of
adoption of the Statement of Position would not result in any cumulative effect
difference for adopting such a policy. A company would not have to restate its
pre-adoption assets to conform with its post-adoption componentization policy.
The Accounting Standards Executive Committee concluded that companies would be
required to disclose meaningful ranges with respect to property, plant and
equipment depreciable lives. CMS Energy continues to evaluate the impact, if
any, this Statement of Position will have upon adoption.

                                     CMS-43
<PAGE>

                            CMS ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF INCOME
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED        NINE MONTHS ENDED
SEPTEMBER 30                                                           2003          2002        2003         2002
- --------------------------------------------------------------------------------------------------------------------
                                                                               In Millions, Except Per Share Amounts
<S>                                                                  <C>          <C>          <C>          <C>
OPERATING REVENUE                                                    $ 1,016      $ 2,534      $ 4,059      $ 6,843

EARNINGS FROM EQUITY METHOD INVESTEES                                     20           41          120          126

OPERATING EXPENSES
  Operation
    Fuel for electric generation                                          80           87          247          264
    Purchased and interchange power                                      136        1,224          506        2,341
    Purchased power - related parties                                    131          143          383          416
    Cost of gas sold                                                     168          500        1,304        2,088
    Other                                                                208          247          608          640
                                                                     -----------------------------------------------
                                                                         723        2,201        3,048        5,749
  Maintenance                                                             48           49          166          157
  Depreciation, depletion and amortization                                86           89          300          297
  General taxes                                                           50           46          115          150
                                                                     -----------------------------------------------
                                                                         907        2,385        3,629        6,353
- --------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                         129          190          550          616

OTHER INCOME (DEDUCTIONS)
  Accretion expense                                                       (7)          (8)         (23)         (23)
  Gain (loss) on asset sales, net                                          -           13           (8)          61
  Other, net                                                               7           (3)          28           (4)
                                                                     -----------------------------------------------
                                                                           -            2           (3)          34
- --------------------------------------------------------------------------------------------------------------------
FIXED CHARGES
  Interest on long-term debt                                             134          109          357          305
  Other interest                                                          31            5           48           19
  Capitalized interest                                                    (2)          (5)          (7)         (12)
  Preferred dividends                                                      -            -            1            1
  Preferred securities distributions                                      16           18           52           68
                                                                     -----------------------------------------------
                                                                         179          127          451          381
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS                 (50)          65           96          269

INCOME TAX EXPENSE (BENEFIT)                                             (16)          54           58          128

MINORITY INTERESTS                                                         -            -            1            1
                                                                     -----------------------------------------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                                 (34)          11           37          140

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF $16 TAX
    BENEFIT AND $2 TAX EXPENSE IN 2003 AND $6 AND $100 TAX
    BENEFIT IN 2002                                                      (43)          25          (56)        (153)
                                                                     -----------------------------------------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE                                                   (77)          36          (19)         (13)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING, NET OF $13 TAX BENEFIT
    IN 2003 AND $1 AND  $10 TAX EXPENSE IN 2002
         ENERGY TRADING CONTRACTS, EITF 02-03 (NOTE 10)                    -            1          (23)          18
         ASSET RETIREMENT OBLIGATIONS, SFAS NO. 143 (NOTE 10)              -            -           (1)           -
                                                                     -----------------------------------------------
                                                                           -            1          (24)          18
                                                                     -----------------------------------------------

NET INCOME (LOSS)                                                    $   (77)     $    37      $   (43)     $     5
====================================================================================================================
</TABLE>

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-44
<PAGE>

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED    NINE MONTHS ENDED
SEPTEMBER 30                                                                        2003          2002    2003         2002
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                      In Millions, Except Per Share Amounts
<S>                                                                                 <C>         <C>      <C>         <C>
CMS ENERGY
            NET INCOME (LOSS)

                   Net Income (Loss) Attributable to Common Stock                   $   (77)    $   37   $   (43)    $    5
                                                                                    ========================================

            BASIC EARNINGS (LOSS) PER AVERAGE COMMON SHARE

                   Income (Loss) from Continuing Operations                         $ (0.22)    $ 0.08   $  0.25     $ 1.02
                   Income (Loss) from Discontinued Operations                         (0.29)      0.17     (0.38)     (1.11)
                   Income (Loss) from Cumulative Effect of Changes in Accounting          -       0.01     (0.16)      0.13
                                                                                    ----------------------------------------
                                                                                    $ (0.51)    $ 0.26   $ (0.29)    $ 0.04
                                                                                    ========================================

            DILUTED EARNINGS (LOSS) PER AVERAGE COMMON SHARE

                   Income (Loss) from Continuing Operations                         $ (0.22)    $ 0.08   $  0.25     $ 1.02
                   Income (Loss) from Discontinued Operations                         (0.29)      0.17     (0.38)     (1.11)
                   Income (Loss) from Cumulative Effect of Changes in Accounting          -       0.01     (0.16)      0.13
                                                                                    ----------------------------------------
                                                                                    $ (0.51)    $ 0.26   $ (0.29)    $ 0.04
                                                                                    ========================================

            DIVIDENDS DECLARED PER COMMON SHARE                                     $     -     $ 0.18   $     -     $ 0.91
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-45
<PAGE>

                             CMS ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          NINE MONTHS ENDED
SEPTEMBER 30                                                              2003         2002
- ---------------------------------------------------------------------------------------------
                                                                                  In Millions
<S>                                                                     <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                                     $   (43)     $     5
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities
        Depreciation, depletion and amortization (includes nuclear
          decommissioning of $4 and $5, respectively)                       300          297
        Loss on disposal of discontinued operations                          93          127
        Capital lease and debt discount amortization                         16           14
        Deferred income taxes and investment tax credit                      56         (294)
        Accretion expense                                                    23           23
        Bad debt expense                                                     17           16
        Undistributed earnings from related parties                         (38)         (71)
        (Gain) loss on asset sales, net                                       8          (61)
        Cumulative effect of accounting changes                              24          (18)
        Pension contribution                                               (210)         (64)
        Changes in other assets and liabilities:
           Decrease in accounts receivable and accrued revenues             350          306
           Increase in inventories                                         (354)         (47)
           Decrease in accounts payable and accrued expenses               (404)        (130)
           Changes in other assets and liabilities                          148          230
                                                                        ---------------------
          Net cash provided by (used in) operating activities               (14)         333
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)        (352)        (538)
  Investments in partnerships and unconsolidated subsidiaries                 -          (49)
  Cost to retire property, net                                              (52)         (53)
  Investment in Electric Restructuring Implementation Plan                   (5)          (6)
  Investments in nuclear decommissioning trust funds                         (4)          (5)
  Proceeds from nuclear decommissioning trust funds                          26           19
  Proceeds from sale of assets                                              848        1,533
  Other investing                                                            40          (17)
                                                                        ---------------------
          Net cash provided by investing activities                         501          884
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from notes, bonds, and other long-term debt                    2,302          726
  Issuance of common stock                                                  229          362
  Retirement of bonds and other long-term debt                           (1,831)      (1,453)
  Retirement of trust preferred securities                                 (220)        (331)
  Restricted cash on hand                                                  (167)         (14)
  Payment of common stock dividends                                           -         (124)
  Decrease in notes payable, net                                           (487)        (163)
  Payment of capital lease obligations                                      (10)         (11)
                                                                        ---------------------
          Net cash used in financing activities                            (184)      (1,008)
- ---------------------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATES ON CASH                                              2            -
- ---------------------------------------------------------------------------------------------

NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS                         305          209

CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD                    359          123
                                                                        ---------------------

CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD                      $   664      $   332
=============================================================================================
</TABLE>

                                     CMS-46
<PAGE>

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
SEPTEMBER 30                                                                       2003         2002
- ----------------------------------------------------------------------------------------------------
                                                                                        In Millions
<S>                                                                                <C>       <C>
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
  Interest paid (net of amounts capitalized)                                       $  417    $  326
  Income taxes paid (net of refunds)                                                  (33)      (42)
  Pension and OPEB cash contribution                                                  268       126
NON-CASH TRANSACTIONS
  Other assets placed under capital leases                                         $   11     $  50
====================================================================================================
</TABLE>

All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-47
<PAGE>

                             CMS ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30   DECEMBER 31   SEPTEMBER 30
                                                                                 2003          2002           2002
                                                                             (UNAUDITED)                  (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
                                                                                                           In Millions
<S>                                                                          <C>            <C>           <C>
PLANT AND PROPERTY (AT COST)
  Electric utility                                                             $  7,583      $  7,523       $  7,504
  Gas utility                                                                     2,841         2,719          2,692
  Enterprises                                                                       477           462            935
  Other                                                                              31            45             51
                                                                             -----------------------------------------
                                                                                 10,932        10,749         11,182
  Less accumulated depreciation, depletion and amortization                       5,550         6,068          6,018
                                                                             -----------------------------------------
                                                                                  5,382         4,681          5,164
  Construction work-in-progress                                                     360           549            466
                                                                             -----------------------------------------
                                                                                  5,742         5,230          5,630
- ----------------------------------------------------------------------------------------------------------------------

EQUITY METHOD INVESTMENTS

  Enterprises Investments                                                           797           748            945
  Midland Cogeneration Venture Limited Partnership                                  404           388            370
  First Midland Limited Partnership                                                 222           255            250
  Other                                                                               2             2              2
                                                                             -----------------------------------------
                                                                                  1,425         1,393          1,567
- ----------------------------------------------------------------------------------------------------------------------

CURRENT ASSETS
  Cash and temporary cash investments at cost, which approximates market            664           359            332
  Restricted cash                                                                   205            38             18
  Accounts receivable, notes receivable and accrued revenue, less
    allowances of $14, $8 and $5, respectively                                      178           319             99
  Accounts receivable - Marketing, services and trading,
    less allowances of $8, $8 and $9, respectively                                   74           248            276
  Accounts receivable and notes receivable - related parties                        164           186            103
  Inventories at average cost:
    Gas in underground storage                                                      815           491            635
    Materials and supplies                                                           96            89             87
    Generating plant fuel stock                                                      44            37             49
  Assets held for sale                                                               84           648            342
  Price risk management assets                                                       80           115            211
  Prepayments and other                                                             271           218            138
                                                                             -----------------------------------------
                                                                                  2,675         2,748          2,290
- ----------------------------------------------------------------------------------------------------------------------

NON-CURRENT ASSETS
  Regulatory Assets
    Securitized costs                                                               659           689            699
    Postretirement benefits                                                         168           185            191
    Abandoned Midland Project                                                        10            11             11
    Other                                                                           257           168            173
  Assets held for sale                                                               24         2,094          2,263
  Price risk management assets                                                      179           135            276
  Nuclear decommissioning trust funds                                               553           536            530
  Notes receivable - related parties                                                129           160            203
  Notes receivable                                                                  125           126            126
  Other                                                                             365           440            438
                                                                             -----------------------------------------
                                                                                  2,469         4,544          4,910
                                                                             -----------------------------------------
TOTAL ASSETS                                                                   $ 12,311      $ 13,915       $ 14,397
======================================================================================================================
</TABLE>

                                     CMS-48
<PAGE>

STOCKHOLDERS' EQUITY AND LIABILITIES

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30    DECEMBER 31  SEPTEMBER 30
                                                                             2003           2002          2002
                                                                         (UNAUDITED)                   (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
                                                                                                        In Millions
<S>                                                                      <C>             <C>           <C>
CAPITALIZATION
  Common stockholders' equity
    Common stock, authorized 250.0 shares; outstanding 161.1 shares,
      144.1 shares and 144.1 shares, respectively                         $       2       $      1      $       1
    Other paid-in-capital                                                     3,834          3,605          3,619
    Accumulated other comprehensive loss                                       (720)          (753)          (721)
    Retained deficit                                                         (1,763)        (1,720)        (1,070)
                                                                         ------------------------------------------
                                                                              1,353          1,133          1,829
  Preferred stock of subsidiary                                                  44             44             44

  Company-obligated convertible Trust Preferred Securities
    of subsidiaries (a)                                                         173            393            393
  Company-obligated mandatorily redeemable preferred securities
    of Consumers' subsidiaries (a)                                              490            490            490

  Long-term debt                                                              6,291          5,356          5,648
  Non-current portion of capital leases                                         116            116            110
                                                                         ------------------------------------------
                                                                              8,467          7,532          8,514
- -------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS                                                               23             21             12
- -------------------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
  Current portion of long-term debt and capital leases                          184            640            601
  Notes payable                                                                   4            458            235
  Accounts payable                                                              328            363            308
  Accounts payable - Marketing, services and trading                             18            119            170
  Accrued interest                                                              112            131            114
  Accrued taxes                                                                 151            291            259
  Accounts payable - related parties                                             50             53             56
  Liabilities held for sale                                                      21            467            317
  Price risk management liabilities                                              70             96            180
  Current portion of purchase power contract                                     26             26             29
  Current portion of gas supply contract obligations                             28             25             24
  Deferred income taxes                                                          16             15             11
  Other                                                                         189            214            243
                                                                         ------------------------------------------
                                                                              1,197          2,898          2,547
- -------------------------------------------------------------------------------------------------------------------

NON-CURRENT LIABILITIES
  Postretirement benefits                                                       590            725            306
  Deferred income taxes                                                         417            414            570
  Deferred investment tax credit                                                 86             91             92
  Regulatory liabilities for income taxes, net                                  309            297            282
  Other regulatory liabilities                                                  152              4              -
  Asset retirement obligation                                                   363              -              -
  Liabilities held for sale                                                      36          1,243          1,321
  Price risk management liabilities                                             175            135            178
  Gas supply contract obligations                                               218            241            246
  Power purchase agreement - MCV Partnership                                      8             27             30
  Other                                                                         270            287            299
                                                                         ------------------------------------------
                                                                              2,624          3,464          3,324
- -------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 5)

TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES                                $  12,311       $ 13,915      $  14,397
===================================================================================================================
</TABLE>

(a) For further discussion, see Note 5 of the Condensed Notes to Consolidated
Financial Statements.

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-49
<PAGE>

                             CMS ENERGY CORPORATION
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED         NINE MONTHS ENDED
SEPTEMBER 30                                                                         2003          2002         2003         2002
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        In Millions
<S>                                                                                 <C>          <C>          <C>          <C>
COMMON STOCK
  At beginning of period                                                            $     1      $     1      $     1      $     1
  Common stock issued                                                                     1            -            1            -
                                                                                    -----------------------------------------------
      At end of period                                                                    2            1            2            1
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL
  At beginning of period                                                              3,608        3,317        3,605        3,257
  Common stock reacquired                                                                (4)          (1)          (5)          (2)
  Common stock reissued                                                                   1            -            1            -
  Common stock issued                                                                   229          303          233          364
                                                                                    -----------------------------------------------
      At end of period                                                                3,834        3,619        3,834        3,619
- -----------------------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  Minimum Pension Liability
    At beginning of period                                                             (261)           -         (241)           -
    Minimum pension liability adjustment                                                 (1)           -          (21)           -
                                                                                    -----------------------------------------------
      At end of period                                                                 (262)           -         (262)           -
                                                                                    -----------------------------------------------
  Investments
    At beginning of period                                                                5           (7)           2           (5)
    Unrealized gain (loss) on investments (a)                                             1            1            4           (1)
                                                                                    -----------------------------------------------
      At end of period                                                                    6           (6)           6           (6)
                                                                                    -----------------------------------------------

  Derivative Instruments (b)
    At beginning of period                                                              (56)         (29)         (56)         (31)
    Unrealized gain (loss) on derivative instruments (a)                                 17          (21)          15          (22)
    Reclassification adjustments included in consolidated net income (loss) (a)          (6)           2           (4)           5
                                                                                    -----------------------------------------------
      At end of period                                                                  (45)         (48)         (45)         (48)
                                                                                    -----------------------------------------------
  Foreign Currency Translation
    At beginning of period                                                             (412)        (650)        (458)        (233)
    Change in foreign currency translation (a)                                           (7)         (17)          39         (434)
                                                                                    -----------------------------------------------
      At end of period                                                                 (419)        (667)        (419)        (667)
                                                                                    -----------------------------------------------

           At end of period                                                            (720)        (721)        (720)        (721)
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
  At beginning of period                                                             (1,686)      (1,080)      (1,720)        (951)
  Consolidated net income (loss) (a)                                                    (77)          37          (43)           5
  Common stock dividends declared                                                         -          (27)           -         (124)
                                                                                    -----------------------------------------------
      At end of period                                                               (1,763)      (1,070)      (1,763)      (1,070)
                                                                                    -----------------------------------------------

TOTAL COMMON STOCKHOLDERS' EQUITY                                                   $ 1,353      $ 1,829      $ 1,353      $ 1,829
===================================================================================================================================

(a)  Disclosure of Other Comprehensive Income (Loss):
         Minimum Pension Liability
           Minimum pension liability adjustments, net of tax of
            $1, $-, $11 and $-, respectively                                        $    (1)     $     -      $   (21)     $     -
         Investments
           Unrealized gain (loss) on investments, net of tax of $(1),
             $(1), $(2) and $-, respectively                                              1            1            4           (1)
         Derivative Instruments
           Unrealized gain (loss) on derivative instruments, net of tax
             of $-, $3, $(2) and $2, respectively                                        17          (21)          15          (22)
           Reclassification adjustments included in net income (loss),
             net of tax of $3, $(2), $2 and $(3), respectively                           (6)           2           (4)           5
         Foreign currency translation, net                                               (7)         (17)          39         (434)
       Net income (loss)                                                                (77)          37          (43)           5
                                                                                    -----------------------------------------------

       Total Other Comprehensive Income (Loss)                                      $   (73)     $     2      $   (10)     $  (447)
                                                                                    ===============================================

(b)    Included in these amounts is CMS Energy's proportionate share of the
       effects of derivative accounting related to its equity investment in the
       MCV Partnership and Taweelah as follows:
             MCV Partnership:
             At beginning of period                                                 $    13      $     1      $     8      $    (8)
             Unrealized gain (loss) on derivative instruments                            (5)           1            8            7
             Reclassification adjustments included in net income                         (2)           2          (10)           5
                                                                                    -----------------------------------------------
             At end of period                                                       $     6      $     4      $     6      $     4
                                                                                    ===============================================
             Taweelah:
             At beginning of period                                                 $   (37)     $     -      $   (32)     $     -
             Unrealized gain (loss) on derivative instruments                            15          (24)          10          (24)
                                                                                    -----------------------------------------------
             At end of period                                                       $   (22)     $   (24)     $   (22)     $   (24)
                                                                                    ===============================================
</TABLE>

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CMS-50
<PAGE>

                                                          CMS Energy Corporation

                             CMS ENERGY CORPORATION
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

These interim Consolidated Financial Statements have been prepared by CMS Energy
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in full year financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted. Certain prior year amounts have been
reclassified to conform to the presentation in the current year. In management's
opinion, the unaudited information contained in this report reflects all
adjustments of a normal recurring nature necessary to assure the fair
presentation of financial position, results of operations and cash flows for the
periods presented. The Condensed Notes to Consolidated Financial Statements and
the related Consolidated Financial Statements should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in CMS Energy's 2002 Form 10-K/A, filed on July 1, 2003,
which includes the Reports of Independent Auditors. Due to the seasonal nature
of CMS Energy's operations, the results as presented for this interim period are
not necessarily indicative of results to be achieved for the fiscal year.

1: CORPORATE STRUCTURE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE STRUCTURE: CMS Energy is the parent holding company of Consumers and
Enterprises. Consumers is a combination electric and gas utility company serving
Michigan's Lower Peninsula. Enterprises, through subsidiaries, is engaged in
domestic and international diversified energy businesses including: natural gas
transmission, storage and processing; independent power production; and energy
services.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of CMS Energy, Consumers and Enterprises and their majority-owned
subsidiaries. Investments in affiliated companies where CMS Energy has the
ability to exercise significant influence, but not control are accounted for
using the equity method. Intercompany transactions and balances have been
eliminated.

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 and disclosure of contingent assets and liabilities at
the date of the financial statements 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 it is probable
that a loss will be paid in the future as a result of a current event, and when
an amount can be reasonably estimated. CMS Energy has used this accounting
principle to record estimated liabilities as discussed in Note 4, Uncertainties.

REVENUE RECOGNITION POLICY: Revenues from deliveries of electricity and the
transportation and storage of natural gas are recognized as services are
provided. Revenues on sales of marketed electricity, natural gas, and other
energy products, as well as natural gas and LNGs, are recognized at delivery.
Revenues on sales

                                     CMS-51
<PAGE>

                                                          CMS Energy Corporation

of oil and natural gas produced are recognized when production occurs, a sale is
completed, and the risk of loss transfers to a third-party purchaser.
Mark-to-market changes in the fair value of energy trading contracts that
qualify as derivatives are recognized as revenues in the periods in which the
changes occur.

CAPITALIZED INTEREST: SFAS No. 34 requires capitalization of interest on certain
qualifying assets that are undergoing activities to prepare them for their
intended use. SFAS No. 34 limits the capitalization of interest for the period
to the actual interest cost that is incurred and prohibits imputing interest
costs on any equity funds. The nonregulated portions of CMS Energy are subject
to these rules. The regulated businesses of CMS Energy are permitted to
capitalize an allowance for funds used during construction on regulated
construction projects and to include such amounts in plant in service.

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.  On March 26, 2003, Consumers reached a tentative agreement
with the Union for a collective bargaining agreement for its Call Center
employees.  The agreement was subsequently ratified by the membership and
became effective April 1, 2003, and covers approximately 300 employees.  The
agreement will continue in full force and effect until August 1, 2005.

EARNINGS PER SHARE: Basic and diluted earnings per share are based on the
weighted average number of shares of common stock and potential common stock
outstanding during the period. Potential common stock, for purposes of
determining diluted earnings per share, includes the effects of dilutive stock
options and convertible securities. The effect of such potential common stock is
computed using the treasury stock method or the if-converted method, as
applicable. For earnings per share computation, see Note 6.

FINANCIAL INSTRUMENTS: CMS Energy accounts for its investments in debt and
equity 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. CMS Energy's investments in equity
securities are classified as available-for-sale securities. They are reported at
fair value with any unrealized gains or losses resulting from changes in fair
value reported in equity as part of accumulated other comprehensive income and
are excluded from earnings unless such changes in fair value are other than
temporary. Unrealized gains or losses from changes in the fair value of
Consumers' nuclear decommissioning investments are reported as regulatory
liabilities. The fair value of these investments is determined from quoted
market prices.

FOREIGN CURRENCY TRANSLATION: CMS Energy's subsidiaries and affiliates whose
functional currency is other than the U.S. dollar translate their assets and
liabilities into U.S. dollars at the current exchange rates in effect at the end
of the fiscal period. The revenue and expense accounts of such subsidiaries and
affiliates are translated into U.S. dollars at the average exchange rates that
prevailed during the period. The gains or losses that result from this process,
and gains and losses on intercompany foreign currency transactions that are
long-term in nature, and which CMS Energy does not intend to settle in the
foreseeable future, are shown in the stockholders' equity section of the balance
sheet. For subsidiaries operating in highly inflationary economies, the U.S.
dollar is considered to be the functional currency, and transaction gains and
losses are included in determining net income. Gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than
the functional currency, except those that are hedged, are included in
determining net income. The change in the foreign currency translation
adjustment decreased equity by $7 million for the three months ended September
30, 2003 and increased equity by $39 million for the nine months ended September
30, 2003, net of after-tax hedging proceeds. The change in the foreign currency
translation adjustment decreased equity by $17 million for the three months
ended September 30, 2002 and decreased equity by $434 million for the nine
months ended September 30, 2002, net of after-tax hedging proceeds.

IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS: In accordance with APB Opinion
No. 18 and SFAS No. 144, CMS Energy evaluates the potential impairment of its
investments in projects and other long-lived assets, other than goodwill, based
on various analyses, including the projection of undiscounted cash flows,
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. If the carrying amount of the investment or
asset exceeds the amount of the expected

                                     CMS-52
<PAGE>

                                                          CMS Energy Corporation

future undiscounted cash flows, an impairment loss is recognized and the
investment or asset is written down to its estimated fair value.

PLANT AND PROPERTY: Plant and Property, including improvements, are stated at
cost. Construction-related labor and material costs, as well as indirect
construction costs such as engineering and interest costs, are capitalized.
Property repairs, minor property replacements and maintenance are charged to
maintenance expense as incurred. When depreciable plant and property maintained
by CMS Energy's regulated operations are retired or sold, the original cost (net
of salvage credits), is charged to accumulated depreciation.

RESTRICTED CASH: At September 30, 2003, CMS Energy's restricted cash on hand
totaled $205 million.  Restricted cash primarily includes cash collateral for
letters of credit to satisfy certain debt agreements and cash dedicated for
repayment of securitization bonds.  It is classified as a current asset as the
related letters of credit mature within one year and the payments on the related
securitization bonds occur within one year.

STOCK-BASED COMPENSATION: In December 2002, the FASB issued SFAS No. 148. 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 the fourth quarter of 2002, CMS Energy adopted the fair value
method of accounting for stock-based compensation under SFAS No. 123 as amended
by SFAS No. 148, applying the prospective method. If compensation cost for stock
options had been determined in accordance with SFAS No. 123 for the three and
nine month periods ended September 30, 2002, consolidated net income as reported
and pro forma would have been as follows:

<TABLE>
<CAPTION>
                                                                In Millions, Except Per Share Amounts
- -------------------------------------------------------------------------------------------------------
Three Months Ended September 30                                  2002          Basic         Diluted
- -------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>           <C>
Net income, as reported                                          $  37         $0.26          $0.26
Add: Stock-based employee compensation expense included
  in reported net income, net of taxes                               -             -              -
Deduct: Total stock-based compensation expense determined
  under fair value based method for all awards, net of tax          (1)            -              -
- -------------------------------------------------------------------------------------------------------
Pro forma net income                                             $  36         $0.26          $0.26
=======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                 In Millions, Except Per Share Amounts
- -------------------------------------------------------------------------------------------------------
Nine Months Ended September 30                                   2002          Basic          Diluted
- -------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>            <C>
Net income, as reported                                          $   5         $0.04          $0.04
Add: Stock-based employee compensation expense included
  in reported net income, net of taxes                               -             -              -
Deduct: Total stock-based compensation expense determined
  under fair value based method for all awards, net of tax          (3)        (0.02)         (0.02)
- -------------------------------------------------------------------------------------------------------
Pro forma net income                                             $   2         $0.02          $0.02
=======================================================================================================
</TABLE>

In the third quarter of 2003, CMS Energy granted 1.6 million stock options to
employees. As a result, CMS Energy expensed approximately $5 million related to
the fair value of those stock options as of the grant date. Fair value is
estimated using the Black Scholes model, a mathematical formula used to value
options traded on the securities exchange.

UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility

                                     CMS-53
<PAGE>

                                                          CMS Energy Corporation

accounting standard SFAS No. 71. As a result, the actions of regulators affect
when Consumers recognizes revenues, expenses, assets and liabilities.

In 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. However,
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 allowed
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business beginning in the fourth quarter of 2002, including regulatory
accounting treatment of costs required to be recognized in accordance with SFAS
No. 143. See Note 10, Implementation of New Accounting Standards, "SFAS No. 143,
Accounting for Asset Retirement Obligations."

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.

2: ASSET SALES AND RESTRUCTURING

CMS Energy continues to implement its financial plan and on-going asset sales
program that was initiated in late 2001. The asset sales program encompasses the
sale of all non-strategic and under-performing assets. The impacts of these
sales are included in "Gain (loss) on asset sales, net" in the Consolidated
Statements of Income.

ASSET SALES

In July 2003, CMS Energy completed the sale of CMS Field Services to Cantera
Resources Inc. In June 2003, CMS Energy completed the sales of Panhandle and the
assets of CMS Viron. See Note 3, Discontinued Operations.

In June 2003, CMS Energy completed the sale of its one-third membership interest
in the Guardian Pipeline, L.L.C., to a subsidiary of WPS Resources Corporation.
Proceeds from the sale were $26 million and were used to reduce debt. In
conjunction with the sale, approximately $63 million of cash that CMS Energy had
committed to collateralize a letter of credit was released. CMS Energy recorded
a loss on the sale of Guardian of $4 million ($3 million after-tax) in the
second quarter of 2003.

In January 2003, CMS Energy closed on the sale of a substantial portion of CMS
MST's wholesale natural gas trading contracts and inventory to Sempra Energy
Trading, the wholesale commodity trading unit of

                                     CMS-54
<PAGE>

                                                          CMS Energy Corporation

Sempra Energy and received $17 million of cash proceeds. In February 2003,
Panhandle sold its one-third interest in Centennial Pipeline, LLC for $40
million to Centennial's two other partners, Marathon Ashland Petroleum, LLC and
TE Products Pipeline Company, Limited Partner, through its general partner,
Texas Eastern Products Pipeline Company. In March 2003, CMS MST sold a majority
of its wholesale power book and related supply portfolio for $34 million cash
proceeds to Constellation Power Source, Inc. The sale contains a potential to
increase proceeds to $40 million in 2006 dependent upon future years'
performance of the sold contracts. In addition, during the first quarter of
2003, CMS MST sold its 50 percent joint venture ownership interest in Texon, its
50 percent interest in Premstar and its Tulsa retail contracts, resulting in net
cash proceeds of approximately $6 million.

In August 2002, CMS Energy sold its equity ownership interest in The National
Power Supply Company electric generating facility in Thailand for $48 million.
The pretax gain of $15 million ($15 million, net of tax) is included in "Gain
(loss) on asset sales, net" on the Consolidated Statements of Income.

In May 2002, Consumers Energy closed on the sale of its electric transmission
system to a limited partnership whose general partner is Washington D.C.-based
Trans-Elect, Inc. Also, in May 2002, Consumers sold certain reactor top
equipment. The sales totaled approximately $295 million. The pretax gain on
these sales, which totaled $38 million ($31 million, net of tax), are included
in "Gain (loss) on asset sales, net" in the accompanying Consolidated Statements
of Income in 2002.

In April 2002, CMS Energy sold its equity ownership interest in Toledo Power for
$10 million. Proceeds from the sale were used to repay debt. The pretax loss, as
shown on the Consolidated Statements of Income, was $11 million ($8 million, net
of tax).

In January 2002, CMS Energy completed the sale of its ownership interests in
Equatorial Guinea to Marathon Oil Company for approximately $993 million.
Proceeds from this transaction were used primarily to retire existing debt.
Included in the sale were all of CMS Oil and Gas' oil and gas reserves in
Equatorial Guinea and CMS Gas Transmission's ownership interest in the related
methanol plant. The gain on the methanol plant of $19 million ($12 million, net
of tax) is included in "Gain (loss) on asset sales, net" in the accompanying
Consolidated Statements of Income. The gain on the sale of CMS Oil & Gas'
Equatorial Guinea properties of $497 million ($310 million, net of tax) is
included in discontinued operations in 2002.

<TABLE>
<CAPTION>
Nine Months ended September 30                                            In Millions
- -------------------------------------------------------------------------------------
                                         Pre-tax    After-tax    Pre-tax    After-tax
                                           2003        2003        2002       2002
- -------------------------------------------------------------------------------------
<S>                                      <C>        <C>          <C>        <C>
Asset Sales - Gain (Loss)
       Consumers                          $  -        $  -        $ 38        $ 31
       Enterprises                          (9)         (6)         23          19
       Other                                 1           1           -           -
- ------------------------------------------------------------------------------------
Total Gain (Loss) on Asset Sales          $ (8)       $ (5)       $ 61        $ 50
====================================================================================
</TABLE>

PENDING ASSET SALE

An affiliate of CMS Generation owns a 49.6 percent interest in the Loy Yang
Power Partnership ("LYPP"), which owns the 2,000 MW Loy Yang coal-fired power
project in Victoria, Australia. Due to unfavorable power prices in the
Australian market, the LYPP is not generating cash flow sufficient to meet its
debt-service obligations. LYPP has A$500 million of term bank debt that,
pursuant to extensions from the

                                     CMS-55
<PAGE>

                                                          CMS Energy Corporation

lenders, is scheduled to mature on February 12, 2004. The partners in LYPP
(including affiliates of CMS Generation, NRG Energy Inc. and Horizon Energy
Australia Investments) have been exploring the possible sale of the project (or
control of the project) and a restructuring of the finances of LYPP.

In July 2003, a conditional share sale agreement was executed by the LYPP
partners and partners of the Great Energy Alliance Corporation ("GEAC") to sell
the project to GEAC for A$3.5 billion (approximately $2.4 billion in U.S.
dollars), including A$165 million (approximately $111 million in U.S. dollars)
for the project equity. The Australian Gas Light Company, the Tokyo Electric
Power Company, Inc. and a group of financial investors led by the Commonwealth
Bank of Australia formed GEAC earlier this year to explore the possible
acquisition of Loy Yang. The conditions to completion of the sale to GEAC
include consents from LYPP's lenders to a restructuring of the project's debt,
satisfactory resolution of regulatory issues and approvals, rulings on tax and
stamp duty obligations, and approvals from the investors in Horizon Energy
Australia Investments and the creditors committee of NRG Energy Inc. It should
be noted in particular that the Australian federal antitrust regulator has
disapproved the transaction because of its perceived anticompetitive effects,
and GEAC has brought an action for declaratory relief against the regulator to
reverse that disapproval. Closing was targeted for early September 2003, but
given the regulatory uncertainties, the parties to the share sale agreement have
agreed to extend the date for resolution of the regulatory conditions to closing
to not later than December 19, 2003, assuming satisfactory interim resolution of
other closing conditions. The share sale agreement provides GEAC a period of
exclusivity while the conditions of the purchase are satisfied. The ultimate net
proceeds to CMS Energy for its equity share in LYPP may be subject to reduction
based on the ultimate resolution of many of the factors described above as
conditions to completion of the sale, as well as closing adjustments and
transaction costs, and could likely range between $20 million and a nominal
amount.

CMS Energy cannot predict whether this sale to GEAC will be consummated or, if
not, whether any of the other initiatives will be successful, and it is possible
that CMS Generation may lose all or a substantial part of its remaining equity
investment in the LYPP. CMS Energy previously has written off its equity
investment in the LYPP, and further write-offs would be limited to cumulative
net foreign currency translation losses. The amount of such cumulative net
foreign currency translation losses is approximately $168 million at
September 30, 2003. Any such write-off would flow through CMS Energy's
income statement but would not result in a reduction in shareholders' equity or
cause CMS Energy to be in noncompliance with its financing agreements.

RESTRUCTURING AND OTHER COSTS

CMS Energy announced in June 2002 a series of new initiatives intended to
sharpen its business focus and help restore its financial health by reducing
operating costs by an estimated $50 million annually. The initiatives announced
included the following:

         -        Relocating CMS Energy's corporate headquarters from Dearborn,
                  Michigan to a new combined CMS Energy and Consumers
                  headquarters building then under construction in Jackson,
                  Michigan. The Jackson headquarters building opened in March
                  2003 and houses an estimated 1,450 CMS Energy and Consumers
                  Energy employees. The relocation will ultimately reduce
                  corporate operating expenses.

         -        Implementing changes to CMS Energy's 401(K) savings program
                  which provided additional savings for CMS Energy and enhanced
                  investment options for employee participants.

         -        Implementing changes to CMS Energy's health care plan in order
                  to keep benefits and costs

                                     CMS-56
<PAGE>

                                                          CMS Energy Corporation

                  competitive.

         -        Terminating 64 employees, including five officers. Prior to
                  December 31, 2002, 123 employees elected severance
                  arrangements. Of these 187 officers and employees, 65 had been
                  terminated as of December 31, 2002. All remaining terminations
                  were completed in 2003.

The following table shows the amount charged to expense for restructuring costs,
the payments made, and the unpaid balance of accrued costs at September 30,
2003.

<TABLE>
<CAPTION>
                                                                          In Millions
- --------------------------------------------------------------------------------------
                                                                   September 30, 2003
- --------------------------------------------------------------------------------------
                                                 Involuntary        Lease
                                                 Termination     Termination     Total
- --------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
Beginning accrual balance, January 1, 2003          $  12           $  8         $ 20
Expense                                                 4              -            4
Payments                                              (11)            (1)         (12)
- --------------------------------------------------------------------------------------
Ending accrual balance                              $   5           $  7         $ 12
======================================================================================
</TABLE>

Restructuring costs for the three and nine months ended September 30, 2003,
which are included in operating expenses, include $1 million and $4 million,
respectively, of involuntary employee termination benefits.

In addition, in 2003, restructuring costs related to relocating employees and
other headquarters expenses were approximately $2 million. The relocation was
completed July 2003 and such costs were expensed as incurred.

3: DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, discontinued operations include components of
entities or entire entities that, through disposal transactions, will be
eliminated from the ongoing operations of CMS Energy. The assets and liabilities
of these entities were measured at the lower of the carrying value or the fair
value less cost to sell as required by SFAS No. 144. A description of the
entities included in discontinued operations is as follows:

In September 2001, CMS Energy reclassified the operations of the International
Energy Distribution segment to discontinued operations. Subsequently to CMS
Energy's decision to sell the assets of CMS Electric and Gas, severe political
and economic events occurred in Venezuela outside CMS Energy's control that
prohibited the sale process. CMS Energy continues to actively pursue the sale of
CMS Electric and Gas in the current political and economic environment. Although
the timing is difficult to predict or ensure, management expects the sale to
occur within one year.

In January 2002, CMS Energy completed the sale of its ownership interests in
Equatorial Guinea to Marathon Oil Company for approximately $993 million.
Included in the sale were all of CMS Oil and Gas' oil and gas reserves in
Equatorial Guinea and CMS Gas Transmission's ownership interest in the related
methanol plant. The gain on the CMS Oil and Gas Equatorial Guinea properties of
$497 million ($310 million, net of tax) is included in discontinued operations.
In the first quarter of 2003, CMS Energy settled a liability with the purchaser
of Equatorial Guinea and reversed the remaining excess reserve. This settlement
resulted in a gain of $6 million, net of tax, which is included in discontinued
operations in 2003.

In May 2002, CMS Energy closed on the sale of CMS Oil and Gas' coalbed methane
holdings in the

                                     CMS-57
<PAGE>

                                                          CMS Energy Corporation

Powder River Basin to XTO Energy. The Powder River properties were included in
discontinued operations for the first four months of 2002, including a gain on
the sale of $17 million ($11 million net of tax).

In June 2002, CMS Energy abandoned the Zirconium Recovery Project, which was
initiated in January 2000. The purpose of the project was to extract and sell
uranium and zirconium from a pile of caldesite ore held by the Defense Logistic
Agency of the U.S. Department of Defense. After evaluating future cost and risk,
CMS Energy decided to abandon this project and recorded a $47 million loss ($31
million, net of tax) in discontinued operations.

In June 2002, CMS Energy announced its plan to sell CMS MST's energy performance
contracting subsidiary, CMS Viron. CMS Viron enables building owners to improve
their facilities with equipment upgrades and retrofits and finance the work with
guaranteed energy and operational savings. At December 31, 2002, after
evaluating all of the relevant facts and circumstances including third-party bid
data and liquidation analysis, an impairment charge of $6 million, net of tax,
was reflected as an estimated loss on discontinued operations in accordance with
the provisions of SFAS No. 144. The provisions limited the impairment charge to
the book value of the noncurrent assets of CMS Viron at that time. In June 2003,
CMS Energy closed on the sale of the majority of the assets of CMS Viron and
recognized an additional loss of $3 million, net of tax, in discontinued
operations. The total loss on the sale of CMS Viron was $14 million ($9 million,
net of tax).

In December 2002, CMS Energy reclassified the operations of Panhandle to
discontinued operations. In June 2003, CMS Energy completed the previously
announced sale of all of the outstanding capital stock of Panhandle to Southern
Union Panhandle Corp., a newly formed entity owned by Southern Union. CMS Energy
received gross cash proceeds of approximately $582 million and three million
shares of Southern Union common stock, worth approximately $49 million based on
the June 11, 2003 closing price of $16.48 per share. The sale agreement allowed
CMS Energy to sell the stock 90 days after the closing date of June 11, 2003.
The Southern Union common stock was recorded as a current asset on CMS Energy's
balance sheet.

In July 2003, Southern Union declared a five percent common stock dividend
payable July 31, 2003, to shareholders of record as of July 17, 2003. As a
result of the stock dividend, on September 30, 2003, CMS Energy held 3.15
million shares of Southern Union common stock worth approximately $54 million
based on the closing price of $17.00 per share. The increase in value of the
Southern Union common stock of approximately $2 million was recorded in dividend
income. In October 2003, CMS Energy sold its 3.15 million shares of Southern
Union common stock to a private investor for $17.77 per share. The proceeds from
the stock sale of approximately $56 million will be used to reduce debt.

Southern Union Panhandle Corp. also assumed approximately $1.166 billion of
Panhandle debt. CMS Energy used the initial cash proceeds from the sale of
Panhandle to pay off and terminate Enterprises' $441 million and $75 million
revolving credit facilities. The $30 million after-tax loss on the sale is
included in discontinued operations. No portion of CMS Energy's Pension Plan was
transferred with the sale. Panhandle employees are no longer eligible to accrue
additional benefits. The Pension Plan retained pension payment obligations for
Panhandle employees that were vested under the Pension Plan. Because of the
significant change in the makeup of the plan, SFAS No. 87 required a
remeasurement of the obligation at the date of sale. The estimated
remeasurement, subject to receipt of the final actuarial report, resulted in a
$4 million increase in CMS Energy's 2003 pension expense and a $6 million
increase in CMS Energy's 2003 OPEB expense, as well as an additional charge to
accumulated other comprehensive income of approximately $30 million ($20 million
after-tax), as a result of the increase in the additional minimum pension
liability. Additionally, a significant number of Panhandle employees elected to
retire as of July 1,

                                     CMS-58
<PAGE>

                                                          CMS Energy Corporation

2003 under the CMS Energy Employee Pension Plan. As a result, CMS Energy has
recorded a $13 million after-tax settlement loss pursuant to the provisions of
SFAS No. 88, which is reflected in discontinued operations.

In December 2002, CMS Energy reclassified the operations of CMS Field Services,
a subsidiary of CMS Gas Transmission to discontinued operations. In July 2003,
CMS Energy completed the sale of CMS Field Services to Cantera Resources Inc.
for gross cash proceeds of approximately $113 million, subject to post closing
adjustments, and a $50 million face value note of Cantera Resources Inc.. The
note is payable to CMS Energy for up to $50 million subject to the financial
performance of the Fort Union and Bighorn natural gas gathering systems from
2004 through 2008. The sale resulted in a $5 million loss ($1 million, net of
tax) which is included in discontinued operations. The net sales proceeds of
approximately $100 million were used to reduce debt.

In June 2003, CMS Energy reclassified the operations of its gas transmission
plant in Marysville, Michigan to discontinued operations. In September 2003, CMS
Energy executed a definitive purchase and sale agreement for Marysville. It is
anticipated that the closing will occur in November 2003.

In September 2003, CMS Land, holding mainly real property assets, reclassified a
6,000 acre tract of undeveloped land along two miles of Lake Michigan's
shoreline near Arcadia, Michigan, having a net book value of $14 million, from
property, plant and equipment to "Assets held for sale". Neither CMS Land nor
the Arcadia assets are separate operating components of CMS Energy's business,
and therefore are not considered discontinued operations. CMS Land's Board of
Directors approved a resolution to offer a sales option agreement to the Grand
Traverse Regional Land Conservancy (GTRLC) for the purchase of Arcadia. On May
13, 2003, CMS Land granted GTRLC the option which, by its terms, expired on
September 15, 2003, but gave GTRLC the right to extend that expiration date to
December 11, 2003. In September 2003, GTRLC extended the option to purchase
Arcadia.

In September 2003, after performing an evaluation of fair value, CMS Energy
reduced the carrying amount of its investment in CMS Electric and Gas'
Venezuelan electric distribution utility and an associated equipment lease to
reflect the current assessment of fair value. The assessment was based on
estimates of the utility's future cash flows, incorporating certain assumptions
about Venezuela's regulatory, political, and economic environment. The
adjustment, which resulted in a $42 million after-tax charge, is reported in
discontinued operations.

As a result of the sale of CMS Oil and Gas, CMS Energy recorded liabilities for
certain sale indemnification obligations and other matters. In September 2003,
CMS Energy performed an evaluation of its likely exposure to the obligations and
reduced the carrying value of these liabilities by $8 million after-tax, to
reflect the current estimate of the obligations. This adjustment is reported in
discontinued operations.

The summary of balance sheet information below represents those entities that
are still in the disposal process. At September 30, 2003, "Assets held for sale"
includes International Energy Distribution, Marysville, and Arcadia. At
September 30, 2002, "Assets held for sale" includes Panhandle, CMS Viron, CMS
Field Services, International Energy Distribution, and Marysville. The assets
and liabilities of entities held for sale are shown as separate components in
the consolidated balance sheets of CMS Energy.

                                     CMS-59
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                            In Millions
- -----------------------------------------------------------------------
September 30                                           2003       2002
- -----------------------------------------------------------------------
<S>                                                   <C>        <C>
Assets
    Cash                                              $   11     $   60
      Accounts receivable, net                            31        141
      Materials and supplies                               7         87
      Other                                               35         54
- -----------------------------------------------------------------------
      Total current assets held for sale              $   84     $  342

      Property, plant and equipment, net              $  (30)    $1,962
      Unconsolidated investments                          16        109
      Goodwill                                            32        141
      Other                                                6         51
- -----------------------------------------------------------------------
      Total non-current assets held for sale          $   24     $2,263
- -----------------------------------------------------------------------

Liabilities

      Accounts payable                                $   10     $   95
      Current portion of long-term debt                    2          3
      Accrued taxes                                        -         16
      Other current liabilities                            9        203
- -----------------------------------------------------------------------
      Total current liabilities held for sale         $   21     $  317

      Long-term debt                                  $    5     $1,155
      Minority interest                                   13         91
      Other non-current liabilities                       18         75
- -----------------------------------------------------------------------
      Total non-current liabilities held for sale     $   36     $1,321
- -----------------------------------------------------------------------
</TABLE>

Revenues from discontinued operations were $498 million and $662 million for the
nine months ended September 30, 2003 and 2002, respectively, including
Panhandle, CMS Field Services, and CMS Viron through their respective sale
dates. In accordance with SFAS No. 144, the net income (loss) of the operations
is included in the Consolidated Statements of Income under "Income (loss) from
discontinued operations". The income (loss) related to discontinued operations
includes a reduction in asset values, a provision for anticipated closing costs,
and a portion of CMS Energy's interest expense. Interest expense of $26 million
and $55 million for the nine months ended September 30, 2003 and 2002,
respectively, has been allocated to discontinued operations based on the ratio
of total capital of each discontinued operation to that of CMS Energy. See the
table below for income statement components of the discontinued operations.

                                     CMS-60
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                          In Millions
- ---------------------------------------------------------------------
Three Months ended September 30                         2003     2002
- ---------------------------------------------------------------------
<S>                                                     <C>      <C>
Discontinued operations:
 Income from discontinued operations, net
     of tax benefit of $10 and $8                       $  8     $ 20
 Gain (loss) on disposal of discontinued operations,
     net of tax benefit of $6 and tax of $2              (51)       5
- ---------------------------------------------------------------------
Income (loss) from discontinued operations              $(43)    $ 25
=====================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                          In Millions
- ---------------------------------------------------------------------
Nine Months ended September 30                          2003     2002
- ---------------------------------------------------------------------
<S>                                                    <C>      <C>
Discontinued operations:
 Income (loss) from discontinued operations, net
     of tax of $8 and tax benefit of $33                $ 37    $ (26)
 Loss on disposal of discontinued operations, net
     of tax benefit of $6 and $67                        (93)    (127)
- ---------------------------------------------------------------------
Loss from discontinued operations                       $(56)   $(153)
=====================================================================
</TABLE>

4: UNCERTAINTIES

Several business trends or uncertainties may affect CMS Energy's financial
results. These trends or uncertainties have, or CMS Energy reasonably expects
could have, a material impact on net sales, revenues, or income from continuing
operations. Such trends and uncertainties are discussed in detail below.

SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions by
CMS MST, CMS Energy's Board of Directors established a Special Committee 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 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. Previously, CMS Energy
terminated its speculative trading business and revised its risk management
policy. The Board of Directors adopted, and CMS Energy has implemented the
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. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within 45 days that they have taken certain specified remedial measures with
respect to the reporting of natural gas trading data to publications that
compile and publish price indices. CMS MST made a written submission to the FERC
on June 11, 2003 in compliance with the FERC's directives. On July 29, 2003, the
FERC issued an order stating that CMS MST met the requirements of the FERC's
April 30, 2003 order. Other than the FERC investigation,

                                     CMS-61
<PAGE>

                                                          CMS Energy Corporation

CMS Energy is unable to predict the outcome of these matters, and 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 were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan by shareholders who allege that they purchased
CMS Energy's securities during a purported class period. The cases were
consolidated into a single lawsuit and an amended and consolidated class action
complaint was filed on May 1, 2003. The consolidated complaint contains a
purported class period beginning on May 1, 2000 and running through March 31,
2003. It generally seeks unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about CMS Energy's business and
financial condition, particularly with respect to revenues and expenses recorded
in connection with round-trip trading by CMS MST. The companies intend to defend
vigorously against this action but cannot predict the outcome of this
litigation.

DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS: The Board of Directors of CMS
Energy received a demand, on behalf of a shareholder of CMS Energy Common Stock,
that it commence civil actions (i) to remedy alleged breaches of fiduciary
duties by CMS Energy officers and directors in connection with round-trip
trading by CMS MST, and (ii) to recover damages sustained by CMS Energy as a
result of alleged insider trades alleged to have been made by certain current
and former officers of CMS Energy and its subsidiaries. If the Board elects not
to commence such actions, the shareholder has stated that he will initiate a
derivative suit, bringing such claims on behalf of CMS Energy. CMS Energy has
elected two new members to its Board of Directors who are serving as an
independent litigation committee to determine whether it is in the best interest
of CMS Energy to bring the action demanded by the shareholder. Counsel for the
shareholder has agreed to extend the time for CMS Energy to respond to the
demand. CMS Energy cannot predict the outcome of this litigation.

ERISA LAWSUITS: CMS Energy is a named defendant, along with Consumers, 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 was 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 defended vigorously. CMS Energy cannot predict the outcome
of this litigation.

GAS INDEX PRICE REPORTING INVESTIGATION: CMS Energy has notified appropriate
regulatory and governmental agencies that some employees at CMS MST and CMS
Field Services appeared to have provided inaccurate information regarding
natural gas trades to various energy industry publications which compile and
report index prices. CMS Energy is cooperating with investigations by the
Commodity Futures Trading Commission, Department of Justice and FERC regarding
this matter. CMS Energy is unable to predict the outcome of these matters and
what effect, if any, these investigations will have on its business.

GAS INDEX PRICE REPORTING LITIGATION: In August 2003, Cornerstone Propane
Partners, L.P. ("Cornerstone") filed a putative class action complaint in the
United States District Court for the Southern District of New York against CMS
Energy and 40 other energy companies. The complaint alleges that false natural
gas price reporting by the defendants manipulated the prices of NYMEX natural
gas futures

                                     CMS-62
<PAGE>

                                                          CMS Energy Corporation

and options. The complaint contains two counts under the Commodity Exchange Act,
one for manipulation and one for aiding and abetting violations. Cornerstone has
agreed to provide a blanket 60-day extension of time for all defendants to
answer or otherwise respond to the complaint. CMS Energy intends to defend
vigorously against this action but cannot predict the outcome of this
litigation.

CONSUMERS' ELECTRIC UTILITY 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 regulations requiring the state of Michigan
to further limit nitrogen oxide emissions. The Michigan Department of
Environmental Quality finalized rules to comply with the EPA regulations in
December 2002 and submitted these rules for approval to the EPA in the first
quarter of 2003. The EPA has issued additional 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 regulations require
Consumers to make significant capital expenditures estimated to be $770 million.
As of September 30, 2003, Consumers has incurred $437 million in capital
expenditures to comply with the EPA regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009. 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.

Consumers expects to supplement its environmental regulation 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 and their price could change substantially.

The EPA has proposed changes to the rules which govern generating plant cooling
water intake systems. The proposed rules will require significant abatement of
fish mortality. The proposed rules are scheduled to become final in the first
quarter of 2004 and some of Consumers' facilities would be required to comply by
2006. Consumers is studying the proposed rules to determine the most
cost-effective solutions for compliance. Until the method of compliance is
determined, Consumers is unable to estimate the cost of compliance with the
proposed rules.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek permits from the EPA.
Consumers has received and responded to information requests from the EPA on
this subject. Consumers believes that it has properly interpreted the
requirements of "routine maintenance". If Consumers' interpretation is
eventually found to be incorrect, it may be required to install additional
pollution controls at some or all of its coal-fired plants and could call into
question the viability of certain plants remaining in operation.

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.

                                     CMS-63
<PAGE>

                                                          CMS Energy Corporation

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 September 30, 2003, Consumers
had accrued the minimum amount of the range for its estimated Superfund
liability.

In October 1998, 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.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities
selling power to Consumers filed a lawsuit in Ingham County Circuit Court
against Consumers. The lawsuit alleges that Consumers incorrectly calculated the
energy charge payments made pursuant to power purchase agreements between the
qualifying facilities and Consumers. More specifically, the lawsuit alleges that
Consumers should be basing the energy charge calculation on the cost of more
expensive eastern coal, rather than on the cost of the coal actually burned by
Consumers for use in its coal-fired generating plants. Consumers believes it has
been performing the calculation in the manner prescribed by the power purchase
agreements, and has filed a request with the MPSC (as a supplement to the PSCR
plan) that asks the MPSC to review this issue and to confirm that Consumers'
method of performing the calculation is correct. Also, Consumers has filed a
motion to dismiss the lawsuit in the Ingham County Circuit Court due to the
pending request at the MPSC in regard to the PSCR plan case. Although only eight
qualifying facilities have currently raised the issue, the same energy charge
methodology is used in the PPA with the MCV Partnership and in approximately 20
additional power purchase agreements with Consumers, representing approximately
1,670 MW of electric capacity. Consumers cannot predict the outcome of this
litigation.

CONSUMERS' ELECTRIC UTILITY 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 Securitization bonds to refinance qualified costs, as
defined by the act; 5) establishes a market power supply test that if not met
may require transferring control of generation resources in excess of that
required to serve firm retail sales requirements (In September 2003, the MPSC
issued an order finding that Consumers is in compliance with the market power
test set forth in the Customer Choice Act.); 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. (In
July 2002, the MPSC issued an order approving the plan to achieve the increased
transmission capacity. The MPSC found that once the planned projects were
completed and verification was submitted, a utility was in technical compliance.
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.); 8) allows deferred recovery of an annual return of
and on capital expenditures in excess of depreciation levels incurred during and
before the rate freeze/cap period; and 9) allows recovery of "net" Stranded
Costs and

                                     CMS-64
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                                                          CMS Energy Corporation

implementation costs incurred as a result of the passage of the act.

Under Public Act 141, Consumers currently offers standby generation services to
certain retail open access customers. The obligation to offer this service does
not extend beyond the later of December 31, 2001 or the date the MPSC finds that
Consumers complies with the market power test set forth in the Customer Choice
Act and has completed the projects necessary to meet Consumers', Detroit
Edison's and American Electric Power's obligation to jointly expand their
available transmission capability by at least 2,000 MW. As stated above, in
September 2003, the MPSC issued an order finding that Consumers is in compliance
with the market power test and in December 2002, Consumers filed verification
with the MPSC indicating that Consumers met the transmission capability
expansion requirements. As a result, Consumers filed a notice with the MPSC
indicating that it was terminating retail open access standby service on
December 31, 2003. Also, as a result of Consumers meeting the transmission
capability expansion requirements and the market power test, Consumers has met
the requirements under Public Act 141 to return to the PSCR process. For further
discussion on the PSCR process see, "Power Supply Costs" in this Note.

The rate-freeze imposed by Public Act 141 ends at December 31, 2003. After that
date, the statute would allow customers to petition the MPSC for rate reductions
below the cap. Consumers would have the opportunity to respond to such a
petition before rates could be reduced.

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 (as noted below in "Power Supply Costs"
in this Note 603 MW of load is currently being served by 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: The Customer Choice Act allows for the use of Securitization
bonds to refinance certain qualified costs, as defined by the act.
Securitization typically involves issuing asset-backed bonds with a higher
credit rating than conventional utility corporate financing. In 2000 and 2001,
the MPSC issued orders authorizing Consumers to issue Securitization bonds.
Consumers issued its first Securitization bonds in late 2001. Securitization
resulted in lower interest costs and a longer amortization period for the
securitized assets, and offset the impact of the required residential rate
reduction. The Securitization orders

                                     CMS-65
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                                                          CMS Energy Corporation

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.

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. 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 and cap period expire and an electric rate case is processed.
Securitization charge collections, $37 million for the nine months ended
September 30 2003, and $39 million for the nine months ended September 30, 2002,
are remitted to a trustee for the Securitization bonds. Securitization charge
collections are dedicated to the repayment of the principal 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.

In March 2003, Consumers filed an application with the MPSC seeking approval to
issue Securitization bonds in the amount of approximately $1.084 billion. The
application sought recovery of costs associated with Clean Air Act expenditures,
Palisades expenditures previously not securitized, retail open access
implementation costs through December 31, 2003, certain pension fund costs, and
expenses associated with the issuance of the bonds. In June 2003, the MPSC
issued a financing order authorizing the issuance of Securitization bonds in the
amount of approximately $554 million. This amount relates to Clean Air Act
expenditures and associated return on those expenditures through December 31,
2002, retail open access implementation costs and previously authorized return
on those expenditures through December 31, 2000, and the "up front" other
qualified costs related to issuance of the Securitization bonds. The MPSC
rejected Palisades expenditures previously not securitized as eligible
securitized costs. Therefore, Palisades expenditures previously not securitized
should be included as a component of "net" Stranded Costs and will be included
as a component of a future electric rate case proceeding with the MPSC.

In the June 2003 financing order, the MPSC also adopted a rate design that would
allow retail open access customers to pay a securitization charge (and related
tax charge) that are a small fraction of the amounts paid by full service
bundled sales customers and special contract customers of the utility. The
financing order provides that the securitization charges (and related tax
charges) for the full service and bundled sales customers are increased under
the rate design in the financing order in order to be sufficient to repay the
principal, interest and all other "ongoing" qualified costs related to servicing
the Securitization bonds. The financing order also restricts the amount of
common dividends payable by Consumers to its "earnings." In July 2003, Consumers
filed for rehearing and clarification on a number of features in the financing
order, including the rate design, accounting treatment of unsecuritized
qualified costs and dividend restriction. Also in July 2003, the Attorney
General filed a claim of appeal related to the financing order and the Attorney
General indicated it would challenge the lawfulness of the rate design. In
October 2003, the Court of Appeals dismissed the appeal and indicated that the
Attorney General could resubmit the appeal after the MPSC acted on Consumers'
rehearing request. Subsequently, the Attorney General filed a motion of
rehearing asking for reconsideration of the Court of Appeals' dismissal.  The
financing order will become effective after rehearing, resolution of appeals and
upon acceptance by Consumers.

ELECTRIC PROCEEDINGS: Stranded Costs - The Customer Choice Act allows electric
utilities to recover the

                                     CMS-66
<PAGE>

                                                          CMS Energy Corporation

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. According to the MPSC, "net"
Stranded Costs are 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 for 2000 and $43 million for 2001. Consumers in its hearing brief, filed
in August 2002, revised its request for Stranded Costs to $7 million for 2000
and $4 million for 2001. 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. As discussed above in
"Securitization", Consumers filed a request with the MPSC for authority to issue
Securitization bonds that would allow recovery of the Clean Air Act expenditures
that were excluded from the Stranded Cost calculation.

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to resolve numerous
issues regarding the "net" Stranded Cost methodology in a way 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 have also filed rehearing
petitions with the MPSC. Consumers has also initiated an appeal at the Michigan
Court of Appeals related to the MPSC's December 2001 "net" Stranded Cost order.

In March 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 Palisades expenditures,
previously not securitized, were approved as proposed in its securitization case
as discussed above in "Securitization", then Consumers' "net" Stranded Costs
incurred in 2002 would be 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.

In June 2003, the MPSC issued a financing order in the securitization case,
authorizing the issuance of Securitization bonds in the amount of approximately
$554 million. Included in this amount were Clean Air Act expenditures. However,
the MPSC rejected Palisades expenditures previously not securitized as eligible
securitized costs. As a result, the Palisades expenditures previously not
securitized should be included as a component of "net" Stranded Costs and will
be included as a component of a future electric rate case proceeding with the
MPSC. With the inclusion of the Palisades expenditures previously not
securitized, Consumers' "net" Stranded Costs incurred in 2002 are estimated to
be approximately $50 million.

In July 2003, Consumers filed a petition for rehearing and clarification on a
number of features in the MPSC's financing order on securitization. Once a final
financing order by the MPSC on securitization is issued, the amount of
Consumers' request for "net" Stranded Cost recovery for 2002 will be known.
Consumers cannot predict how the MPSC will rule on its request for the
recoverability of Stranded

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                                                          CMS Energy Corporation

Costs, and therefore Consumers 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 has participated in this collaborative process. In July 2003, the
staff suspended formal discussion while it considers possible conclusions and
recommendations.

Implementation Costs - 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     Pending     Pending
=========================================================================
</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 order received for the year 2001, the MPSC also reserved the right to review
again the 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 September 30, 2003, Consumers incurred and deferred as a regulatory asset, $2
million of additional implementation costs and has also recorded a regulatory
asset of $16 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 is expected to begin after the rate freeze or rate cap
period has expired. As discussed above, Consumers has asked to include
implementation costs through December 31, 2000 in the pending securitization
case. If approved, the sale of Securitization bonds will allow for the recovery
of these costs. Consumers cannot predict the amounts the MPSC will approve as
allowable costs.

Also, Consumers is 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. In May 2003, the FERC
issued an order denying MISO's request for authorization to reimburse Consumers.
In June 2003, Consumers and MISO filed a joint petition for rehearing with the
FERC. In September 2003, the FERC denied Consumers' and MISO's joint request.
Consumers plans to appeal the FERC ruling at the United States Court of Appeals
for the District of Columbia and pursue other potential means of recovery. In
November 2003, in conjunction with Consumers' appeal of the September Order
denying recovery, Consumers persuaded MISO to file a request with the FERC
seeking authority to reimburse METC, the legal successor in interest to the
Alliance RTO start-up costs. As part of the contract for sale of Consumers'
former transmission system, should the Commission approve the new MISO filing,
METC is contractually obligated to flow-through to Consumers the full amount of
any Alliance RTO start-up costs that it is authorized to recover through FERC.
Consumers cannot predict the outcome of the appeal process, the MISO request or
the amount of implementation costs, if any; the FERC ultimately will allow to be
collected.

Transmission Rates - In 1996, Consumers filed new OATT transmission rates with
the FERC for approval.

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                                                          CMS Energy Corporation

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 final FERC 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 and Detroit Edison used the same
rates for JOATT transmission rates. Approval of the JOATT transmission rates
application is pending FERC approval. Consumers believes its reserve is
sufficient to satisfy its refund obligation under current rate applications. As
of October 2003, Consumers has paid $27 million in refunds. In October 2003,
Consumers filed with FERC its formal notice of cancellation of its transmission
tariffs since Consumers no longer has any transmission customers.

TRANSMISSION: In May 2002, Consumers sold its electric transmission system for
approximately $290 million to MTH, a non-affiliated limited partnership whose
general partner is a subsidiary of Trans-Elect, Inc. The pretax gain was $31
million ($26 million, net of tax). Remaining open issues are not expected to
materially impact the amount of the gain.

As a result of the sale, Consumers anticipates its after-tax earnings will
decrease by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a 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.

Under an 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 until May 1, 2007 under a
contract with MTH.

AUGUST 14, 2003 BLACKOUT: On August 14, 2003, the electric transmission grid
serving parts of the Midwest and the Northeast experienced a significant
disturbance, which impacted electric service to millions of homes and businesses
throughout a vast region. In Michigan, more than 2 million electric customers
were without electricity. Consumers had five fossil-fueled generating unit
outages and, of Consumers' 1.7 million electric customers, approximately
100,000 were without power for approximately 24 hours as a result of the
disturbance. The impact was felt most heavily in the southeastern part of
Consumers' service territory.

As discussed above in "Transmission", Consumers sold its transmission system in
May 2002 to MTH, with Consumers providing transmission system maintenance under
a five-year contract with MTH. MTH now owns, controls, and plans for the
transmission system that serves Consumers. Consumers incurred approximately $1
million of immediate financial impact as a result of the blackout. Consumers
continues to cooperate with investigations of the blackout by several federal
and state agencies. Consumers cannot predict the outcome of these
investigations.

In November 2003, the MPSC released its report on the August 14 blackout, which
found no evidence to suggest that the events in Michigan or actions taken by the
Michigan utilities or transmission operators were factors contributing to the
cause of the blackout. As a result of its investigation, the MPSC is
recommending that Congress pass legislation that would empower the FERC, where
necessary, to order

                                     CMS-69
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                                                          CMS Energy Corporation

membership into a RTO and that Congress should provide the FERC with the
authority to develop and enforce mandatory transmission reliability standards
with penalties for noncompliance.

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. As it did in 2003, Consumers is currently planning for a
reserve margin of approximately 11 percent for summer 2004 or supply resources
equal to 111 percent of projected summer peak load. Of the 111 percent,
approximately 100 percent is expected to be met from owned electric generating
plants and long-term power purchase contracts and 11 percent from short-term
contracts and options for physical deliveries and other agreements. The ultimate
use of the reserve margin 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 October 2003, alternative
electric suppliers are providing 603 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.

Currently, Consumers is required to provide backup service to ROA customers on a
"best efforts" basis. In October 2003, Consumers provided notice to the MPSC
that it would terminate the provision of backup service in accordance with
Public Act 141, effective January 1, 2004.

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 and energy contracts for the physical delivery
of electricity primarily in the summer months and to a lesser degree in the
winter months. As of September 30, 2003, Consumers purchased capacity and energy
contracts partially covering the estimated reserve margin requirements for 2004
through 2007. As a result, Consumers has a recognized asset of $21 million for
unexpired capacity and energy contracts. The total premium cost of electricity
call option and capacity and energy contracts for 2003 is expected to be
approximately $10 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, effective 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.

On September 30, 2003, Consumers submitted a PSCR filing to the MPSC that would
reinstate the PSCR process for customers whose rates will no longer be frozen or
capped as of January 1, 2004. The proposed PSCR charge allows Consumers to
recover a portion of its increased power supply costs from large

                                     CMS-70
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commercial and industrial customers effective January 1, 2004. This is the first
customer class for which the rate freeze and cap expire. Consumers will,
pursuant to its right under applicable law, self-implement the proposed PSCR
charge on January 1, 2004, unless the MPSC issues an order before that date
establishing a different charge. The charge is subject to subsequent change by
the MPSC during the PSCR period (calendar-year 2004). The revenues received
pursuant to the PSCR charge by statute are also subject to subsequent
reconciliation when the year is finished and actual costs have been reviewed for
reasonableness and prudence. Consumers cannot predict the outcome of this
filing.

OTHER CONSUMERS' ELECTRIC UTILITY 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, which at September 30, 2003 and 2002 are $238 million and
$217 million, respectively.

Summarized Statements of Income for CMS Midland and CMS Holdings

<TABLE>
<CAPTION>
                                                                                                        In Millions
- -------------------------------------------------------------------------------------------------------------------
                                                                        Three Months Ended        Nine Months Ended
September 30                                                             2003       2002            2003      2002
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>             <C>       <C>
Earnings (loss) from equity method investees                            $ (3)        $ 8            $ 31      $ 35
Operating taxes and other                                                 (1)          2              18        11
                                                                        -------------------------------------------

Income (loss) before cumulative effect of accounting change               (2)          6              13        24

Cumulative effect of change in method of accounting for
  derivatives, net of $1 and $10 million tax expense in 2002 (a)           -           1               -        18
                                                                        -------------------------------------------

Net income (loss)                                                       $ (2)        $ 7            $ 13      $ 42
===================================================================================================================
</TABLE>

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Summarized Statements of Income for the MCV Partnership

<TABLE>
<CAPTION>
                                                                                                         In Millions
- --------------------------------------------------------------------------------------------------------------------
                                                                        Three Months Ended         Nine Months Ended
September 30                                                             2003       2002            2003      2002
- --------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>             <C>       <C>
Operating revenue                                                       $ 148      $ 156           $ 443     $ 451
Operating expenses                                                        138        120             322       318
                                                                        --------------------------------------------

Operating income                                                           10         36             121       133
Other expense, net                                                         25         27              82        86
                                                                        --------------------------------------------

Income (loss) before cumulative effect of accounting change               (15)         9              39        47

Cumulative effect of change in method of accounting for
  derivative option contracts (a)                                           -          -               -        58
                                                                        --------------------------------------------

Net income (loss)                                                       $ (15)     $   9           $  39     $ 105
====================================================================================================================
</TABLE>

(a) 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 cumulative effect adjustment for the change in
accounting principle was recorded as an increase to earnings.

Power Supply Purchases from the MCV Partnership - Consumers' annual obligation
to purchase capacity from the MCV Partnership is 1,240 MW through the term of
the PPA ending 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 and a fixed energy charge, and also to pay 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 regulatory out 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. The remaining estimated future PPA liability associated with the
loss totaled $34 million at September 30, 2003 and $59 million at September 30,
2002. The PPA liability is expected to be depleted in late 2004. For further
discussion on the impact of the frozen PSCR, see "Consumers' Electric Utility
Rate Matters" in this Note.

In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1,

                                     CMS-72
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                                                          CMS Energy Corporation

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 payments made on the basis of
availability that may be billed by the MCV Partnership at a maximum 98.5 percent
availability level.

Under Michigan's electric restructuring law, Consumers will return to unfrozen
rates for large industrial customers beginning January 1, 2004, including the
resumption of the PSCR process. Under the process, Consumers will recover from
customers capacity and fixed energy charges on the basis of availability, to the
extent that availability does not exceed 88.7 percent availability established
in previous MPSC orders. Recovery of capacity and fixed energy charges will be
subject to certain rate caps as discussed in Note 4, Uncertainties, "Consumers'
Electric Utility Rate Matters - Electric Restructuring." For capacity and energy
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. The regulatory out provision relieves Consumers of the obligation to
pay more for capacity and energy payments than the MPSC allows Consumers to
collect from its customers. Consumers estimates 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. If the MCV Facility's generating availability remains at the maximum
98.5 percent level, Consumers' cash underrecoveries associated with the PPA
could be as follows:

<TABLE>
<CAPTION>
                                                                                           In Millions
- ------------------------------------------------------------------------------------------------------
                                                       2003       2004      2005       2006       2007
- ------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>       <C>        <C>        <C>
Estimated cash underrecoveries at 98.5% (a)            $ 57       $ 56      $ 56       $ 55       $ 39

Amount to be charged to operating expense              $ 28       $ 27      $ 56       $ 55       $ 39
Amount to be charged to PPA liability                  $ 29       $ 29      $  -       $  -       $  -
======================================================================================================
</TABLE>

(a) For the nine months ended September 30, 2003, Consumers' cash
underrecoveries associated with the PPA were $43 million.

As previously noted, until September 2007, the PPA and settlement require
Consumers to pay capacity costs based on the MCV Facility's actual availability
up to the 98.5 percent cap. After September 2007, Consumers expects to exercise
the "regulatory out" clause in the PPA, limiting its capacity payments to the
MCV Partnership to the amount collected from its customers. Depending on the
MPSC's future actions with respect to the capacity payments recoverable from its
customers subsequent to September 2007, the earnings of the MCV Partnership and
the value of Consumers' equity interest in the MCV Partnership, may be affected
negatively.

Further, under the PPA, energy payments to the MCV Partnership are based on the
cost of coal burned at Consumers' coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with Consumers' coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.

                                     CMS-73
<PAGE>

                                                          CMS Energy Corporation

As of January 1, 2004, Consumers intends to return to forced (uneconomic)
dispatch of the MCV Facility in order to maximize recovery of its capacity
payments. As such, if the spread between MCV Facility's variable electricity
production costs and its energy payment revenues stays constant or widens, the
negative impacts on MCV Partnership's financial performance, and on the value of
Consumers' equity interest in the MCV Partnership, will be worse.

Consumers cannot estimate, at this time, the impact of these issues on its
future earnings or cash flow from its interest in the MCV Partnership. The
forward price of natural gas for the next 22 years and the MPSC decision in 2007
or later related to Consumers' recovery of capacity payments are the two most
significant variables in the analysis of MCV Partnership's future financial
performance. Natural gas prices have historically been volatile and presently
there is no consensus in the marketplace on the price or range of prices of
natural gas beyond the next five years. Further, it is not presently possible
for Consumers to predict the actions of the MPSC in 2007 or later. For these
reasons, at this time Consumers cannot predict the impact of these issues on its
future earnings, cash flows, or on the value of its $404 million equity interest
in the MCV Partnership.

Consumers is exploring possible alternatives for utilizing the MCV Facility
without increasing costs to customers. Any changes regarding the recovery of MCV
capacity costs would require MPSC approval. Consumers cannot predict the outcome
of this matter.

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 PURPA. In July 1999, the district
court granted MCV Partnership's motion for summary judgment. The district 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: Significant progress continues to be made in the
decommissioning of Big Rock. Following the successful loading of spent fuel into
dry storage (see below under "Spent Nuclear Fuel Storage"), the spent fuel
storage racks were removed and disposed of and the spent fuel pool cleaned and
drained. The reactor vessel closure head was shipped for disposal in May 2003
and in August 2003, the reactor vessel was moved from the plant and sealed into
a specially designed shipping container. In October 2003, the shipping container
was transported to the licensed disposal facility in Barnwell, South Carolina.
The License Termination Plan was submitted to the NRC staff for review in April
2003. System dismantlement and building demolition continue on a schedule to
return the 560-acre site to a natural setting for unrestricted use in early
2006. The NRC and Michigan Department of Environmental Quality continue to find
that all decommissioning activities at Big Rock are being performed in
accordance with applicable regulatory and license requirements.

In July 2003, the NRC completed its mid-cycle plant performance assessment of
Palisades. The mid-cycle review for Palisades covered the period from January 1,
2003 through the end of July 2003. 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

                                     CMS-74
<PAGE>

                                                          CMS Energy Corporation

planned through September 2004.

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." Spent fuel was then loaded into the dry casks from the fuel pool and
transported to the temporary onsite storage pad. A total of seven dry casks have
been loaded with spent fuel. An additional eighth cask, containing high-level
radioactive waste material, was also loaded. This radioactive material was made
up of reactor vessel components that could not be shipped or stored with the
reactor vessel. These transportable dry casks will remain onsite until the DOE
moves the material to a national fuel repository.

At Palisades, the amount of spent nuclear fuel discharged from the reactor to
date exceeds Palisades' temporary onsite storage pool capacity. Consequently,
Consumers is using dry casks for temporary onsite storage. As of September 30,
2003, 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
onsite, with storage pad capacity for up to seven additional loaded dry casks.
Consumers anticipates that licensed transportable dry casks for additional
storage, along with more storage pad capacity, will be available prior to 2004.

As of September 30, 2003, Consumers has a recorded liability to the DOE of $139
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 the interest.

In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin
accepting deliveries of spent nuclear fuel for disposal by January 31, 1998.
Subsequent U.S. Court of Appeals 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 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,
including Consumers, which filed its complaint in December 2002, have commenced
litigation in the Court of Claims. The Chief Judge of the Court of Claims
identified six lead cases to be used as vehicles for resolving dispositive
motions. Consumers' case is not a lead case. It is unclear what impact this
decision by the Chief Judge will have on the outcome of Consumers' litigation.
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. However, there is no assurance that
the litigation against the DOE will be successful.

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.

                                     CMS-75
<PAGE>

                                                          CMS Energy Corporation

In March 2003, the Michigan Environmental Council, the Public Interest Research
Group in Michigan, and the Michigan Consumer Federation submitted a complaint to
the MPSC, which was served on Consumers by the MPSC in April 2003. The complaint
asks the MPSC to commence a generic investigation and contested case to review
all facts and issues concerning costs associated with spent nuclear fuel storage
and disposal. The complaint seeks a variety of relief with respect to Consumers,
Detroit Edison, Indiana & Michigan Electric Company, Wisconsin Electric Power
Company and Wisconsin Public Service Corporation, including establishing
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 related to the storage and disposal of spent nuclear fuel. In May 2003,
Consumers and the other named utilities each filed a motion to dismiss the
complaint. Consumers is unable to predict the outcome of this matter.

Palisades Plant Operations: In March 2002, corrosion problems were discovered in
the reactor head at an unaffiliated nuclear power plant in Ohio. As a result,
the NRC requested that all United States nuclear plants utilizing pressurized
water reactors provide reports detailing their reactor head inspection
histories, design capabilities and future inspection plans. In response to the
issues identified at this and other nuclear plants worldwide, a bare metal
visual inspection was completed on the Palisades reactor vessel head during the
spring 2003 refueling outage. No indication of leakage was detected on any of
the 54 penetrations of the reactor head. Consumers will continue to comply with
the more aggressive reactor head inspection requirements in future planned
outages at Palisades.

Insurance: Consumers maintains primary and excess nuclear property insurance
from NEIL, totaling $2.750 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 $26 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 $10.862 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 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 $101 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 million. The Big Rock plant remains insured for nuclear
liability by a combination of insurance and United States government indemnity
totaling $544 million.

                                     CMS-76
<PAGE>

                                                          CMS Energy Corporation

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

CONSUMERS' GAS UTILITY 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
resolution of environmental issues at sites as studies are completed. Consumers
has estimated its costs related to investigation and remedial action for all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. A revised cost estimate, completed in September 2003, estimated remaining
costs to be between $37 million and $90 million. The range reflects multiple
alternatives with various assumptions for resolving the environmental issues at
each site. The estimates are based on discounted 2003 costs using a discount
rate of three percent. The discount rate represents a ten-year average of U.S.
Treasury bond rates reduced for increases in the consumer price index. Consumers
expects to fund a significant portion of these costs through insurance proceeds
and through MPSC approved rates charged to its customers. As of September 30,
2003, Consumers has an accrued liability of $47 million, net of $35 million of
expenditures incurred to date, and a regulatory asset of $68 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 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.

CONSUMERS' GAS UTILITY RATE MATTERS

GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation case with the MPSC, Consumers expects to recover all of its gas
costs. In June 2003, Consumers filed a reconciliation of GCR costs and revenues
for the 12-months ended March 2003. Consumers proposes to recover from its
customers a net under-recovery of approximately $6 million using a roll-in
methodology. The roll-in methodology incorporates the under-recovery in the GCR
factor charged in the next GCR year. The roll-in tariff provision was approved
by the MPSC in a November 2002 order.

In July 2003, the MPSC approved a settlement agreement authorizing Consumers to
increase its gas cost recovery factor for the remainder of the current GCR plan
year (August 2003 through March 2004) and to implement a quarterly ceiling price
adjustment mechanism, based on a formula that tracks changes in NYMEX natural
gas prices. Consistent with the terms of the settlement, the ceiling price is
$6.11 per mcf. However, Consumers will utilize a GCR factor of $5.41 per mcf
commencing in November 2003 bills. All

                                     CMS-77
<PAGE>

                                                          CMS Energy Corporation

recoveries pursuant to such factors are subject to final reconciliation by the
MPSC.

2003 GAS RATE CASE: In March 2003, Consumers filed an application with the MPSC
seeking a $156 million increase in its gas delivery and transportation rates,
which included a 13.5 percent return on equity, based on a 2004 test year.
Contemporaneously with this filing, Consumers requested interim rate relief in
the same amount. In August 2003, the MPSC Staff recommended interim rate relief
of $80 million be granted in this proceeding, subject to Consumers voluntarily
agreeing to limit its dividends to its parent, CMS Energy, to a maximum of $190
million in any calendar year.

In September 2003, Consumers filed an update to its gas rate case that lowered
the requested revenue increase from $156 million to $139 million and revised the
return on common equity from 13.5 percent to 12.75 percent. The majority of the
reduction is related to lower debt costs and changes in the projected capital
structure. The MPSC Staff and ABATE filed their cases in early October. The
Staff made no change to its interim position of $80 million and continued to
propose the same dividend limitation. ABATE did not make a specific
recommendation for a final rate increase, but did discuss the rate design used
to recover any rate increase granted. A proposal for decision is expected from
the administrative law judge in January 2004.

OTHER CONSUMERS' UNCERTAINTIES

SECURITY COSTS: 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 September 30, 2003,
Consumers has incurred approximately $7 million in incremental security costs,
including operating, capital, and decommissioning and removal costs, mainly
relating to its nuclear facilities. Consumers estimates it may incur additional
incremental security costs for the last three months of 2003 of approximately $3
million, of which $2 million relates to nuclear security costs. 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 nuclear electric division
security costs incurred during the rate freeze and cap periods imposed by the
Customer Choice Act. In February 2003, the MPSC adopted filing requirements for
the recovery of enhanced security costs.

DERIVATIVE ACTIVITIES: Consumers may use 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
be adjusted to 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 7, Risk Management
Activities and Financial Instruments.

OTHER: 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.

                                     CMS-78
<PAGE>

                                                          CMS Energy Corporation

OTHER UNCERTAINTIES

INTEGRUM LAWSUIT: A complaint was filed in Wayne County, Michigan Circuit Court
on July 17, 2003 by Integrum against CMS Energy, Enterprises and APT. Integrum
alleges several causes of action against APT, CMS Energy and Enterprises in
connection with an offer by Integrum to purchase the CMS Pipeline Assets. In
addition to seeking unspecified money damages, Integrum is seeking an order
enjoining Enterprises and CMS Energy from selling and APT from purchasing the
CMS Pipeline Assets and an order of specific performance mandating that CMS
Energy, Enterprises and APT complete the sale of the CMS Pipeline Assets to APT
and Integrum. An officer and director of Integrum is a former officer and
director of CMS Energy, Consumers and certain of its subsidiaries. The
individual was not employed by CMS Energy, Consumers or its subsidiaries when
Integrum made the offer to purchase the CMS Pipeline Assets. CMS Energy and
Enterprises intend to vigorously defend against this action. CMS Energy and
Enterprises cannot predict the outcome of this litigation.

CMS GENERATION-OXFORD TIRE RECYCLING: In 1999, the California Regional Water
Control Board of the State of California named CMS Generation as a potentially
responsible party for the cleanup of the waste from a fire that occurred in
September 1999 at the Filbin tire pile. The tire pile was maintained as fuel for
an adjacent power plant owned by Modesto Energy Limited Partnership. Oxford Tire
Recycling of Northern California, Inc., a subsidiary of CMS Generation until
1995, owned the Filbin tire pile. CMS Generation has not owned an interest in
Oxford Tire Recycling of Northern California, Inc. or Modesto Energy Limited
Partnership since 1995. In 2000, the California Attorney General filed a
complaint against the potentially responsible parties for cleanup of the site
and assessed penalties for violation of the California Regional Water Control
Board order. The parties have reached a settlement with the state, which the
court approved, pursuant to which CMS Energy had to pay $6 million. At the
request of the U.S. Department of Justice in San Francisco (DOJ), CMS Energy and
other parties contacted by the DOJ entered into separate tolling agreements with
the DOJ in September 2002. The tolling agreement stopped the running of any
statute of limitations during the period between September 13, 2002 and (through
several extensions of the original tolling period) December 30, 2003, to
facilitate the settlement discussions between all the parties in connection with
federal claims arising from the fire at the Filbin tire pile. On September 23,
2002, CMS Energy received a written demand from the U.S. Coast Guard for
reimbursement of approximately $3.5 million in costs incurred by the U.S. Coast
Guard in fighting the fire.

In connection with this fire, several class action lawsuits were filed claiming
that the fire resulted in damage to the class and that management of the site
caused the fire. CMS Generation has reached a settlement with the plaintiffs in
the amount of $9 million. The primary insurance carrier paid $8 million of this
amount, and the Secondary insurer paid the remaining $1 million.

DEARBORN INDUSTRIAL GENERATION: In October 2001, Duke/Fluor Daniel (DFD)
presented DIG with a change order to their construction contract and filed an
action in Michigan state court claiming damages in the amount of $110 million,
plus interest and costs, which DFD states represents the cumulative amount owed
by DIG for delays DFD believes DIG caused and for prior change orders that DIG
previously rejected. DFD also filed a construction lien for the $110 million.
DIG, in addition to drawing down on three letters of credit totaling $30 million
that it obtained from DFD, has filed an arbitration claim against DFD asserting
in excess of an additional $75 million in claims against DFD. The judge in the
Michigan state court case entered an order staying DFD's prosecution of its
claims in the court case and permitting the arbitration to proceed. DFD has
appealed the decision by the judge in the Michigan state court case to stay the
arbitration. DIG will continue to vigorously defend itself and pursue its
claims. DIG cannot predict the outcome of this matter.

                                     CMS-79
<PAGE>

                                                          CMS Energy Corporation

DIG CUSTOMER DISPUTES: As a result of the continued delays in the DIG project
becoming fully operational, DIG's customers, Ford Motor Company and Rouge
Industries, have asserted claims that the continued delays relieve them of
certain contractual obligations totaling $43 million. In addition, Ford and/or
Rouge have asserted several other commercial claims against DIG relating to
operation of the DIG plant. In February 2003, Rouge filed an Arbitration Demand
against DIG and CMS MST Michigan, LLC with the American Arbitration Association.
Rouge is seeking a total of $27 million plus additional accrued damages at the
time of any award, plus interest. More specifically, Rouge is seeking at least
$20 million under a Blast Furnace Gas Delivery Agreement in connection with
DIG's purported failure to declare a Blast Furnace Gas Delivery Date within a
reasonable time period, plus approximately $7 million for assorted damage claims
under several legal theories. As part of this arbitration, DIG has filed claims
against Rouge and Ford and Ford has filed claims against DIG for unspecified
amounts. DIG and CMS MST Michigan, LLC intend to vigorously defend themselves,
but cannot predict the outcome of this matter.

In October 2003, Rouge filed bankruptcy under Chapter 11 of the United States
Bankruptcy Code and as a result, the arbitration is subject to the automatic
stay imposed by the Bankruptcy Code. Rouge has indicated that it will continue
to honor its contractual obligations to pay for the steam and electricity DIG
provides. DIG is in the process of exploring its options relative to the
bankruptcy action but cannot predict the eventual outcome of the matter.

DIG NOISE ABATEMENT LAWSUIT: In February 2003, DIG was served with a three-count
first amended complaint in the matter of Ahmed, et al. v. Dearborn Industrial
Generation, LLC, that was filed in Wayne County Michigan Circuit Court. The
complaint seeks damages "in excess of $25,000" and injunctive relief based upon
allegations of excessive noise and vibration created by operation of the power
plant. The first amended complaint was filed on behalf of six named plaintiffs,
all alleged to be adjacent or nearby residents or property owners. The damages
alleged are injury to persons and property of the landowners. Certification of a
class of "potentially thousands" who have been similarly affected is requested.
DIG intends to aggressively defend this action. DIG cannot predict the outcome
of this matter.

MCV EXPANSION, LLC: Under an agreement entered into with General Electric
Company ("GE") in October 2002, MCV Expansion, LLC has a remaining contingent
obligation to GE in the amount of $2.2 million that may become payable in the
fourth quarter of 2003. The agreement provides that this contingent obligation
is subject to a pro rata reduction under a formula based upon certain purchase
orders being entered into with GE by June 30, 2003. MCV Expansion, LLC
anticipates but cannot assure that purchase orders will be executed with GE
sufficient to eliminate contingent obligations of $2.2 million.

CMS OIL AND GAS: In 1999, a former subsidiary of CMS Oil and Gas, Terra Energy
Ltd., was sued by Star Energy, Inc. and White Pine Enterprises LLC in the 13th
Judicial Circuit Court in Antrim County, Michigan, on grounds, among others,
that Terra violated oil and gas lease and other agreements by failing to drill
wells. Among the defenses asserted by Terra were that the wells were not
required to be drilled and the claimant's sole remedy was termination of the oil
and gas lease. During the trial, the judge declared the lease terminated in
favor of White Pine. The jury then awarded Star Energy and White Pine $7.6
million in damages. Terra appealed this matter to the Michigan Court of Appeals.
The Court of Appeals reversed the trial court judgment with respect to the
appropriate measure of damages and remanded the case for a new trial on damages.
A reserve has been established for this matter.

ARGENTINA ECONOMIC SITUATION: In January 2002, the Republic of Argentina enacted
the Public Emergency and Foreign Exchange System Reform Act. This law repealed
the fixed exchange rate of one U.S. dollar to one Argentina peso, converted all
dollar-denominated utility tariffs and energy contract

                                     CMS-80
<PAGE>

                                                          CMS Energy Corporation

obligations into pesos at the same one-to-one exchange rate, and directed the
President of Argentina to renegotiate such tariffs.

Effective April 30, 2002, CMS Energy adopted the Argentine peso as the
functional currency for most of its Argentine investments. CMS had previously
used the U.S. dollar as the functional currency for its Argentine investments.
As a result, on April 30, 2002, CMS Energy translated the assets and liabilities
of its Argentine entities into U.S. dollars, in accordance with SFAS No. 52,
using an exchange rate of 3.45 pesos per U.S. dollar, and recorded an initial
charge to the Foreign Currency Translation component of Common Stockholders'
Equity of approximately $400 million.

While CMS Energy's management cannot predict the most likely future, or average
peso to U.S. dollar exchange rates, it does expect that these non-cash charges
substantially reduce the risk of further material balance sheet impacts when
combined with anticipated proceeds from international arbitration currently in
progress, political risk insurance, and the eventual sale of these assets. At
September 30, 2003, the net foreign currency loss due to the unfavorable
exchange rate of the Argentine peso recorded in the Foreign Currency Translation
component of Common Stockholders' Equity using an exchange rate of 2.975 pesos
per U.S. dollar was $259 million. This amount also reflects the effect of
recording U.S. income taxes with respect to temporary differences between the
book and tax basis of foreign investments, including the foreign currency
translation associated with CMS Energy's Argentine investments, that were
determined to no longer be essentially permanent in duration.

OTHER: Certain CMS Gas Transmission and CMS Generation affiliates in Argentina
received notice from various Argentine provinces claiming stamp taxes and
associated penalties and interest arising from various gas transportation
transactions. Although these claims total approximately $91 million, the
affiliates and CMS Energy believe the claims are without merit and will continue
to vigorously contest them.

CMS Generation does not currently expect to incur significant capital costs at
its power facilities for compliance with current U.S. environmental regulatory
standards.

In addition to the matters disclosed in this Note, Consumers and certain other
subsidiaries of CMS Energy 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.

CMS Energy 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 CMS Energy's financial position, liquidity, or results of
operations.

                                     CMS-81
<PAGE>

                                                          CMS Energy Corporation

5: FINANCINGS AND CAPITALIZATION

The following is a summary of CMS Energy's Long-Term Debt as of September 30,
2003 and December 31, 2002:

<TABLE>
<CAPTION>
LONG-TERM DEBT                                                                                      in Millions
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                            September 30        December 31
                                                    Interest Rate (%)    Maturity               2003                2002
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>                  <C>                 <C>
CMS ENERGY
   Senior Notes                                         7.625              2004             $    176             $   176
                                                        6.750 (a)          2004                   82                 287
                                                        9.875              2007                  468                 468
                                                        8.900              2008                  260                 260
                                                        7.500              2009                  409                 409
                                                        7.750              2010                  300                   -
                                                        8.500              2011                  300                 300
                                                        8.375              2013                    -                 150
                                                        3.375 (b)          2023                  150                   -
                                                                                            -------------------------------
                                                                                               2,145               2,050
                                                                                            -------------------------------
   General Term Notes :       Series D                  6.938 (c)      2005 - 2008                65                  94
                              Series E                  7.718 (c)(a)   2003 - 2009               163                 227
                              Series F                  7.487 (c)      2003 - 2016               296                 298
                                                                                            -------------------------------
                                                                                                 524                 619
                                                                                            -------------------------------
   Extendible Tenor Rate Adjusted Securities            7.000              2005                  180                 180
   Revolving Credit Facilities                         Floating         2003-2004                  5                 291
   Other                                                                                           8                  29
                                                                                            -------------------------------
                                                                                                 193                 500
                                                                                            -------------------------------
CONSUMERS ENERGY
   Senior Notes                                         6.000              2005                  300                 300
                                                        6.250              2006                  332                 332
                                                        6.375              2008                  159                 159
                                                        6.200 (d)          2008                    -                 250
                                                        6.875              2018                  180                 180
                                                        6.500 (e)          2018                  141                 141
                                                        6.500 (f)          2028                  142                 142
                                                                                            -------------------------------
                                                                                               1,254               1,504
                                                                                            -------------------------------
   Securitization Bonds                                 5.075 (c)       2005-2015                434                 453
   First Mortgage Bonds                                 5.240 (c)       2008-2023              1,482                 208
   Long-Term Bank Debt                                 Floating            2009                  140                 328
   Nuclear Fuel Disposal Liability                                         (g)                   139                 138
   Pollution Control Revenue Bonds                     Various          2010-2018                126                 126
   Other                                                                                           6                   8
                                                                                            -------------------------------
                                                                                               2,327               1,261
OTHER SUBSIDIARIES                                                                                56                  77
                                                                                            -------------------------------
Principal Amount Outstanding                                                                   6,499               6,011
   Current Amounts                                                                              (172)               (627)
   Net Unamortized Discount                                                                      (36)                (28)
- ---------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt                                                                        $  6,291             $ 5,356
===========================================================================================================================
</TABLE>

                                     CMS-82
<PAGE>

                                                          CMS Energy Corporation

(a)  Senior notes of $82 million and Series E GTNs of $14.7 million were
     called and redeemed as of October 15, 2003.

(b)  These notes are convertible into shares of common stock at $10.671 per
     share under certain circumstances.

(c)  Represents the weighted average interest rate at September 30, 2003.

(d)  These notes were subject to a Call Option by the Callholder or a
     Mandatory Put on May 1, 2003.

(e)  Senior Remarketed Notes subject to optional redemption by Consumers
     after June 15, 2005.

(f)  Callable at par on or after October 1, 2003.

(g)  Maturity date uncertain.

CMS ENERGY

On March 30, 2003, CMS Energy entered into an amendment and restatement of its
then existing $300 million and $295.8 million revolving credit facilities under
which $409 million was outstanding. The Second Amended and Restated Senior
Credit Agreement included a $159 million tranche with a maturity date of April
30, 2004 and a $250 million tranche with a maturity date of September 30, 2004.
The facility was underwritten by several banks at a total annual cost to CMS
Energy of approximately ten percent which included the initial commitment fee.
Any proceeds of debt or equity issuances by CMS Energy and its subsidiaries or
any asset sales by CMS Energy or its subsidiaries, other than Consumers, were
required to be used to prepay this facility. This facility was collateralized
primarily by the stock of Consumers, Enterprises and certain Enterprises
subsidiaries. In July 2003, the facility was paid down to $5 million with a
combination of a portion of the proceeds of the sale of CMS Field Services and a
portion of the proceeds of the issuance of the $300 million 7.75 percent Senior
Notes due 2010. On September 12, 2003, this credit agreement was amended and
restated in the amount of $5 million. The amended and restated credit facility
does not include any restrictive financial covenants. As of September 30, 2003,
$5 million was outstanding on this facility.

LONG-TERM FINANCINGS: In July 2003, CMS Energy issued, in a private placement to
institutional investors, $150 million of 3.375 percent convertible senior notes
due July 15, 2023. The notes are putable to CMS Energy by the note holders at
par on July 15, 2008, July 15, 2013 and July 15, 2018. The notes are convertible
into CMS Energy common stock at the option of the holder under certain
circumstances. The initial conversion price is $10.671 per share, which
translates into 93.7137 shares of common stock for each $1,000 principal note
converted. CMS has agreed to file a shelf registration statement with the SEC by
October 14, 2004 relating to the resale of the notes and the common stock
issuable upon conversion thereof. Also in July 2003, CMS Energy issued $300
million of 7.75 percent senior notes due 2010. CMS has agreed to file a
registration statement with the SEC by March 14, 2004 to permit holders of these
notes to exchange the notes for new notes that will be registered under the
Securities Act of 1933. The approximately $433 million of proceeds from these
issuances were used to retire a portion of debt outstanding under CMS Energy's
Second Amended and Restated Senior Credit Agreement and to redeem a portion of
CMS Energy's 6.75 percent Senior Notes due January 2004.

In July 2003, CMS Energy retired $150 million principal amount of CMS Energy's
8.375 percent Reset Put Securities due 2013. As a result, CMS Energy recorded a
charge in July 2003 of approximately $19 million after-tax related to the
accelerated amortization of debt issuance costs and the premium paid associated
with the discharge of these securities. In October 2003, $82 million of the 6.75
percent senior notes were called and redeemed.

GENERAL TERM NOTES: At September 30, 2003, CMS Energy had issued and outstanding
$524 million GTNs, comprised of $65 million Series D GTNs, $163 million Series E
GTNs and $296 million of Series

                                     CMS-83
<PAGE>

                                                          CMS Energy Corporation

F GTNs with weighted average interest rates of 6.94 percent, 7.72 percent and
7.49 percent, respectively. No Series G GTNs have been issued since their
registration in May 2002. In October 2003, approximately $15 million of Series E
GTNs were called and redeemed.

ENTERPRISES

In May 2003, CMS Energy entered into a revolving credit facility in an aggregate
amount of $185 million. The maturity date of this facility is May 21, 2004. This
facility is primarily used to provide letter of credit support for Enterprises'
subsidiary activities - principally credit support for project debt. Enterprises
provides funds to cash collateralize all letters of credit issued through this
facility. As of September 30, 2003, approximately $167 million of letters of
credit were issued under this facility and the cash that collateralizes the
letters of credit is included on the balance sheet as restricted cash.

CONSUMERS

REGULATORY AUTHORIZATION FOR FINANCINGS: At September 30, 2003, Consumers had
FERC authorization, through June 2004, to issue or guarantee up to $1.1 billion
of short-term securities outstanding at any one time. As of September 30, 2003,
Consumers had $400 million outstanding as collateral for the revolving credit
facility (discussed below) and had an additional $700 million available for
future issuances of short-term securities. At September 30, 2003, Consumers also
had remaining FERC authorization, through June 2004, to issue up to $800 million
of long-term securities for refinancing or refunding purposes, $560.3 million of
long-term securities for general corporate purposes, and $2.06 billion of
long-term first mortgage bonds to be issued solely as collateral for other
long-term securities. Also, FERC has granted waivers of its competitive
bid/negotiated placement requirements applicable to the long-term securities
authorization indicated above.

SHORT-TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
In September 2003, this facility was amended and restated as a $400 million
revolving credit facility. The interest rate of the facility was reduced from
LIBOR plus 350 to LIBOR plus 175 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. At September 30, 2003, all of the $400
million is available for general corporate purposes. At September 30, 2003, a
total of $4 million was outstanding on all short-term financings at a weighted
average interest rate of 2.79 percent, compared with $235 million outstanding at
September 30, 2002 at a weighted average interest rate of 3.7 percent.

FIRST MORTGAGE BONDS: In April 2003, Consumers sold $625 million principal
amount of first mortgage bonds in a private offering to institutional investors;
$250 million were issued at an interest rate of 4.25 percent, maturing in April
2008, and net proceeds were approximately $248 million; $375 million were issued
at an interest rate 5.375 percent, maturing in April 2013, and net proceeds were
approximately $371 million. Consumers used the net proceeds to replace a $250
million senior reset put bond that matured in May 2003, to pay an associated $32
million option call payment, and for general corporate purposes that included
paying down additional debt. The $32 million option call payment was deferred
and is being amortized to interest expense over the term of the replacement debt
in accordance with SFAS No. 71. Consumers agreed to file a registration
statement with the SEC by December 26, 2003 to permit holders of the first
mortgage bonds to exchange the bonds for new bonds that will be registered under
the Securities Act of 1933.

In May 2003, Consumers sold $250 million principal amount of first mortgage
bonds in a private offering

                                     CMS-84
<PAGE>

                                                          CMS Energy Corporation

to institutional investors; the bonds were issued at an interest rate of 4.00
percent, maturing May 2010, and net proceeds were approximately $247 million.
Consumers used the net proceeds to pay down existing debt. Consumers agreed to
file a registration statement with the SEC by December 26, 2003 to permit
holders of the first mortgage bonds to exchange the bonds for new bonds that
will be registered under the Securities Act of 1933.

In August 2003, Consumers sold $400 million principal amount of first mortgage
bonds in a private offering to institutional investors; $200 million were issued
at an interest rate of 4.80 percent, maturing in February 2009, and net proceeds
were approximately $198 million and $200 million were issued at an interest rate
of 6.00 percent, maturing in February 2014, and net proceeds were approximately
$198 million. Consumers used the net proceeds to pay down existing debt and for
general corporate purposes. Consumers agreed to file a registration statement
with the SEC by April 14, 2004 to permit holders of the first mortgage bonds to
exchange the bonds for new bonds that will be registered under the Securities
Act of 1933.

SENIOR NOTES: 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. Proceeds from this
loan were used for general corporate purposes.

In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan had a three-year maturity expiring in March 2006.
This term loan was paid in full with the proceeds of first mortgage bonds issued
in August 2003.

REQUIRED RATIOS

CMS Energy's amended and restated $5 million credit facility does not include
any restrictive financial covenants. Consumers' credit facilities have
restrictive financial covenants that require Consumers to maintain, as of the
last day of each fiscal quarter, the following:

<TABLE>
<CAPTION>
Required Ratio                                  Limitation              Ratio at September 30, 2003
- ---------------------------------------------------------------------------------------------------
<S>                                        <C>                           <C>
CONSUMERS:
Debt to Capital Ratio(a)(b)                not more than 0.65 to 1.00           0.58 to 1.00
Interest Coverage Ratio-Revolver(a)        not less than 2.00 to 1.00           3.34 to 1.00
===================================================================================================
</TABLE>

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

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

In 1994, CMS Energy executed an indenture with JPMorgan Chase Bank, ultimate
successor to The Chase Manhattan Bank, pursuant to CMS Energy's general term
notes program. The indenture, through supplements, contains certain provisions
that can trigger a limitation on CMS Energy's consolidated indebtedness. The
limitation can be activated when CMS Energy's consolidated leverage ratio, as
defined in the indenture (essentially the ratio of consolidated debt to
consolidated capital), exceeds 0.75 to 1.0. At September 30, 2003, CMS Energy's
consolidated leverage ratio was 0.76 to 1.0. As a result, CMS Energy will not
and will not permit certain material subsidiaries, excluding Consumers and its
subsidiaries, to become liable for new indebtedness. However, CMS Energy and the
material subsidiaries may incur revolving indebtedness to banks of up to $1
billion in the aggregate and may refinance existing debt that

                                     CMS-85
<PAGE>

                                                          CMS Energy Corporation

was incurred while CMS Energy was in compliance with the consolidated leverage
ratio.

In 1992, CMS Energy executed an indenture with Bank One Trust Company, N.A.
(successor to NBD Bank, National Association) pursuant to which CMS Energy
issues its senior notes. The indenture, through supplements, contains certain
provisions that can trigger a limitation on consolidated indebtedness. The
limitation can be activated when CMS Energy's consolidated coverage ratio, as
defined in the indenture, is below 1.70 to 1.0. At September 30, 2003, CMS
Energy's consolidated coverage ratio was 2.02 to 1.0.

Consumers is subject to covenants in its financing agreements that could limit
its ability to incur additional indebtedness. Consumers has agreed in several of
its financing agreements to maintain specified levels of cash coverage of its
interest requirements and to not allow its indebtedness to exceed specified
levels of its consolidated capitalization (the "Debt Percentage Tests").
Consumers is in compliance with these requirements as of the most recent
measurement date, September 30, 2003. These covenants make use of both generally
accepted accounting principles and defined contractual terms in specifying how
the relevant calculations are made. Consumers sought and received amendments to
certain of its relevant financing agreements to modify the terms of the Debt
Percentage Tests in order to, among other things, remove the effect of the
adoption of SFAS No. 150, portions of which have now been deferred indefinitely,
regarding Trust Preferred Securities on the calculations.

RESTRICTED PAYMENTS: Under the provisions of its articles of incorporation,
Consumers had $412 million of unrestricted retained earnings available to pay
common dividends at September 30, 2003. However, covenants in Consumers' debt
facilities cap common stock dividend payments at $300 million in a calendar
year. Through September 30, 2003, Consumers paid $162 million in common
dividends. In October 2003, Consumers declared a $57 million common dividend
payable in November 2003.

For information on the potential cap on common dividends payable included in the
MPSC Securitization order see Note 4, Uncertainties, Consumers' Electric
Utility Rate Matters, "Securitization." Also, for information on the potential
cap on common dividends payable included in the MPSC Staff's recommendation in
Consumers' gas rate case see Note 4, Uncertainties, "Consumers' Gas Utility Rate
Matters - 2003 Gas Rate Case."

COMPANY-OBLIGATED PREFERRED SECURITIES: CMS Energy and Consumers each have
wholly owned statutory business trusts that are consolidated with the respective
parent company. CMS Energy and Consumers created these trusts for the sole
purpose of issuing trust preferred securities. In each case, the primary asset
of the trust is a note or debenture of the parent company. The terms of the
trust preferred security parallel the terms of the related parent company note
or debenture. The terms, 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, the parent 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 the parent
company of the trust's obligations under the trust preferred security. In
addition to the similar provisions previously discussed, specific terms of the
securities follow. For further information, see Note 7, Risk Management
Activities and Financial Instruments, Financial Instruments, and Note 10,
Implementation of New Accounting Standards.

                                     CMS-86
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                                                                     In Millions
- ----------------------------------------------------------------------------------------------------------------
                                                                          Amount                       Earliest
Trust and Securities                                   Rate            Outstanding     Maturity       Redemption
- ----------------------------------------------------------------------------------------------------------------
September 30                                                         2003       2002
- ----------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>        <C>     <C>            <C>
CMS Energy Trust I (a)                                 7.75%        $ 173      $ 173     2027            2001
CMS Energy Trust III (b)                               7.25%            -        220     2004            2003
Consumers Power Company Financing I,
  Trust Originated Preferred Securities (c)            8.36%           70         70     2015            2000
Consumers Energy Company Financing II,
  Trust Originated Preferred Securities (c)            8.20%          120        120     2027            2002
Consumers Energy Company Financing III,
  Trust Originated Preferred Securities (d)            9.25%          175        175     2029            2004
Consumers Energy Company Financing IV,
  Trust Preferred Securities (e)                       9.00%          125        125     2031            2006
                                                                    ----------------
Total Amount Outstanding                                            $ 663      $ 883
================================================================================================================
</TABLE>

(a)  Represents 3,450,000 shares of Quarterly Income Preferred Securities
     that are convertible into 1.2255 shares of CMS Energy Common Stock
     (equivalent to a conversion price of $40.80). Conversion is unlikely as
     of September 30, 2003, based upon the market price of CMS Energy's
     Common Stock of $7.37. If conversion were to occur in the future, the
     securities would be converted into 4,227,975 shares of CMS Energy
     Common Stock. Effective July 2001, CMS Energy can revoke the conversion
     rights if certain conditions are met.

(b)  In August 2003, 8,800,000 units of outstanding 7.25 percent Premium
     Equity Participating Security Units (CMS Energy Trust III) were
     converted to 16,643,440 newly issued shares of CMS Energy Common Stock.

(c)  Consumers can currently redeem these securities at par value.

(d)  Consumers cannot redeem these securities until 2004. If Consumers were
     to redeem these securities as of September 30, 2003, they would be
     required to pay market value, which is approximately $180 million.

(e)  Consumers cannot redeem these securities until 2006. If Consumers were
     to redeem these securities as of September 30, 2003, they would be
     required to pay market value, which is approximately $128 million.

                                     CMS-87
<PAGE>

                                                          CMS Energy Corporation

OTHER: Under a revolving accounts receivable sales program, Consumers currently
sells certain accounts receivable to a wholly owned, consolidated, bankruptcy
remote special purpose entity, Consumers Receivables Funding II. In turn,
Consumers Receivables Funding II may sell an undivided interest in up to $325
million of the receivables to a bank-sponsored commercial paper conduit. The
amount sold to the conduit was $254 million at September 30, 2003 and $325
million at September 30, 2002. These amounts are excluded from accounts
receivable in Consumers' consolidated balance sheets. Consumers continues to
service the receivables sold, however, the purchaser of the receivables has no
recourse against Consumers' other assets for failure of a debtor to pay when due
and the purchaser has no right to any receivables not sold. No gain or loss has
been recorded on the receivables sold and Consumers retains no interest in the
receivables sold.

Certain cash flows received from and paid to Consumers under its accounts
receivable sales program are shown below:

<TABLE>
<CAPTION>
                                                                                         In Millions
- ----------------------------------------------------------------------------------------------------
                                                          Three Months Ended       Nine Months Ended
September 30                                              2003          2002       2003       2002
- ----------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>       <C>         <C>
Proceeds from sales (remittance of collections)
     under the program                                   $ 204         $  14     $   (71)    $   (9)
Collections reinvested under the program                   920           918       3,379      3,141
====================================================================================================
</TABLE>

FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS:
Effective January 1, 2003, CMS Energy adopted the provisions of this
interpretation that requires additional disclosures 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.

The following table is a summary of CMS Energy's guarantees as required by FASB
Interpretation No. 45:

<TABLE>
<CAPTION>
September 30, 2003                                                                                             In Millions
- --------------------------------------------------------------------------------------------------------------------------
                                                      Issue      Expiration     Maximum        Carrying        Recourse
Guarantee Description                                  Date         Date       Obligation     Amount(b)      Provision(c)
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>           <C>            <C>            <C>
Indemnifications from asset sales and
   other agreements(a)                               Various      Various       $ 1,971         $ 0.7            $ -
Letters of credit                                    Various      Various           204             -              -
Surety bonds and other indemnifications              Various      Various            65             -              -
Other guarantees                                     Various      Various           208             -              -
Nuclear insurance retrospective premiums             Various      Various           133             -              -
==========================================================================================================================
</TABLE>

(a)  The majority of this amount arises from routine provisions in stock and
     asset sales agreements under which the purchaser is indemnified by CMS
     Energy or a subsidiary for losses resulting from

                                     CMS-88
<PAGE>

                                                          CMS Energy Corporation

     events such as failure of title to the assets or stock sold by CMS
     Energy or a subsidiary to the purchaser. CMS Energy believes the
     likelihood of a loss arising from such events to be remote.

(b)  The carrying amount represents the fair market value of guarantees and
     indemnities on CMS Energy's balance sheet that are entered into
     subsequent to January 1, 2003.

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

CMS Energy has entered into typical tax indemnity agreements in connection with
a variety of transactions including transactions for the sale of subsidiaries
and assets, equipment leasing and financing agreements. These indemnity
agreements generally are not limited in amount and, while a maximum amount of
exposure cannot be identified, the amount and probability of liability is
considered remote.

The off-balance sheet commitments at September 30, 2003 are as follows:

<TABLE>
<CAPTION>
Commercial Commitments                                                                           In Millions
- ------------------------------------------------------------------------------------------------------------
                                                               Commitment Expiration
- ------------------------------------------------------------------------------------------------------------
September 30                    Total          2003       2004      2005       2006       2007        Beyond
- ------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>       <C>        <C>        <C>        <C>         <C>
Off-balance sheet:
   Guarantees                   $ 208          $ -       $   -      $  -        $ 4       $ -          $ 204
   Indemnities                     65            -           -        35          -         -             30
   Letters of Credit (a)          204            5         195         -          -         -              4
- ------------------------------------------------------------------------------------------------------------
Total                           $ 477          $ 5       $ 195      $ 35        $ 4       $ -          $ 238
============================================================================================================
</TABLE>

(a)  At September 30, 2003, CMS Energy had $176 million of cash
     collateralized letters of credit and the cash used to collateralize the
     letters of credit is included in Restricted Cash on the consolidated
     balance sheet.

CMS Energy and Enterprises, including subsidiaries, have guaranteed payment of
obligations, through letters of credit and surety bonds, of unconsolidated
affiliates and related parties approximating $477 million as of September 30,
2003. Included in this amount, Enterprises, in the ordinary course of business,
has guarantees in place for contracts of CMS MST that contain certain schedule
and performance requirements. As of September 30, 2003, the actual amount of
financial exposure covered by these guarantees was $52 million. This amount
excludes the guarantees associated with CMS MST's natural gas supply contract
obligations totaling $246 million, which are recorded as liabilities on the
Consolidated Balance Sheet at September 30, 2003. Management monitors and
approves these obligations and believes it is unlikely that CMS Energy or
Enterprises would be required to perform or otherwise incur any material losses
associated with the above obligations.

CAPITALIZATION: The authorized capital stock of CMS Energy consists of 250
million shares of CMS Energy Common Stock and 10 million shares of CMS Energy
Preferred Stock, $.01 par value.

6:   EARNINGS PER SHARE

The following table presents a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations.

                                     CMS-89
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                                                In Millions, Except Per Share Amounts
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30                                                      2003                 2002
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK:
  CMS Energy - Basic                                                            $     (77)              $   37
  Add conversion of Trust Preferred
          Securities (net of tax)                                                       -  (a)               -  (a)
                                                                                -------------------------------------
  CMS Energy - Diluted                                                          $     (77)              $   37
                                                                                =====================================

AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
  CMS Energy:
    Average Shares - Basic                                                          152.2                143.9
    Add conversion of Trust Preferred Securities                                        -  (a)               -  (a)
    Stock Options and Warrants                                                          -  (b)               -
                                                                                -------------------------------------
    Average Shares - Diluted                                                        152.2                143.9
                                                                                =====================================
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
        Basic                                                                   $   (0.51)              $ 0.26
        Diluted                                                                 $   (0.51)              $ 0.26
=====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                In Millions, Except Per Share Amounts
- ---------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30                                                        2003                2002
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK:
  CMS Energy - Basic                                                            $     (43)              $    5
  Add conversion of Trust Preferred
          Securities (net of tax)                                                       -  (a)               -  (a)
                                                                                -------------------------------------
  CMS Energy - Diluted                                                          $     (43)              $    5
                                                                                =====================================
AVERAGE COMMON SHARES OUTSTANDING
  APPLICABLE TO BASIC AND DILUTED EPS
  CMS Energy:
    Average Shares - Basic                                                          146.8                137.4
    Add conversion of Trust Preferred Securities                                        -  (a)               -  (a)
    Stock Options and Warrants                                                          -  (b)               -
                                                                                -------------------------------------
    Average Shares - Diluted                                                        146.8                137.4
                                                                                =====================================
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
        Basic                                                                   $   (0.29)              $ 0.04
        Diluted                                                                 $   (0.29)              $ 0.04
=====================================================================================================================
</TABLE>

(a)  The effects of converting the trust preferred securities were not
     included in the computation of diluted earnings per share because to do
     so would have been antidilutive.

(b)  Shares of outstanding stock options and warrants of 0.3 million for
     three months ended 2003 and 0.2 million for nine months ended 2003 were
     not included in the computation of diluted earnings per share because
     to do so would have been antidilutive.

                                     CMS-90
<PAGE>

                                                          CMS Energy Corporation

7: RISK MANAGEMENT ACTIVITIES AND FINANCIAL INSTRUMENTS

The objective of the CMS Energy risk management policy is to analyze, manage and
coordinate the identified risk exposures of the individual business segments.
CMS Energy and its regulated and non-regulated subsidiaries, may utilize a
variety of instruments to manage risk and may execute these transactions with
external parties either directly, or through CMS Enterprises or its marketing
subsidiary, CMS MST. These instruments may include futures contracts, swaps,
options and forward contracts to manage exposure to fluctuations in commodity
prices, interest rates and foreign exchange rates.

These instruments contain credit risk if the counterparties, including financial
institutions and energy marketers, fail to perform under the agreements. CMS
Energy minimizes such risk by performing financial credit mitigation programs
including, among other things, using publicly available credit ratings of such
counterparties, internally developed statistical models for credit scoring and
use of internal hedging programs to minimize exposure to external
counterparties. No material nonperformance is expected.

DERIVATIVE INSTRUMENTS: Contracts used to manage commodity price, interest rate,
and foreign exchange rate risk may be considered derivative instruments that are
subject to derivative and hedge accounting pursuant to SFAS No. 133. If a
contract is accounted for as a derivative instrument, it is recorded in the
consolidated 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 accumulated 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 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. CMS Energy uses a combination of quoted
market prices and mathematical valuation models to determine fair value of those
contracts requiring derivative accounting. The ineffective portion, if any, of
all hedges is recognized in earnings.

The majority of CMS Energy's 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 CMS Energy's exposures to electricity and gas commodity price risk and
interest rate and foreign currency exchange risk.

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 electricity to
customers, to manage electric costs and to ensure a reliable source of capacity
during peak demand periods. As of September 30, 2003, Consumers did not have any
unexpired purchased electric call option contracts subject to derivative
accounting. All remaining purchased electric

                                     CMS-91
<PAGE>

                                                          CMS Energy Corporation

call option contracts subject to derivative accounting as of June 2003, expired
in the third quarter of 2003. As of September 30, 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 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 in
earnings related to these contracts, particularly related to the PPA could be
material to the financial statements.

Consumers' electric business also uses gas option and 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 contracts are financial contracts that
are used to offset increases in the price of potential gas purchases. These
contracts do not qualify for hedge accounting. Therefore, Consumers records any
change in the fair value of these contracts directly in earnings as part of
power supply costs. As of September 30, 2003, gas fuel for generation call
option contracts entered into in the second quarter of 2003 had expired. As of
September 30, 2002, gas fuel for generation swap contracts had a fair value of
less than $1 million. These contracts expired in December 2002.

For the three months ended September 30, 2003, Consumers recorded an unrealized
loss in accumulated other comprehensive income related to its proportionate
share of the effects of derivative accounting related to its equity investment
in the MCV Partnership of $5 million, net of tax. For the nine months ended
September 30, 2003, Consumers recorded an unrealized gain in accumulated other
comprehensive income related to its proportionate share of the effects of
derivative accounting related to its equity investment in the MCV Partnership of
$8 million, net of tax. As of September 30, 2003, the cumulative total of
unrealized gains recorded in other accumulated comprehensive income related to
Consumers' proportionate share of the effects of derivative accounting related
to its equity investment in the MCV Partnership is $6 million, net of tax.
Consumers expects to reclassify this gain, if this value remains, as an increase
to earnings from equity method investees 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
call and put options, and other types of contracts, to meet its regulatory
obligation to provide gas to its customers at a reasonable and prudent cost. As
of September 30, 2003, weather-based gas call options and gas call and put
options requiring derivative accounting had a net fair value that was less than
$1 million. The original cost of the options was a net $3 million. Consumers
recorded an unrealized loss of $3 million associated with these options directly
in earnings as part of other income, and then directly offset this loss and
recorded it on the balance sheet as a regulatory asset. Any subsequent changes
in fair value will be recorded in a similar manner.

As of September 30, 2002, Consumers gas supply contracts and weather-based gas
call options and gas put options requiring derivative accounting had a fair
value of $1 million, representing a fair value gain on the contracts since the
date of inception. Changes in fair value were recorded in a similar manner as
stated above for weather-based gas call options and gas call and put options.

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
records any change in the fair value of these contracts in accumulated other

                                     CMS-92
<PAGE>

                                                          CMS Energy Corporation

comprehensive income unless the swaps are sold. As of September 30, 2003,
Consumers did not have any interest rate swaps outstanding. As of September 30,
2002, Consumers had entered into a swap to fix the interest rate on $75 million
of variable-rate debt. This swap expired in June 2003. As of September 30, 2002,
this interest rate swap had a negative fair value of $2 million.

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

ENERGY TRADING ACTIVITIES: Through December 31, 2002, CMS MST's wholesale power
and gas trading activities were accounted for under the mark-to-market method of
accounting. Effective, January 1, 2003, EITF Issue No. 98-10 was rescinded by
EITF Issue No. 02-03 and as a result, only energy contracts that meet the
definition of a derivative in SFAS No. 133 can be carried at fair value. The
impact of this change for CMS MST was recognized as a cumulative effect of a
change in accounting principle loss of $23 million, net of tax. See Note 10,
Implementation of New Accounting Standards. Under mark-to-market accounting,
energy-trading contracts are reflected at fair market value, net of reserves,
with unrealized gains and losses recorded as an asset or liability in the
consolidated balance sheets. These assets and liabilities are affected by the
timing of settlements related to these contracts, current-period changes from
newly originated transactions and the impact of price movements. Changes in fair
value are recognized as revenues in the consolidated statements of income in the
period in which the changes occur. Market prices used to value outstanding
financial instruments reflect management's consideration of, among other things,
closing exchange and over-the-counter quotations. In certain contracts,
long-term commitments may extend beyond the period in which market quotations
for such contracts are available and volumetric obligations may not be defined.
Mathematical models are developed to determine various inputs into the fair
value calculation including price, anticipated volumetric obligations and other
inputs that may be required to adequately address the determination of fair
value of the contracts. Realized cash returns on these commitments may vary,
either positively or negatively, from the results estimated through application
of the mathematical model. CMS Energy believes that its mathematical models
utilize state-of-the-art technology, pertinent industry data and prudent
discounting in order to forecast certain elongated pricing curves. Market prices
are adjusted to reflect the impact of liquidating the company's position in an
orderly manner over a reasonable period of time under present market conditions.

In connection with the market valuation of its energy commodity contracts, CMS
Energy maintains reserves for credit risks based on the financial condition of
counterparties. The creditworthiness of these counterparties will impact overall
exposure to credit risk; however, CMS Energy maintains credit policies that
management believes minimize overall credit risk with regard to its
counterparties. Determination of its counterparties' credit quality is based
upon a number of factors, including credit ratings, financial condition, and
collateral requirements. Where contractual terms permit, CMS Energy employs
standard agreements that allow for netting of positive and negative exposures
associated with a single counterparty. Based on these policies, its current
exposures and its credit reserves, CMS Energy does not anticipate a material
adverse effect on its financial position or results of operations as a result of
counterparty nonperformance.

At September 30, 2003 and 2002, CMS Energy has recorded a net price risk
management asset of $14 million and $129 million respectively, net of reserves,
related to the unrealized mark-to-market gains on existing wholesale power
contracts, gas contracts, and hedges for retail activities that are marked as
derivatives.

FLOATING TO FIXED INTEREST RATE SWAPS: CMS Energy and its subsidiaries have
entered into floating to

                                     CMS-93
<PAGE>

                                                          CMS Energy Corporation

fixed interest rate swap agreements to reduce the impact of interest rate
fluctuations. These swaps are designated as cash flow hedges and the difference
between the amounts paid and received under the swaps is accrued and recorded as
an adjustment to interest expense over the term of the agreement. Changes in the
fair value of these swaps are recorded in accumulated other comprehensive income
until the swaps are terminated. As of September 30, 2003, these swaps had a
negative fair value of $1 million that, if sustained, will be reclassified to
earnings as the swaps are settled on a quarterly basis.

Notional amounts reflect the volume of transactions but do not represent the
amount exchanged by the parties to the financial instruments. Accordingly,
notional amounts do not necessarily reflect CMS Energy's exposure to credit or
market risks. The weighted average interest rate associated with outstanding
swaps was approximately 7.4 percent at September 30, 2003 and 5.2 percent at
September 30, 2002.

<TABLE>
<CAPTION>
                                                                                                          In Millions
- ---------------------------------------------------------------------------------------------------------------------
Floating to Fixed                                                    Notional       Maturity
Interest Rate Swaps                                                   Amount          Date                 Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>                    <C>
September 30, 2003                                                     $  14        2005-2006                 $ (1)
September 30, 2002                                                     $ 294        2003-2006                 $ (9)
=====================================================================================================================
</TABLE>

FIXED TO FLOATING INTEREST RATE SWAPS: CMS Energy monitors its debt portfolio
mix of fixed and variable rate instruments and may enter into fixed to floating
rate swaps to maintain an appropriate mix of fixed and floating rate debt. These
swaps are designated as fair value hedges and any realized gains or losses in
the fair value are amortized to earnings after the termination of the hedge
instrument over the remaining life of the hedged item. There were no outstanding
fixed to floating interest rate swaps as of September 30, 2003 and 2002.

FOREIGN EXCHANGE DERIVATIVES: CMS Energy may use forward exchange and option
contracts to hedge certain receivables, payables, long-term debt and equity
value relating to foreign investments. The purpose of CMS Energy's foreign
currency hedging activities is to protect the company from the risk associated
with adverse changes in currency exchange rates that could affect materially
cash flow. These contracts would not subject CMS Energy to risk from exchange
rate movements because gains and losses on such contracts offset losses and
gains, respectively, on assets and liabilities being hedged.

There were no outstanding foreign exchange contracts at September 30, 2003. The
notional amount of the outstanding foreign exchange contracts at September 30,
2002 was $1 million Canadian contracts. The estimated fair value of the foreign
exchange and option contracts at September 30, 2002 was zero.

FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term investments and
current liabilities approximate their fair values due to their short-term
nature. The estimated fair values of long-term investments are based on quoted
market prices or, in the absence of specific market prices, on quoted market
prices of similar investments or other valuation techniques. Judgment may also
be required to interpret market data to develop certain estimates of fair value.
Accordingly, the estimates determined as of September 30, 2003 and 2002 are not
necessarily indicative of the amounts that may be realized in current market
exchanges. The carrying amounts of all long-term financial instruments, except
for those as shown below, approximate fair value.

                                     CMS-94
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
                                                                                                           In Millions
- ----------------------------------------------------------------------------------------------------------------------
As of September 30                                       2003                                       2002
- ----------------------------------------------------------------------------------------------------------------------
                                          Carrying     Fair          Unrealized    Carrying     Fair        Unrealized
                                            Cost      Value          Gain(Loss)      Cost       Value         Gain
- ----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>             <C>           <C>         <C>          <C>
Long-Term Debt (a)                        $ 6,291    $ 6,439          $ (148)      $ 5,648     $ 5,206        $ 442
Trust Preferred Securities                    663        603              60           883         676          207
Preferred Stock                                44         33              11            44          23           21
Available-for-Sale Securities:
 Nuclear Decommissioning (b)              $   450    $   553          $  103       $   464     $   530        $  66
 SERP                                          55         62               7            54          56            2
 Southern Union Stock                          54         54               -             -           -            -
======================================================================================================================
</TABLE>

(a)  Settlement of long-term debt is generally not expected until maturity.

(b)  On January 1, 2003, CMS Energy adopted SFAS No. 143 and began
     classifying its unrealized gains and losses on nuclear decommissioning
     investments as regulatory liabilities. CMS Energy previously classified
     these investments in accumulated depreciation.

8:   EQUITY METHOD INVESTMENTS

Certain of CMS Energy's investments in companies, partnerships and joint
ventures, where ownership is more than 20 percent but less than a majority, are
accounted for by the equity method of accounting in accordance with APB Opinion
No. 18. Net income from these investments included distributions in excess of
earnings of $33 million for the three months ended September 30, 2003 and
undistributed earnings of $14 million for the three months ended September 30,
2002. Net income from these investments included undistributed earnings of $38
million for the nine months ended September 30, 2003 and $71 million for the
nine months ended September 30, 2002. The most significant of these investments
is CMS Energy's 50 percent interest in Jorf Lasfar and its 49 percent interest
in the MCV Partnership. Summarized income statement information of CMS Energy's
most significant equity method investments follows.

Income Statement Data

<TABLE>
<CAPTION>
                                                                              In Millions
- -----------------------------------------------------------------------------------------
Three Months Ended September 30, 2003                  Jorf Lasfar     MCV          Total
- -----------------------------------------------------------------------------------------
<S>                                                    <C>            <C>           <C>
Operating revenue                                      $    89        $ 148         $ 237
Operating expenses                                          52          138           190
                                                       ----------------------------------
Operating income                                            37           10            47
Other expense, net                                          17           25            42
                                                       ----------------------------------
Net income (loss)                                      $    20        $ (15)        $   5
=========================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                              In Millions
- -----------------------------------------------------------------------------------------
Three Months Ended September 30, 2002                  Jorf Lasfar     MCV          Total
- -----------------------------------------------------------------------------------------
<S>                                                    <C>            <C>           <C>
Operating revenue                                      $    87        $ 156         $ 243
Operating expenses                                          47          120           167
                                                       ----------------------------------
Operating income                                            40           36            76
Other expense, net                                          14           27            41
                                                       ----------------------------------
Net income                                             $    26        $   9         $  35
=========================================================================================
</TABLE>

                                     CMS-95
<PAGE>

                                                          CMS Energy Corporation

Income Statement Data

<TABLE>
<CAPTION>
                                                                              In Millions
- -----------------------------------------------------------------------------------------
Nine Months Ended September 30, 2003                    Jorf Lasfar    MCV          Total
- -----------------------------------------------------------------------------------------
<S>                                                     <C>           <C>           <C>
Operating revenue                                       $    270      $ 443         $ 713
Operating expenses                                           138        322           460
                                                        ---------------------------------
Operating income                                             132        121           253
Other expense, net                                            41         82           123
                                                        ---------------------------------
Net income                                              $     91       $ 39         $ 130
=========================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                              In Millions
- -----------------------------------------------------------------------------------------
Nine Months Ended September 30, 2002                    Jorf Lasfar    MCV          Total
- -----------------------------------------------------------------------------------------
<S>                                                     <C>           <C>           <C>
Operating revenue                                       $    274      $ 451         $ 725
Operating expenses                                           136        318           454
                                                        ---------------------------------
Operating income                                             138        133           271
Other expense, net                                            36         86           122
Cumulative effect of change in method of
  accounting for derivative options contracts (a)              -         58            58
                                                        ---------------------------------
Net income                                              $    102      $ 105         $ 207
=========================================================================================
</TABLE>

(a)  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 cumulative
     effect adjustment for the change in accounting principle was recorded
     as an increase to earnings.

9: REPORTABLE SEGMENTS

CMS Energy's reportable segments are strategic business units organized and
managed by the nature of the products and services each provides. Management
evaluates performance based upon the net income of each segment. Previously, CMS
Energy operated in five reportable segments: electric utility, gas utility,
natural gas transmission, independent power production and marketing, services
and trading. As a result of recent changes in its business strategy, including
the sale of non-strategic and under-performing assets, and management
reorganization, CMS Energy now operates principally in the following three
reportable segments: electric utility, gas utility, and enterprises.

The electric utility segment consists of regulated activities associated with
the generation, transmission and distribution of electricity in the state of
Michigan through its subsidiary, Consumers. The gas utility segment consists of
regulated activities associated with the transportation, storage and
distribution of natural gas in the state of Michigan through its subsidiary,
Consumers. The enterprises segment consists of investing in, acquiring,
developing, constructing, managing and operating non-utility power generation
plants and natural gas facilities in the United States and abroad; and providing
gas, oil, and electric marketing services to energy users.

The tables below show revenues, net income, and total assets by reportable
segment. The "Other" net income segment includes corporate interest and other,
discontinued operations and the cumulative effect of accounting changes. The
2002 information has been restated to reflect the management reorganization and
the change in CMS Energy's business strategy from five to three operating
segments.

                                     CMS-96
<PAGE>

                                                          CMS Energy Corporation

<TABLE>
<CAPTION>
Reportable Segments                            In Millions
- ----------------------------------------------------------
Three Months Ended September 30         2003        2002
- ----------------------------------------------------------
<S>                                   <C>         <C>
Revenues
  Electric utility                    $    714    $    774
  Gas utility                              164         134
  Enterprises                              138       1,626
  Other                                      -           -
                                      --------------------
                                      $  1,016    $  2,534
==========================================================
</TABLE>

<TABLE>
<CAPTION>
Reportable Segments                            In Millions
- ----------------------------------------------------------
Nine Months Ended September 30          2003        2002
- ----------------------------------------------------------
<S>                                   <C>         <C>
Revenues
  Electric utility                    $  1,966    $  2,013
  Gas utility                            1,252       1,002
  Enterprises                              841       3,826
  Other                                      -           2
                                      --------------------
                                      $  4,059    $  6,843
==========================================================
</TABLE>

<TABLE>
<CAPTION>
Reportable Segments                            In Millions
- ----------------------------------------------------------
Three Months Ended September 30         2003        2002
- ----------------------------------------------------------
<S>                                   <C>         <C>
Net Income (Loss)
  Electric utility                    $     59    $     88
  Gas utility                              (19)        (18)
  Enterprises                               13          58
  Other                                   (130)        (91)
                                      --------------------
                                      $    (77)   $     37
==========================================================
</TABLE>

<TABLE>
<CAPTION>
Reportable Segments                            In Millions
- ----------------------------------------------------------
Nine Months Ended September 30          2003        2002
- ----------------------------------------------------------
<S>                                   <C>         <C>
Net Income (Loss)
  Electric utility                    $    145    $    222
  Gas utility                               40          13
  Enterprises                               48         126
  Other                                   (276)       (356)
                                      --------------------
                                      $    (43)   $      5
==========================================================
</TABLE>

<TABLE>
<CAPTION>
Reportable Segments                            In Millions
- ----------------------------------------------------------
September 30                            2003        2002
- ----------------------------------------------------------
<S>                                   <C>         <C>
Total Assets
  Electric utility                    $  6,210    $  5,483
  Gas utility                            2,331       2,024
  Enterprises                            3,610       6,728
  Other                                    160         162
                                      --------------------
                                      $ 12,311    $ 14,397
==========================================================
</TABLE>


                                     CMS-97
<PAGE>

                                                          CMS Energy Corporation

10: IMPLEMENTATION OF 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. CMS Energy has determined that it has
legal asset retirement obligations, particularly in regard to Consumers' nuclear
plants.

Prior to adoption of SFAS No. 143, Consumers classified the removal cost
liability of assets included in the scope of SFAS No. 143 as part of the reserve
for accumulated depreciation. For these assets, the removal cost of $448 million
which was classified as part of the reserve at December 31, 2002, was
reclassified in January 2003, in part, as: 1) a $364 million ARO liability; 2) a
$134 million regulatory liability; 3) a $42 million regulatory asset; and 4) a
$7 million net increase to property, plant, and equipment as prescribed by SFAS
No. 143. As required by SFAS No. 71 for regulated entities, Consumers is
reflecting a regulatory asset and liability instead of a cumulative effect of a
change in accounting principle.

The fair value of ARO liabilities has been calculated using an expected present
value technique. This technique reflects assumptions, such as costs, inflation,
and profit margin that third parties would consider in order to take on the
settlement of the obligation. Fair value, to the extent possible, should include
a market risk premium for unforeseeable circumstances. No market risk premium
was included in Consumers' ARO fair value estimate since a reasonable estimate
could not be made. If a five percent market risk premium were assumed,
Consumers' ARO liability would be $381 million.

If a reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, such as assets with an indeterminate life,
the liability is to be recognized when a reasonable estimate of fair value can
be made. Generally, transmission and distribution assets have an indeterminate
life, retirement cash flows cannot be determined and there is a low probability
of a retirement date, therefore no liability has been recorded for these assets.
No liability has been recorded for assets that have an insignificant cumulative
disposal cost, such as substation batteries. The initial measurement of the ARO
liability for Consumers' Palisades Nuclear Plant and Big Rock Nuclear Plant is
based on decommissioning studies, which are based largely on third party cost
estimates.

In addition, in 2003, CMS Energy recorded an ARO liability for certain pipelines
and non-utility generating plants and a $1 million, net of tax, cumulative
effect of change in accounting for accretion and depreciation expense for ARO
liabilities incurred prior to 2003. The pro forma effect on results of
operations would not have been material for the nine months ended September 30,
2002.

The following table is a general description of the AROs and their associated
long-lived assets.

<TABLE>
<CAPTION>
September 30, 2003                                                                               In Millions
- ------------------------------------------------------------------------------------------------------------
                                                  In Service                                           Trust
           ARO Description                           Date              Long Lived Assets                Fund
- ------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>                                     <C>
Palisades-decommission plant site                    1972      Palisades nuclear plant                 $ 462
Big Rock-decommission plant site                     1962      Big Rock nuclear plant                     90
JHCampbell intake/discharge water line               1980      Plant intake/discharge water line           -
Closure of coal ash disposal areas                Various      Generating plants coal areas                -
Closure of wells at gas storage fields            Various      Gas storage fields                          -
Indoor gas services equipment relocations         Various      Gas meters located inside structures        -
Closure of gas pipelines                          Various      Gas transmission pipelines                  -
Dismantle natural gas-fired power plant              1997      Gas fueled power plant                      -
============================================================================================================
</TABLE>

                                     CMS-98
<PAGE>

                                                          CMS Energy Corporation

The following table is a reconciliation of the carrying amount of the AROs:

<TABLE>
<CAPTION>
September 30, 2003                                                                                      In Millions
- -------------------------------------------------------------------------------------------------------------------
                                     Pro Forma
                                  ARO Liability                 ARO Liability                    Cashflow
ARO                                   1/1/02      1/1/03    Incurred    Settled    Accretion     Revisions  9/30/03
- -------------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>       <C>         <C>        <C>           <C>        <C>
Palisades-decommission                $ 232       $ 249       $ -        $   -       $ 14          $ -       $ 263
Big Rock-decommission                    94          61         -          (28)        10            -          43
JHCampbell intake line                    -           -         -            -          -            -           -
Coal ash disposal areas                  46          51         -           (2)         4            -          53
Wells at gas storage fields               2           2         -            -          -            -           2
Indoor gas services relocations           1           1         -            -          -            -           1
Closure of gas pipelines (a)              7           8         -           (8)         -            -           -
Dismantle natural gas-fired
     power plant                          1           1         -            -          -            -           1
- ------------------------------------------------------------------------------------------------------------------
Total                                 $ 383       $ 373       $ -        $ (38)      $ 28          $ -       $ 363
==================================================================================================================
</TABLE>

a)  ARO Liability was settled during 2003 as a result of the sales of Panhandle
    and CMS Field Services.

SFAS NO. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES: Issued by the FASB in April 2003, this statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for contracts
entered into or modified after June 30, 2003. Implementation of this statement
has not had an impact on CMS Energy's Consolidated Financial Statements.

SFAS NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY: Issued by the FASB in May 2003, this statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement requires an issuer to classify financial instruments within its scope
as liabilities. Those instruments were previously classified as mezzanine
equity. SFAS No. 150 became effective July 1, 2003.

CMS Energy has one, and Consumers has four, trust preferred securities
outstanding as of September 30, 2003. The trust preferred securities are issued
by consolidated subsidiaries of CMS Energy and Consumers. Each trust holds a
subordinated debenture from the parent company. The terms of the debentures are
identical to those of the trust preferred securities, except that the debenture
has an explicit maturity date. The trust documents, in turn, require that the
trust be liquidated upon the repayment of the debenture. The preferred
securities are redeemable upon the liquidation of the subsidiary; and therefore,
are considered equity in the financial statements of the subsidiary.

At their October 29, 2003 Board meeting, the FASB deferred the implementation of
the portion of SFAS No. 150 relating to mandatorily redeemable noncontrolling
interests in subsidiaries when the noncontrolling interests are classified as
equity in the financial statements of the subsidiary. CMS Energy and Consumers
trust preferred securities are included in the deferral. As such, the CMS Energy
and Consumers trust preferred securities continue to be accounted for under
existing accounting guidance and are included in mezzanine equity. CMS Energy
and Consumers continue to study the FASB developments regarding the SFAS No. 150
deferral.

                                     CMS-99
<PAGE>

                                                          CMS Energy Corporation

EITF ISSUE NO. 02-03, RECOGNITION AND REPORTING OF GAINS AND LOSSES ON ENERGY
TRADING CONTRACTS UNDER EITF ISSUES NO. 98-10 AND 00-17: At the October 25, 2002
meeting, the EITF reached a consensus to rescind EITF Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities. As a result, only energy contracts that meet the definition of a
derivative in SFAS No. 133 will be carried at fair value. Energy trading
contracts that do not meet the definition of a derivative must be accounted for
as an executory contract (i.e., on an accrual basis). The consensus rescinding
EITF Issue No. 98-10 was required to be applied to all contracts that existed as
of October 25, 2002 and was required to be recognized as a cumulative effect of
a change in accounting principle in accordance with APB Opinion No. 20,
Accounting Changes, effective the first day of the first interim or annual
period beginning after December 15, 2002. The consensus also was required to be
applied immediately to all new contracts entered into after October 25, 2002.
The full adoption of EITF Issue No. 02-03 effective January 1, 2003, resulted in
CMS Energy recognizing a cumulative effect of change in accounting principle
loss of $23 million, net of tax, for the nine months ended September 30, 2003.

EITF ISSUE NO. 01-08, DETERMINING WHETHER AN ARRANGEMENT CONTAINS A LEASE: In
May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a
lease at its inception. The guidance in the consensus is designed to mandate
reporting revenue as rental or leasing income that otherwise would be reported
as part of product sales or service revenue. EITF Issue No. 01-08 requires both
parties to an arrangement to determine whether a service contract or similar
arrangement is or includes a lease within the scope of SFAS No. 13, Accounting
for Leases.

Historically, CMS Energy has entered into power purchase and similar service
arrangements. Prospective accounting under EITF Issue No. 01-08, could affect
the timing and classification of revenue and expense recognition. Certain
product sales and service revenue and expenses may be required to be reported as
rental or leasing income and/or expenses. The consensus is to be applied
prospectively to arrangements agreed to, modified, or acquired in business
combinations in fiscal periods beginning July 1, 2003. The adoption of EITF
Issue No. 01-08 has not impacted CMS Energy's results of operations, cash flows,
or financial position. CMS Energy will evaluate new or modified contracts under
EITF Issue No. 01-08 prospectively.

ACCOUNTING STANDARDS NOT YET EFFECTIVE

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, this interpretation requires the primary
beneficiary of a variable interest entity's activities to consolidate the
variable interest entity. The primary beneficiary is the party that absorbs a
majority of the expected losses and/or receives a majority of the expected
residual returns of the variable interest entity's activities. The consolidation
requirements of the interpretation apply immediately to variable interest
entities created after January 31, 2003. CMS Energy has not created any variable
interest entities in 2003. Therefore, this portion of the interpretation has no
impact on its consolidated financial statements. Public companies, whose fiscal
year is a calendar year, were originally required to implement the guidance in
this interpretation by the third quarter of 2003. However, on October 9, 2003,
the FASB issued FASB Staff Position No. 46-6, Effective Date of FASB
Interpretation No. 46, and deferred implementation of Interpretation No. 46
until the fourth quarter of 2003 for variable interest entities and potential
variable interest entities created before February 1, 2003.

CMS Energy is evaluating all of its interests in entities, including
approximately 30 minority-held investments that are not currently consolidated,
to determine their treatment under FIN 46. The majority of

                                    CMS-100
<PAGE>

                                                          CMS Energy Corporation

these investments are electric generation and gas transmission projects. CMS
Energy's investment in these entities totaled approximately $1,425 million as of
September 30, 2003. Jorf Lasfar and the MCV Partnership are the two largest
entities impacting CMS Energy's operations. For further information, see Note 8,
Equity Method Investments.

If the completed analysis were to require CMS Energy to disclose information
about or consolidate in its financial statements, the assets, liabilities and
activities of the MCV Partnership and the First Midland Limited Partnership,
including the recognition of the debt of the MCV Partnership on Consumers'
financial statements, this could impact negatively CMS Energy's and Consumers'
various financial covenants under their financing agreements. As a result, CMS
Energy and Consumers may have to seek amendments to the relevant financing
agreements to modify the terms of certain of these covenants in order to remove
the effect of this potential consolidation or refinance the relevant debt. As of
September 30, 2003, Consumers' investments in the MCV Partnership and in the
FMLP were $404 million and $222 million, respectively. For further description
of the nature, purpose, size and activities of the MCV Partnership see Note 4,
Uncertainties, Other Consumers' Electric Utility Uncertainties, "The Midland
Cogeneration Venture" and Note 8, Equity Method Investments. CMS Energy is
continuing to study the implementation of this interpretation and has yet to
determine the effects, if any, on its consolidated financial statements.

EITF ISSUE 03-04, ACCOUNTING FOR CASH BALANCE PENSION PLANS: In May 2003, the
EITF reached consensus in EITF Issue No. 03-04 to specifically address the
accounting for certain cash balance pension plans. EITF Issue No. 03-04
concluded that certain cash balance plans be accounted for as defined benefit
plans under SFAS No. 87, Employers' Accounting for Pensions. EITF No. 03-04
requires the use of the traditional unit credit method for the purposes of
measuring the benefit obligation and annual cost of benefits earned as opposed
to the projected unit credit method. The EITF concluded that the requirements of
this Issue be applied as of the next plan measurement date, which is December
31, 2003 for CMS Energy. CMS Energy commenced a cash balance pension plan that
covers employees hired after June 30, 2003. CMS Energy does account for this
plan as a defined benefit plan under SFAS No. 87. CMS Energy continues to
evaluate the impact, if any, this Issue will have upon adoption.

STATEMENT OF POSITION, ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO
PROPERTY, PLANT, AND EQUIPMENT: At its September 9, 2003 meeting, the Accounting
Standards Executive Committee voted to approve the Statement of Position,
Accounting for Certain Costs and Activities Related to Property, Plant, and
Equipment. The Statement of Position is expected to be presented for FASB
clearance late in the fourth quarter of 2003 and would be applicable for fiscal
years beginning after December 15, 2004. The Accounting Standards Executive
Committee concluded that at transition, a company would have the flexibility to
adopt a property, plant and equipment component accounting policy for
transition-date property, plant and equipment accounts. The property, plant and
equipment component accounting policy may differ from the componentization
policy, if any, previously used by the enterprise. Selecting a policy that
differs from the company's prior level of componentization at the date of
adoption of the Statement of Position would not result in any cumulative effect
difference for adopting such a policy. A company would not have to restate its
pre-adoption assets to conform with its post-adoption componentization policy.
The Accounting Standards Executive Committee concluded that companies would be
required to disclose meaningful ranges with respect to property, plant and
equipment depreciable lives. CMS Energy continues to evaluate the impact, if
any, this Statement of Position will have upon adoption.

                                    CMS-101
<PAGE>

                                                          CMS Energy Corporation

                      (This page intentionally left blank)

                                    CMS-102
<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 Consumers' Notes to Consolidated Financial Statements and
should be read in conjunction with such Consolidated Financial Statements and
Notes. This Form 10-Q 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' intention with the use of the words
"anticipates," "believes," "estimates," "expects," "intends," and "plans," and
variations of such words and similar expressions, is 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 the 2002 Form 10-K in the section entitled
"Forward-Looking Statements Cautionary Factors and Uncertainties" 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 Form 10-Q also describes material
contingencies in Consumers' Condensed 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

Consumers' consolidated financial statements are based on the application of
accounting principles generally accepted in the United States. The application
of these principles often requires management to make certain judgments,
assumptions and estimates that may result in different financial presentations.
Consumers believes that certain accounting principles are critical in terms of
understanding its consolidated financial statements. These principles include
the use of estimates in accounting for contingencies and long-lived assets,
accounting for derivatives and financial instruments, regulatory accounting, and
pension and postretirement benefits.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Certain accounting principles require subjective and
complex judgments used in the preparation of financial statements. Accordingly,
a different financial presentation could result depending on the judgment,
estimates or assumptions that are used. Such estimates and assumptions include,
but are not specifically limited to: depreciation, amortization, interest rates,
discount rates, future commodity prices, mark-to-market valuations, investment
returns, impact of new accounting standards, future costs associated with
long-term contractual

                                      CE-1
<PAGE>

                                                        Consumers Energy Company

obligations, future compliance costs associated with environmental regulations
and continuing creditworthiness of counterparties. Actual results could differ
materially from those estimates.

The recording of estimated liabilities for contingencies within the financial
statements is guided by the principles in SFAS No. 5. SFAS No. 5 requires a
company to record estimated liabilities in the financial statements when it is
probable that a loss payment will be made in the future as a result of a current
event, and when that amount can be reasonably estimated. Consumers has used this
accounting principle to record 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.

The EPA has issued regulations regarding nitrogen oxide emissions from certain
generators, including some of Consumers' electric generating facilities. These
regulations require Consumers to make significant capital expenditures estimated
to be $770 million. As of September 30, 2003, Consumers has incurred $437
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 and
their cost can change substantially. As new environmental standards become
effective, Consumers will need additional capital expenditures to comply with
the standards. Capital expenditures will depend upon the composition of the
final regulations.

The EPA has proposed changes to the rules that govern generating plant cooling
water intake systems. The proposed rules will require significant abatement of
fish mortality. The proposed rules are scheduled to become final in the first
quarter of 2004 and some of Consumers' facilities would be required to comply by
2006. Consumers is studying the proposed rules to determine the most
cost-effective solutions for compliance. Until the method of compliance is
determined, Consumers is unable to estimate the cost of compliance with the
proposed rules.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek permits from the EPA.
Consumers has received and responded to information requests from the EPA on
this subject. Consumers believes that it has properly interpreted the
requirements of "routine maintenance". If Consumers' interpretation is
eventually found to be incorrect, it may be required to install additional
pollution controls at some or all of its coal-fired plants and could call into
question the viability of certain plants remaining in operation.

For further information on electric environmental matters 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 using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. A revised cost
estimate, completed in September 2003, estimated remaining costs to be between
$37 million and $90 million. The range reflects multiple alternatives with
various assumptions for resolving the environmental issues at each site. The
estimates are based on discounted 2003 costs using a discount rate of three
percent. The discount rate represents a ten-year average of U.S. Treasury bond
rates reduced for increases in the consumer price index. Any significant change
in assumptions, such as remediation techniques, nature and extent of
contamination, and legal and regulatory

                                      CE-2
<PAGE>

                                                        Consumers Energy Company

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 the term of the PPA ending 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 and a fixed energy charge, and also to pay 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 and fixed energy charges in rates. After September 2007, the PPA's
regulatory out 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. The remaining estimated future PPA liability associated with the
loss totaled $34 million at September 30, 2003 and $59 million at September 30,
2002. 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
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.

Under Michigan's electric restructuring law, Consumers will return to unfrozen
rates for large industrial customers beginning January 1, 2004, including the
resumption of the PSCR process. Under the PSCR process, Consumers will recover
from customers capacity and fixed energy charges on the basis of availability,
to the extent that availability does not exceed 88.7 percent availability
established in previous MPSC orders. Recovery of capacity and fixed energy
charges will be subject to certain rate caps as discussed in Note 2,
Uncertainties, "Electric Rate Matters - Electric Restructuring." For capacity
and energy 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. The regulatory out provision relieves Consumers of the obligation
to pay more for capacity and energy payments than the MPSC allows Consumers to
collect from its customers. Consumers estimates 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. If the MCV Facility's generating availability remains at the maximum
98.5 percent level, Consumers' cash underrecoveries associated with the PPA
could be as follows:

<TABLE>
<CAPTION>
                                                                                    In Millions
- -----------------------------------------------------------------------------------------------
                                                  2003       2004     2005      2006       2007
- -----------------------------------------------------------------------------------------------
<S>                                               <C>        <C>      <C>       <C>        <C>
Estimated cash underrecoveries at 98.5% (a)        $57        $56      $56       $55        $39

Amount to be charged to operating expense          $28        $27      $56       $55        $39

Amount to be charged to PPA liability              $29        $29      $ -       $ -        $ -
===============================================================================================
</TABLE>

                                      CE-3
<PAGE>

                                                        Consumers Energy Company

(a) For the nine months ended September 30, 2003, Consumers' cash
underrecoveries associated with the PPA were $43 million.

As previously noted, until September 2007, the PPA and settlement require
Consumers to pay capacity costs based on the MCV Facility's actual availability
up to the 98.5 percent cap. After September 2007, Consumers expects to exercise
the "regulatory out" clause in the PPA, limiting its capacity payments to the
MCV Partnership to the amount collected from its customers. Depending on the
MPSC's future actions with respect to the capacity payments recoverable from its
customers subsequent to September 2007, the earnings of the MCV Partnership and
the value of Consumers' equity interest in the MCV Partnership, may be affected
negatively.

Further, under the PPA, energy payments to the MCV Partnership are based on the
cost of coal burned in Consumers' coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with Consumers' coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.

As of January 1, 2004, Consumers intends to return to forced (uneconomic)
dispatch of the MCV Facility in order to maximize recovery of its capacity
payments. As such, if the spread between MCV Facility's variable electricity
production costs and its energy payment revenues stays constant or widens, the
negative impacts on MCV Partnership's financial performance, and on the value of
Consumers' equity interest in the MCV Partnership, will be worse.

Consumers cannot estimate, at this time, the impact of these issues on its
future earnings or cash flow from its interest in the MCV Partnership. The
forward price of natural gas for the next 22 years and the MPSC decision in 2007
or later related to Consumers' recovery of capacity payments are the two most
significant variables in the analysis of MCV Partnership's future financial
performance. Natural gas prices have historically been volatile and presently
there is no consensus in the marketplace on the price or range of prices of
natural gas beyond the next five years. Further, it is not presently possible
for Consumers to predict the actions of the MPSC in 2007 or later. For these
reasons, at this time Consumers cannot predict the impact of these issues on its
future earnings, cash flows, or on the value of its $404 million equity interest
in the MCV Partnership.

Consumers is exploring possible alternatives for utilizing the MCV Facility
without increasing costs to customers. Any changes regarding the recovery of MCV
capacity costs would require MPSC approval. Consumers cannot predict the outcome
of this matter.

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 the criteria in SFAS No. 133, as amended
and interpreted, to determine if certain contracts must be accounted for as
derivative instruments. The rules for determining whether a contract meets the
criteria for derivative accounting are numerous and complex. As a result,
significant judgment is required to determine whether a contract requires
derivative accounting, and similar contracts can sometimes be accounted for
differently.

The types of contracts Consumers typically classifies as derivative instruments
are interest rate swaps, certain

                                      CE-4
<PAGE>

                                                        Consumers Energy Company

electric call options, gas fuel options, fixed priced weather-based gas supply
call options and fixed price gas supply call and put options. Consumers does not
account for electric capacity and energy contracts, gas supply contracts, coal
and nuclear fuel supply contracts, or purchase orders for numerous supply items
as derivatives.

Certain of Consumers' 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 accumulated 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 determine the fair value of contracts that are accounted for as
derivative instruments, Consumers uses a combination of quoted market prices and
mathematical valuation models. Valuation 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 certain contracts. At September 30, 2003, Consumers
assumed a market-based interest rate of one percent (six-month U.S. Treasury)
and an average volatility rate of 55 percent to calculate the fair value of its
gas 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 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 investments in debt and equity
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 resulting from changes in fair value reported in
equity as part of accumulated other comprehensive income and are 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, and an additional $12 million in
the first quarter of 2003. As of September 30, 2003, Consumers held 2.4 million
shares of CMS Energy Common Stock with a fair value of $17 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. Unrealized gains or losses resulting from changes in
the fair value of Consumers' nuclear decommissioning investments are reported as
regulatory liabilities. The fair value of these investments is determined from
quoted market prices.

                                      CE-5
<PAGE>

                                                        Consumers Energy Company

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. Established policies and procedures are used to
manage the risks associated with market fluctuations.

Consumers may use 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 they deem necessary. Changes 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 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 deemed appropriate, based upon market
conditions. These strategies are designed to provide and maintain a balance
between risk and the lowest cost of capital.

As of September 30, 2003, Consumers had no outstanding interest rate swap
agreements. As of September 30, 2003, Consumers had outstanding variable-rate
financing of $628 million, a $640 million decrease (50 percent) from the
December 31, 2002 balance of $1.268 billion. The decline in variable-rate
financing is primarily due to a shift toward fixed-rate financing. As of
September 30, 2003, assuming a hypothetical 10 percent adverse change in market
interest rates, Consumers' before tax annual earnings exposure on its
variable-rate financing would be $1 million.

As of September 30, 2003, Consumers had outstanding fixed-rate financing of
$3.694 billion, a $934 million increase (34 percent) over the December 31, 2002
balance of $2.760 billion. As of September 30, 2003, the fair value of
Consumers' fixed-rate financing was $3.804 billion, a $1.127 billion increase
(42 percent) over the December 31, 2002 fair value of $2.677 billion. The change
in the fair value of the fixed-rate financing is due to both an increase in
outstanding fixed-rate debt obligations as well as a decline in market interest
rates. As of September 30, 2003, assuming a hypothetical 10 percent adverse
change in market interest rates, the fair value of Consumers' fixed-rate
financing would increase by $155 million.

As discussed below in Electric Business Outlook - Securitization, Consumers has
filed an application with the MPSC to securitize certain costs. Upon final
approval, Consumers intends to use the proceeds from the securitization to
retire higher cost debt, which could include a portion of its current fixed-rate
debt. Consumers does not believe that any adverse change in debt price and
interest rates would have a material

                                      CE-6
<PAGE>

                                                        Consumers Energy Company

adverse effect on either its consolidated financial position, results of
operation or cash flows.

Commodity Market Risk: For purposes other than trading, Consumers entered into
electric call options, fixed priced weather-based gas supply call options and
fixed priced gas supply call and 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 weather-based gas supply call options, and the gas supply call and put
options are used to purchase reasonably priced gas supply. Call options allow
Consumers the right but not the obligation to purchase gas supply at
predetermined fixed prices. Put options allow third-party suppliers the right
but not the obligation to sell Consumers gas supply at predetermined fixed
prices.

As of September 30, 2003 and December 31, 2002, the fair value of
electricity-related call option contracts, based on quoted market prices and
mathematical valuation models using current and historical pricing data, was $3
million and $9 million, respectively. As of September 30, 2003 assuming a
hypothetical 10 percent adverse change in market prices, the potential reduction
in fair value associated with these contracts would be $1 million. As of
September 30, 2003 and December 31, 2002, Consumers had an asset of $21 million
and $30 million, respectively, related to premiums incurred for electric call
option contracts. Consumers' maximum exposure associated with the call option
contracts is limited to the premiums incurred. As of September 30, 2003, the
fair value of the fixed priced weather-based gas supply call options and fixed
priced gas supply call and put options, based on quoted market prices and
mathematical valuation models, was less than $1 million. As of September 30,
2003, assuming a hypothetical 10 percent adverse change in market prices, the
potential reduction in fair value associated with these contracts would be $1
million.

For further information on market risk and derivative activities, see Note 4,
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 normally would 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 be refunded to customers. Judgment is required to
discern the recoverability of items recorded as regulatory assets and
liabilities. As of September 30, 2003, Consumers had $1.113 billion recorded as
regulatory assets and $461 million recorded as regulatory liabilities.

In 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. However,
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

                                      CE-7
<PAGE>

                                                        Consumers Energy Company

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 allowed
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business beginning in the fourth quarter of 2002, including regulatory
accounting treatment of costs required to be recognized in accordance with SFAS
No. 143. See Note 5, Implementation of New Accounting Standards, "SFAS No. 143,
Accounting for Asset Retirement Obligations."

For further information on industry regulation, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, "Utility Regulation".

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 requires the
expertise of actuaries and is 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 are not distinguishable from the Pension
Plan's total assets. In June 2003, CMS Energy completed the sale of Panhandle to
Southern Union Panhandle Corp. No portion of the Pension Plan was transferred
with the sale. Panhandle employees are no longer eligible to accrue additional
benefits. The Pension Plan retained pension payment obligations for Panhandle
employees that were vested under the Pension Plan. Because of the significant
change in the makeup of the plan, SFAS No. 87 required a remeasurement of the
obligation at the date of sale. The estimated remeasurement resulted in an
increase in pension expense of approximately $3 million and OPEB expense of
approximately $5 million for 2003, as well as an additional charge to
accumulated other comprehensive income of approximately $27 million ($17 million
after tax) as a result of the increase in the additional minimum pension
liability. The actuary is in the process of finalizing the effects of the
mid-year remeasurement. Although actual results may differ from the estimates
recorded, Consumers does not expect those differences to be material.

Consumers estimates OPEB expense will approximate $54 million in 2003, $62
million in 2004, and $60 million in 2005. Consumers estimates pension expense
will approximate $38 million in 2003, $46 million in 2004, and $47 million in
2005. 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. In August 2003, Consumers
made its planned contribution of $172 million to the Pension Plan.

Consumers has announced amendments to the Pension Plan for salaried employees,
whereby, 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 not earn
an additional 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. In addition, Consumers has implemented a cash balance plan for
employees hired on or after July 1, 2003. Under a cash balance plan, an
employees' retirement account is credited annually with a percentage of their
base pay. Accounts will be valued at the end of each year, using an annual
variable interest rate to determine growth. Employees who leave the company and
are vested in the cash balance version of the pension plan can either start
receiving their benefit immediately, postpone receiving benefits until a future
date while receiving an

                                      CE-8
<PAGE>

                                                        Consumers Energy Company

earnings credit on their account (payment cannot be deferred beyond age 70-1/2),
or roll 100 percent of the cash balance account into an IRA or another qualified
plan. If a participant is not vested (less than five years of service under the
terms of the plan), the cash balance account is forfeited.

In 2003, a large majority of retiring employees elected the lump sum payment
option instead of receiving pension benefits as an annuity over time. As a
result, Consumers may be required to record a settlement loss in accordance with
SFAS No. 88, which requires a settlement loss to be recognized when the cost of
all settlements paid during the year exceeds the sum of the service and interest
costs for the same year. Consumers cannot yet determine if the amount of lump
sum payments for 2003 will exceed the threshold, but estimates that if the
threshold is exceeded, between $55 million and $65 million could be recognized
as a loss in the fourth quarter of 2003.

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. The MPSC orders received in March and December of 1999 for Big Rock and
Palisades plants, respectively, provided for fully funding the decommissioning
trust funds for both sites. The December 1999 order set the annual
decommissioning surcharge for the Palisades decommissioning at $6 million.
Consumers estimates that at the time of the decommissioning of Palisades, its
decommissioning trust fund will be fully funded. This conclusion assumes 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 cost estimates use various inflation rates for labor,
non-labor, and contaminated equipment disposal costs.

In December 2000, funding of the Big Rock trust fund was stopped since it was
considered fully funded, subject to further review. A portion of future
decommissioning cost will result from the failure of the DOE to remove fuel from
the site. These costs, and similar costs incurred at Palisades, would not be
necessary if the DOE took possession of the spent fuel as required by the
Nuclear Waste Policy Act of 1982. A number of utilities, including Consumers,
which filed its complaint in December 2002, have commenced litigation in the
Court of Claims. The Chief Judge of the Court of Claims identified six lead
cases to be used as vehicles for resolving dispositive motions. Consumers' case
is not a lead case. It is unclear what impact this decision by the Chief Judge
will have on the outcome of Consumers' litigation. 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. However, there is no assurance that the litigation against the
DOE will be successful.

The funds provided by the trusts and additional potential 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 and the adequacy of the decommissioning
trust funds. For further information see Note 2, Uncertainties, "Other Electric
Uncertainties - Nuclear Matters."

In March 2003, the Michigan Environmental Council, the Public Interest Research
Group in Michigan, and the Michigan Consumer Federation submitted a complaint to
the MPSC, which was served on Consumers by the MPSC in April 2003. The complaint
asks the MPSC to commence a generic investigation and contested case to review
all facts and issues concerning costs associated with spent nuclear fuel storage
and disposal. The complaint seeks a variety of relief with respect to Consumers,
Detroit Edison, Indiana & Michigan Electric Company, Wisconsin Electric Power
Company and Wisconsin Public Service Corporation, including

                                      CE-9
<PAGE>

                                                        Consumers Energy Company

establishing 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 related to the storage and disposal of spent nuclear
fuel. In May 2003, Consumers and the other named utilities each filed a motion
to dismiss the complaint. Consumers is unable to predict the outcome of this
matter.

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 for generation from CMS MST, the sale of electricity to CMS MST, the
purchase of gas transportation from CMS Bay Area Pipeline, L.L.C., the payment
of parent company overhead costs to CMS Energy, the sale of 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 of storage and
transportation of natural gas and other services to the MCV Partnership are
generally 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 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. Consumers continues
to use the transmission facilities now owned by MTH, and a director of Consumers
is currently a stockholder of Trans-Elect, Inc.

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

                                     CE-10
<PAGE>

                                                        Consumers Energy Company

RESULTS OF OPERATIONS

CONSUMERS' NET INCOME AVAILABLE TO COMMON STOCKHOLDER

<TABLE>
<CAPTION>
                                                                   In Millions
- ------------------------------------------------------------------------------
September 30                               2003           2002          Change
- ------------------------------------------------------------------------------
<S>                                        <C>            <C>           <C>
Three months ended                         $ 33           $ 74           $ (41)
Nine months ended                          $172           $267           $ (95)
==============================================================================
</TABLE>

2003 COMPARED TO 2002: For the three months ended September 30, 2003, Consumers'
net income available to common stockholder totaled $33 million, a decrease of
$41 million from the previous year.

A decrease in electric delivery revenues reduced earnings by $22 million
after-tax. This decrease was primarily due to reduced deliveries to the higher
margin residential sector resulting from milder summer weather compared to the
same period in 2002, which included record setting monthly sendout and monthly
hourly peak demand volumes. Commercial and industrial customers switching to
alternative electric suppliers as allowed by the Customer Choice Act further
reduced electric delivery revenues. Lower gas deliveries reduced after-tax
earnings by $9 million. Earnings were also reduced $10 million after-tax due to
a decrease in the fair value of certain long-term gas contracts held by the MCV
Partnership. The earnings decrease also reflects increased costs of borrowing
that reduced earnings by $4 million after-tax, and increased general tax expense
of $3 million after-tax. Offsetting the earnings decrease is an after-tax
benefit of $3 million due to the final gas rate order issued in 2002 authorizing
Consumers to increase its gas tariff rates.

For the nine months ended September 30, 2003, Consumers' net income available to
common stockholder totaled $172 million, a decrease of $95 million from the
previous year.

This decrease in earnings reflects the absence of the nonrecurring benefits from
2002, including the $31 million after-tax gain on asset sales, and the $18
million of after-tax earnings related to an adjustment to the fair value of
certain long-term gas contracts held by the MCV Partnership. Reduced earnings
also reflect a $12 million charge to non-utility expense in order to recognize a
decline in market value of CMS Energy Common Stock held by Consumers.

Decreased electric deliveries reduced after tax earnings by $25 million. This
decrease can be attributed to the continuing switch by commercial and industrial
customers to alternative electric suppliers allowed by the Customer Choice Act.
A reduction in residential consumption also contributed to the decrease in
electric deliveries. This decrease was due to milder summer temperatures in 2003
compared to the same period in 2002, which included record setting monthly send
out and monthly hourly peak demand volumes.

Increased electric and gas operating expenses reduced after-tax earnings by $32
million. Increased costs of borrowings reduced after-tax earnings by $16
million, and a $7 million after-tax charge at CMS Midland Holdings reflecting
the loss of certain tax credits also contributed to the earnings decrease.

Offsetting these decreases is an after-tax benefit of $9 million due to
increased gas deliveries reflecting colder winter weather in early 2003, a $23
million after-tax benefit due to the final gas rate order issued in 2002
authorizing Consumers to increase its gas tariff rates, and the $13 million
after-tax benefit relating to the reduction in MSBT expenses relating to years
2000 and 2001. The reduction in MSBT expense is a result of CMS Energy receiving
approval to file consolidated tax returns for years 2000 and 2001. These returns
were filed in the second quarter of 2003.

Finally, earnings for the three and nine month period ended September 30, 2003,
were reduced by $1 million

                                     CE-11
<PAGE>

                                                        Consumers Energy Company

after-tax as a result of the Northeast United States blackout that commenced
August 14, 2003.

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
- ------------------------------------------------------------------------------
September 30                               2003            2002         Change
- ------------------------------------------------------------------------------
<S>                                        <C>             <C>          <C>
Three months ended                         $ 59            $ 88          $ (29)
Nine months ended                          $145            $222          $ (77)
==============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                         Three Months Ended             Nine Months Ended
Reasons for change                                   September 30, 2003 vs. 2002   September 30, 2003 vs. 2002
- --------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                           <C>
Electric deliveries                                           $ (34)                      $ (38)
Power supply costs and related revenue                            2                          14
Other operating expenses and non-commodity revenue               (5)                        (43)
Asset sales                                                       -                         (38)
General taxes                                                    (3)                         12
Fixed charges                                                    (5)                        (18)
Income taxes                                                     16                          34
                                                              ------------------------------------------------
Total change                                                  $ (29)                      $ (77)
==============================================================================================================
</TABLE>

ELECTRIC DELIVERIES: For the three months ended September 30, 2003, electric
delivery revenues decreased by $34 million from the previous year. Electric
deliveries, including transactions with other wholesale market participants and
other electric utilities, were 10.3 billion kWh, a decrease of 0.6 billion kWh
or 4.9 percent from 2002. The decrease in revenue is primarily the result of
decreased deliveries to the higher margin residential sector due to milder
summer temperatures in 2003 compared to the same period in 2002, which included
record setting monthly sendout and monthly hourly peak demand volumes.
Commercial and industrial customers switching to alternative electric suppliers
as allowed by the Customer Choice Act further reduced electric delivery
revenues.

For the nine months ended September 30, 2003, electric delivery revenues
decreased by $38 million from the previous year. Electric deliveries, including
transactions with other wholesale market participants and other electric
utilities, were 29.3 billion kWh, a decrease of 0.2 billion kWh or 0.6 percent
from 2002. The decrease in delivery revenues can be attributed to the continuing
switch by commercial and industrial customers to alternative electric suppliers
allowed by the Customer Choice Act. Also contributing to decreased electric
deliveries was a reduction in residential consumption due to milder summer
temperatures in 2003 compared to the same period in 2002, which included record
setting monthly send out and monthly hourly peak demand volumes.

POWER SUPPLY COSTS AND RELATED REVENUE: For the three months ended September 30,
2003, power supply costs and related revenues increased electric net income by
$2 million from 2002.

For the nine months ended September 30, 2003, power supply costs and related
revenues increased electric net income by $14 million from 2002. This increase
is primarily the result of increased intersystem revenues due to higher market
prices and sales made from additional surplus capacity.

                                     CE-12
<PAGE>

                                                        Consumers Energy Company

OTHER OPERATING EXPENSES AND NON-COMMODITY REVENUE: For the three months ended
September 30, 2003, net operating expenses and non-commodity revenue decreased
operating income by $5 million compared to 2002. This decrease relates primarily
to increased amortization expense from securitized assets and reduced
miscellaneous electric service revenues.

For the nine months ended September 30, 2003, operating expenses increased
compared to 2002. This increase can be attributed to storm restoration expenses,
a scheduled refueling outage at Palisades, which began on March 16, 2003 and
ended on April 20, 2003, and higher transmission costs due to the loss of a
financial return on the Consumers' transmission system asset sold in May 2002.
Slightly offsetting these increased operating expenses were increased
non-commodity revenues associated with miscellaneous service revenues.

ASSET SALES: For the nine months ended September 30, 2003, pretax income from
asset sales decreased $38 million from the comparable period in 2002. This is
the result of the $31 million pretax gain associated with the May 2002 sale of
Consumers' electric transmission system and the $7 million pretax gain
associated with the June 2002 sale of nuclear equipment from the cancelled
Midland project.

GENERAL TAXES: For the three months ended September 30, 2003, general taxes
increased $3 million compared to 2002 primarily due to larger property tax
expense from increased investment.

For the nine months ended September 30, 2003, general taxes decreased $12
million from the comparable period in 2002. This decrease is due to reduced MSBT
expenses related to the years 2000 and 2001. This is the result of CMS Energy
receiving approval to file consolidated tax returns for the years 2000 and 2001.
These returns were filed during the second quarter of 2003.

FIXED CHARGES: For the three and nine months ended September 30, 2003, fixed
charges increased $5 million and $18 million, respectively, from the comparable
period in 2002. These increases can be attributed to increased financing
activities.

INCOME TAXES: For the three and nine months ended September 30, 2003, income tax
expense decreased $16 million and $34 million, primarily due to a decrease in
earnings by the electric utility compared to 2002.

GAS UTILITY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           In Millions
- ----------------------------------------------------------------------
September 30                       2003            2002         Change
- ----------------------------------------------------------------------
<S>                               <C>             <C>           <C>
Three months ended                $(19)           $(18)            $(1)
Nine months ended                 $ 40            $ 13             $27
======================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                          Three Months Ended             Nine Months Ended
Reasons for change                                   September 30, 2003 vs. 2002   September 30, 2003 vs. 2002
- --------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                           <C>
Gas deliveries                                              $ (14)                         $ 14
Gas rate increase                                               5                            35
Gas wholesales and retail services                              1                             4
Operation and maintenance                                       8                            (6)
General taxes, depreciation, and other income                  (1)                           (2)
Fixed charges                                                  (1)                           (4)
Income taxes                                                    1                           (14)
                                                            --------------------------------------------------
Total change                                                $  (1)                         $ 27
==============================================================================================================
</TABLE>

                                     CE-13
<PAGE>

                                                        Consumers Energy Company

GAS DELIVERIES: For the three months ended September 30, 2003, gas delivery
revenues decreased by $14 million from the previous year. The decrease primarily
reflects $7 million of increased expense associated with Consumers' annual
analysis of gas losses related to the gas transmission and distribution system.
The adjustment is recorded as a reduction to accrued gas revenues. System
deliveries, including miscellaneous transportation, totaled 38.2 bcf, a decrease
of 1.9 bcf or 4.8 percent compared with 2002.

For the nine months ended September 30, 2003, gas delivery revenues increased by
$14 million from the previous year. System deliveries, including miscellaneous
transportation, totaled 272.7 bcf, an increase of 18 bcf or 7.1 percent compared
with 2002. This increase is primarily due to colder weather during the first
quarter that resulted in increased deliveries to the residential and commercial
sectors in 2003.

GAS RATE INCREASE: 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 this order, for the three and nine months ended September 30, 2003,
Consumers recognized increased gas revenues of $5 million and $35 million,
respectively.

OPERATION AND MAINTENANCE: For the three months ended September 30, 2003,
operation and maintenance expenses decreased $8 million when compared to 2002.
This decrease reflects the absence of gas storage inventory losses recorded in
2002.

For the nine months ended September 30, 2003, operation and maintenance expenses
increased $6 million when compared to 2002. This increase reflects the
recognition of additional expenditures on safety, reliability and customer
service.

INCOME TAXES: For the three months ended September 30, 2003, income tax expense
decreased primarily due to decreased earnings of the gas utility compared to
2002.

For the nine months ended September 30, 2003, income tax expense increased
primarily due to improved earnings of the gas utility.

CAPITAL RESOURCES AND LIQUIDITY

CASH POSITION, INVESTING, AND FINANCING

The following discussion of operating, investing and financing activities
summarizes Consumers' consolidated statements of cash flows found in Consumers'
consolidated financial statements.

OPERATING ACTIVITIES: Consumers' principal source of liquidity is cash from the
sale and transportation of natural gas and the generation, delivery and sale of
electricity. For the nine months ended September 30, cash from operations
totaled $130 million in 2003 and $420 million in 2002. The $290 million decrease
in cash from operations resulted primarily from an increase in a depleted
natural gas inventory due to colder weather and higher gas prices, an increase
in the pension contribution for 2003, and an increase in accounts receivable and
accrued revenues. Consumers 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 the nine months ended September 30, cash used for
investing activities totaled $326 million in 2003 and $144 million in 2002. The
change of $182 million is primarily due to the absence of

                                     CE-14
<PAGE>

                                                        Consumers Energy Company

$283 million of proceeds from the sale of METC and other asset sales, partially
offset by a $94 million decrease in capital expenditures.

FINANCING ACTIVITIES: For the nine months ended September 30, cash provided by
financing activities totaled $103 million in 2003 and cash used for financing
activities totaled $182 million in 2002. The change of $285 million is primarily
due to an increase of $941 million in proceeds from senior notes and bank loans,
offset partially by $371 million of payments for retirement of bonds and other
long-term debt and a $271 million additional payment of notes payable. Refer
below to discussion of Consumers' refinancing.

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
September 30                        Total    2003     2004     2005     2006   2007      beyond
- ------------------------------------------------------------------------------------------------
<S>                                <C>       <C>     <C>      <C>       <C>    <C>      <C>
On-balance sheet:
   Long-term debt                  $ 3,531   $  -    $    8   $  329    $ 361   $  31   $  2,802
   Current portion of long-
      term debt                         28      8        20        -        -       -          -
   Notes payable                         4      1         3        -        -       -          -
   Capital lease obligations           127      4        15       14       13      12         69
- ------------------------------------------------------------------------------------------------
Total on-balance sheet             $ 3,690   $ 13    $   46   $  343    $ 374   $  43   $  2,871
- ------------------------------------------------------------------------------------------------
Off-balance sheet:
   Operating leases                $    76   $  6    $   11   $    9    $   9   $   8   $     33
   Non-recourse debt of FMLP           194      -        57       41       26      13         57
   Sale of accounts receivable         254    254         -        -        -       -          -
   Unconditional purchase
      obligations                   17,897    601     1,577    1,197      905     743     12,874
- ------------------------------------------------------------------------------------------------
Total off-balance sheet            $18,421   $861    $1,645   $1,247    $ 940   $ 764   $ 12,964
================================================================================================
</TABLE>

                                     CE-15
<PAGE>

                                                        Consumers Energy Company

LONG-TERM FINANCINGS:

The following is a summary of Consumers' Long-Term debt issuances during 2003:

<TABLE>
<CAPTION>
                 Principal
Facility Type    (millions)    Issue Rate    Issue Date       Maturity Date     Use of Proceeds   Collateral
- ------------------------------------------------------------------------------------------------------------
<S>              <C>           <C>           <C>              <C>               <C>               <C>
  Term Loan       $  140       LIBOR + 475   March 2003       March 2009              GCP           FMB (f)
                                   bps
  Term Loan          150       LIBOR + 450   March 2003       March 2006 (c)          GCP           FMB (f)
                                   bps
  FMB (a)            375         5.375%      April 2003       April 2013              (c)             -
  FMB (a)            250         4.250%      April 2003       April 2008              (c)             -
  FMB (a)            250         4.000%      May 2003         May 2010                (d)             -
  FMB (b)            200         4.800%      August 2003      February 2009           (e)             -
  FMB (b)            200         6.000%      August 2003      February 2014           (e)             -
                  ------
  Total           $1,565
============================================================================================================
</TABLE>

(GCP - General Corporate Purposes)                          (bps - basis points)
(FMB - First Mortgage Bonds)

(a) Consumers has agreed to file a registration statement with the SEC by
December 26, 2003 to permit holders of these first mortgage bonds to exchange
the bonds for new bonds that will be registered under the Securities Act of
1933.

(b) Consumers has agreed to file a registration statement with the SEC by April
14, 2004 to permit holders of these first mortgage bonds to exchange the bonds
for new bonds that will be registered under the Securities Act of 1933.

(c) Consumers used the net proceeds to replace a $250 million senior reset put
bond that matured in May 2003, to pay an associated $32 million option call
payment and for general corporate purposes that included paying down additional
debt.

(d) Consumers used the net proceeds to prepay a portion of a term loan that was
due to mature in July 2004.

(e) Consumers used the net proceeds to pay off the $150 million term loan
negotiated in March 2003 that was due to mature in March 2006 as well as the
remaining $50 million balance on a term loan that was due to mature in March
2004, and for general corporate purposes.

(f) Refer to "Regulatory Authorization for Financings" below for information
about Consumers' remaining FERC debt authorization.

As part of Consumers' ongoing cost reduction measures in an attempt to reduce
its financing costs, Consumers will continue to monitor financial markets

REGULATORY AUTHORIZATION FOR FINANCINGS: At September 30, 2003, Consumers had
FERC authorization, through June 2004, to issue or guarantee up to $1.1 billion
of short-term securities outstanding at any one time. As of September 30, 2003,
Consumers had $400 million outstanding as collateral for the revolving credit
facility (discussed below) and had an additional $700 million available for
future issuances of short-term securities. At September 30, 2003, Consumers also
had remaining FERC authorization, through June 2004, to issue up to $800 million
of long-term securities for refinancing or refunding purposes, $560.3 million of
long-term securities for general corporate purposes, and $2.06 billion of
long-term first mortgage bonds to be issued solely as collateral for other
long-term securities. Also, FERC has granted waivers of its

                                     CE-16
<PAGE>

                                                        Consumers Energy Company

competitive bid/negotiated placement requirements applicable to the long-term
securities authorization indicated above.

SHORT-TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
In September 2003, this facility was amended and restated as a $400 million
revolving credit facility. The interest rate of the facility was reduced from
LIBOR plus 350 to LIBOR plus 175 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. At September 30, 2003, all of the $400
million is available for general corporate purposes.

The revolving credit facility mentioned above has contractual restrictions that
require Consumers to maintain, as of the last day of each fiscal quarter, the
following:

<TABLE>
<CAPTION>
                                                 Limitation            Ratio at September 30, 2003
- --------------------------------------------------------------------------------------------------
<S>                                       <C>                          <C>
Debt to Capital Ratio (a)(b)              Not more than 0.65 to 1.00          0.58 to 1.00
Interest Coverage Ratio - Revolver (a)    Not less than 2.00 to 1.00          3.34 to 1.00
==================================================================================================
</TABLE>

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

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

Consumers is subject to covenants in its financing agreements that could limit
its ability to incur additional indebtedness. Consumers has agreed in several of
its financing agreements to maintain specified levels of cash coverage of its
interest requirements and to not allow its indebtedness to exceed specified
levels of its consolidated capitalization (the "Debt Percentage Tests").
Consumers is in compliance with these requirements as of the most recent
measurement date, September 30, 2003. These covenants make use of both generally
accepted accounting principles and defined contractual terms in specifying how
the relevant calculations are made. Consumers sought and received amendments to
certain of its financing agreements to modify the terms of the Debt Percentage
Tests in order to, among other things, remove the effect of the adoption of SFAS
No. 150, portions of which have now been deferred indefinitely, regarding Trust
Preferred Securities on the calculations.

Under the provisions of its articles of incorporation, Consumers had $412
million of unrestricted retained earnings available to pay common dividends at
September 30, 2003. However, covenants in Consumers' debt facilities cap common
stock dividend payments at $300 million in a calendar year. Through September
30, 2003, Consumers paid $162 million in common dividends. In October 2003,
Consumers declared a $57 million common dividend payable in November 2003.

For information on the potential cap on common dividends payable included in the
MPSC Securitization order see Electric Business Outlook, "Competition and
Regulatory Restructuring - Securitization." Also, for information on the
potential cap on common dividends payable included in the MPSC Staff's
recommendation in Consumers' 2003 gas rate case see Gas Business Outlook, "2003
Gas Rate Case."

LEASES: Consumers' capital leases are predominately for leased service vehicles
and the new headquarters building. On November 7, 2003, Consumers closed a
three-year $60 million term loan at an interest rate of LIBOR plus 135 basis
points.  The term loan is secured by first mortgage bonds.  The proceeds of the
loan were used to purchase Consumers' headquarters building lease from the
lessor, resulting in cost savings to Consumers. Operating leases are
predominately for railroad coal cars.

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

                                     CE-17
<PAGE>

                                                        Consumers Energy Company

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: Under a revolving accounts receivable sales
program, Consumers currently sells certain accounts receivable to a wholly
owned, consolidated, bankruptcy remote special purpose entity, Consumers
Receivables Funding II. In turn, Consumers Receivables Funding II may sell an
undivided interest in up to $325 million of the receivables to a bank-sponsored
commercial paper conduit. The amount sold to the conduit was $254 million at
September 30, 2003 and $325 million at September 30, 2002. These amounts are
excluded from accounts receivable in Consumers' consolidated balance sheets.
Consumers continues to service the receivables sold; however, the purchaser of
the receivables has no recourse against Consumers' other assets for failure of a
debtor to pay when due and the purchaser has no right to any receivables not
sold. No gain or loss has been recorded on the receivables sold and Consumers
retains no interest in the 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 $47 million per month for the
remaining three months of 2003, including $34 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.

COMMERCIAL COMMITMENTS: 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.

<TABLE>
<CAPTION>
Commercial Commitments                                               In Millions
- --------------------------------------------------------------------------------
                                         Commitment Expiration
                                ------------------------------------------------
                                                                        2008 and
September 30           Total    2003    2004    2005    2006    2007     beyond
- --------------------------------------------------------------------------------
<S>                    <C>      <C>     <C>     <C>     <C>     <C>     <C>
Off-balance sheet:
   Indemnities          $8       $-      $-      $-      $-      $-       $8
   Letters of credit     7        -       7       -       -       -        -
================================================================================
</TABLE>

                                     CE-18
<PAGE>

                                                        Consumers Energy Company

OUTLOOK

LIQUIDITY AND CAPITAL RESOURCES

Consumers' liquidity and capital requirements generally are a function of its
results of operations, capital expenditures, contractual obligations, debt
maturities, working capital needs and collateral requirements. 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. 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 addition,
certain commodity suppliers to Consumers have requested advance payments or
other forms of assurances, including margin calls, in connection with
maintenance of ongoing deliveries of gas and electricity. This will also affect
Consumers' liquidity position.

Historically, Consumers has met its consolidated cash needs through its
operating and financing activities and access to bank financing and the capital
markets. In 2003, Consumers has contractual obligations and planned capital
expenditures that would require substantial amounts of cash. Consumers may also
become subject to liquidity demands pursuant to commercial commitments under
guarantees, indemnities and letters of credit as indicated above. Consumers
plans to meet its liquidity and capital requirements in 2003 through a
combination of borrowings, reduced capital expenditures, cash flow generated
from operations, and other measures. Refer to Capital Resources and Liquidity,
"Long Term Debt" above for information about Consumers' 2003 debt financings.

Consumers believes that its present level of cash and borrowing capacity
(assuming access to capital markets), along with anticipated cash flows from
operating and investing activities, will be sufficient to meet its liquidity
needs through 2004.

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 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 experienced higher electric deliveries in 2002 as a result
of warmer than normal summer weather. For 2003, a slight decline in electric
deliveries from 2002 is anticipated. This short-term outlook for 2003 assumes
higher levels of manufacturing activity than in 2002 and normal weather
conditions in the last three months of the year.

                                     CE-19

<PAGE>

                                                        Consumers Energy Company

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 Consumers' 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 October
2003, alternative electric suppliers are providing 603 MW of generation supply
to retail open access 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 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. According to the MPSC, "net"
Stranded Costs are 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 for 2000 and $43 million for 2001. Consumers in its hearing brief, filed
in August 2002, revised its request for Stranded Costs to $7 million for 2000
and $4 million for 2001. 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. As discussed below in
"Securitization", Consumers filed a request with the MPSC for authority to issue
Securitization bonds that would allow recovery of the Clean Air Act expenditures
that were excluded from the Stranded Cost calculation.

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to resolve numerous
issues regarding the "net" Stranded Cost methodology in a way 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 have also filed rehearing
petitions with the MPSC. Consumers has also initiated an appeal at the Michigan
Court of Appeals related to the MPSC's December 2001 "net" Stranded Cost order.

In March 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 Palisades expenditures
previously not securitized were approved as proposed in its securitization case
as discussed below in "Securitization", then Consumers' "net" Stranded Costs
incurred in 2002 would be 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.

                                     CE-20

<PAGE>

                                                        Consumers Energy Company

In June 2003, the MPSC issued a financing order in the securitization case,
authorizing the issuance of Securitization bonds in the amount of approximately
$554 million. Included in this amount were Clean Air Act expenditures. However,
the MPSC rejected Palisades expenditures previously not securitized as eligible
securitized costs. As a result, the Palisades expenditures previously not
securitized should be included as a component of "net" Stranded Costs and will
be included as a component of a future electric rate case proceeding with the
MPSC. With the inclusion of the Palisades expenditures previously not
securitized, Consumers' "net" Stranded Costs incurred in 2002 are estimated to
be approximately $50 million.

In July 2003, Consumers filed a petition for rehearing and clarification on a
number of features in the MPSC's financing order on securitization. Once a final
financing order by the MPSC on securitization is issued, the amount of
Consumers' request for "net" Stranded Cost recovery for 2002 will be known.
Consumers cannot predict how the MPSC will rule on its request for the
recoverability of Stranded Costs, and therefore Consumers 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 has participated in this collaborative process. In July 2003, the
staff suspended formal discussion while it considers possible conclusions and
recommendations.

Implementation Costs: 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              Pending               Pending
==============================================================================================================
</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 order received for the year 2001, the MPSC also reserved the right to review
again the 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 September 30, 2003, Consumers incurred and deferred as a regulatory asset, $2
million of additional implementation costs and has also recorded a regulatory
asset of $16 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 is expected to begin after the rate freeze or rate cap
period has expired. As discussed below, Consumers has asked to include
implementation costs through December 31, 2000 in the pending securitization
case. If approved, the sale of Securitization bonds will allow for the recovery
of these costs. Consumers cannot predict the amounts the MPSC will approve as
allowable costs.

Also, Consumers is 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. In May 2003, the FERC
issued an order denying MISO's request for authorization to reimburse Consumers.
In June 2003, Consumers and MISO filed a joint petition for rehearing with the
FERC. In September 2003, the FERC denied Consumers'

                                     CE-21

<PAGE>

                                                        Consumers Energy Company

and MISO's joint request. Consumers plans to appeal the FERC ruling at the
United States Court of Appeals for the District of Columbia and pursue other
potential means of recovery. In November 2003, in conjunction with Consumers'
appeal of the September Order denying recovery, Consumers persuaded MISO to
file a request with the FERC seeking authority to reimburse METC, the legal
successor in interest to the Alliance RTO start-up costs. As part of the
contract for sale of Consumers' former transmission system, should the
Commission approve the new MISO filing, METC is contractually obligated to
flow-through to Consumers the full amount of any Alliance RTO start-up costs
that it is authorized to recover through FERC. Consumers cannot predict the
outcome of the appeal process, the MISO request, or the amount of implementation
costs, if any; the FERC ultimately will allow to be collected.

Securitization: In March 2003, Consumers filed an application with the MPSC
seeking approval to issue Securitization bonds in the amount of approximately
$1.084 billion. The application sought recovery of costs associated with Clean
Air Act expenditures, Palisades expenditures previously not securitized, retail
open access implementation costs through December 31, 2003, certain pension fund
costs, and expenses associated with the issuance of the bonds. In June 2003, the
MPSC issued a financing order authorizing the issuance of Securitization bonds
in the amount of approximately $554 million. This amount relates to Clean Air
Act expenditures and associated return on those expenditures through December
31, 2002, retail open access implementation costs and previously authorized
return on those expenditures through December 31, 2000, and the "up front" other
qualified costs related to issuance of the Securitization bonds. The MPSC
rejected Palisades expenditures previously not securitized as eligible
securitized costs. Therefore, Palisades expenditures previously not securitized
should be included as a component of "net" Stranded Costs and will be included
as a component of a future electric rate case proceeding with the MPSC.

In the June 2003 financing order, the MPSC also adopted a rate design that would
allow retail open access customers to pay a securitization charge (and related
tax charge) that are a small fraction of the amounts paid by full service
bundled sales customers and special contract customers of the utility. The
financing order provides that the securitization charges (and related tax
charges) for the full service and bundled sales customers are increased under
the rate design in the financing order in order to be sufficient to repay the
principal, interest and all other "ongoing" qualified costs related to servicing
the Securitization bonds. The financing order also restricts the amount of
common dividends payable by Consumers to its "earnings." In July 2003, Consumers
filed for rehearing and clarification on a number of features in the financing
order, including the rate design, accounting treatment of unsecuritized
qualified costs and dividend restriction. Also in July 2003, the Attorney
General filed a claim of appeal related to the financing order and the Attorney
General indicated it would challenge the lawfulness of the rate design. In
October 2003, the Court of Appeals dismissed the appeal and indicated that the
Attorney General could resubmit the appeal after the MPSC acted on Consumers'
rehearing request. Subsequently, the Attorney General filed a motion of
rehearing asking for reconsideration of the Court of Appeals' dismissal. The
financing order will become effective after rehearing, resolution of appeals and
upon acceptance by Consumers.

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 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. After December 31, 2003,
the statute would allow customers to petition the MPSC for rate reductions below
the cap. Consumers would have the opportunity to respond to such a petition
before rates could be reduced.

As a result of Consumers meeting the transmission capability expansion
requirements and the market power test, as discussed in Note 2, Uncertainties,
"Electric Rate Matters - Electric Restructuring", Consumers has met the
requirements under Public Act 141 to return to the PSCR process. On September
30, 2003, Consumers submitted a PSCR filing to the MPSC that would reinstate the
PSCR process for customers whose rates will no longer be frozen or capped as of
January 1, 2004. The proposed PSCR charge allows Consumers

                                     CE-22

<PAGE>

                                                        Consumers Energy Company

to recover a portion of its increased power supply costs from large commercial
and industrial customers effective January 1, 2004. This is the first customer
class for which the rate freeze and cap expire. Consumers will, pursuant to its
right under applicable law, self-implement the proposed PSCR charge on January
1, 2004, unless the MPSC issues an order before that date establishing a
different charge. The charge is subject to subsequent change by the MPSC during
the PSCR period (calendar-year 2004). The revenues received pursuant to the PSCR
charge by statute are also subject to subsequent reconciliation when the year is
finished and actual costs have been reviewed for reasonableness and prudence.
Consumers cannot predict the outcome of this filing.

Included in Consumers' retail electric customers' frozen rates is a nuclear
decommissioning surcharge related to the decommissioning of Big Rock. The MPSC
authorized collection of the surcharge through December 2000. Consumers has
continued to collect the Big Rock nuclear decommissioning surcharge consistent
with the provisions of the Customer Choice Act rate freeze in effect through
December 31, 2003. Beginning in January 2004, the Big Rock decommissioning
surcharge will be eliminated, reducing Consumers' annual electric revenues by
approximately $35 million in 2004. A portion of this reduction is expected to be
offset by the collection of increased PSCR revenues.

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, totaling a maximum of approximately 685 MW of load, as part
of its phased introduction to competition. Unless terminated or restructured,
the majority of these contracts are in effect through 2005. As of September 30,
2003, contracts for 200 MW of load have terminated. Of the contracts that have
terminated, contracts for 64 MW have gone to an alternative electric supplier,
and contracts for 136 MW have returned to bundled tariff rates. Consumers cannot
predict the ultimate financial impact of changes related to these power supply
contracts, or whether additional special 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 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 electric and gas revenues. In October 2002, the MPSC denied
waivers for three programs that provided approximately $32 million in gas
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. In November
2002, the Michigan Court of Appeals denied Consumers' request for a stay.
Consumers 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 gas 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

                                     CE-23

<PAGE>

                                                        Consumers Energy Company

Michigan Court of Appeals struck down the guidelines 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. In July 2003, legislation was
introduced in the Michigan legislature that, if enacted, would clarify the
application of the code of conduct in a manner that would allow Consumers to
continue to offer the appliance service plan. In October 2003, the Michigan
Senate passed legislation to preserve the appliance service plan. The House of
Representatives of Michigan is scheduled to review the legislation in early
2004; however, in the interim they passed a bill to extend the MPSC's waiver for
the program to July 1, 2004.

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

Transmission: In May 2002, Consumers sold its electric transmission system for
approximately $290 million to MTH, a non-affiliated limited partnership whose
general partner is a subsidiary of Trans-Elect, Inc. The pretax gain was $31
million ($26 million, net of tax). Remaining open issues are not expected to
substantially impact the amount of the gain.

As a result of the sale, Consumers anticipates its after-tax earnings will
decrease by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a 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.

Under an 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 until May 1, 2007 under a
contract with MTH.


                                     CE-24

<PAGE>
                                                        Consumers Energy Company

There are multiple proceedings and a proposed rulemaking pending before the FERC
regarding transmission pricing mechanisms and standard market design for
electric bulk power markets and transmission. The results of these proceedings
and proposed rulemaking could significantly affect the trend of transmission
costs and increase the delivered power costs to Consumers and the retail
electric customers it serves. The specific financial impact on Consumers of such
proceedings, rulemaking and trends are not currently quantifiable.

In addition, 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.

August 14, 2003 Blackout: On August 14, 2003, the electric transmission grid
serving parts of the Midwest and the Northeast experienced a significant
disturbance, which impacted electric service to millions of homes and businesses
throughout a vast region. In Michigan, more than 2 million electric customers
were without electricity. Consumers had five fossil-fueled generating unit
outages and, of Consumers' 1.7 million electric customers, approximately
100,000 were without power for approximately 24 hours as a result of the
disturbance. The impact was felt most heavily in the southeastern part of
Consumers' service territory.

As discussed above in "Transmission", Consumers sold its electric transmission
system in May 2002 to MTH, with Consumers providing transmission system
maintenance under a five-year contract with MTH. MTH now owns, controls, and
plans for the transmission system that serves Consumers. Consumers incurred
approximately $1 million of immediate financial impact as a result of the
blackout. Consumers continues to cooperate with investigations of the blackout
by several federal and state agencies. Consumers cannot predict the outcome of
these investigations.

In November 2003, the MPSC released its report on the August 14, 2003 blackout,
which found no evidence to suggest that the events in Michigan or actions taken
by the Michigan utilities or transmission operators were factors contributing to
the cause of the blackout. As a result of its investigation, the MPSC is
recommending that Congress pass legislation that would empower the FERC, where
necessary, to order membership into a RTO and that Congress should provide the
FERC with the authority to develop and enforce mandatory transmission
reliability standards with penalties for noncompliance.

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) pending litigation filed by
PURPA qualifying facilities; 5) uncertainties relating to the storage and
ultimate disposal of spent nuclear fuel; 6) electric industry restructuring
issues, including those described above; 7) 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; 8) the recovery of electric restructuring implementation costs;
9) Consumers' status as an electric transmission customer and not as an electric
transmission owner/operator; 10) sufficient reserves for transmission rate
refunds; 11) the effects of derivative accounting and potential earnings
volatility; 12) increased costs for safety and homeland security initiatives
that are not recoverable on a timely basis from customers; 13) potentially
rising pension costs due to market losses and lump sum payments (as discussed
above in Accounting for Pension and OPEB); 14) Consumers' ability to recover any
of its "net" Stranded costs under the regulatory policies being followed by the
MPSC; 15) the effects of lost electric supply load from retail open access and
the recovery of associated margin loss; 16) the uncertain effects, including
exposure to liability, increased regulatory requirement and new legislation, due
to the future conclusions about the causes of the August 14, 2003 blackout. For
further information about these trends or uncertainties, see Note 2,
Uncertainties.

                                     CE-25
<PAGE>

                                                        Consumers Energy Company

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,
the level of natural gas consumption per customer, and the recent significant
increases in gas commodity prices.

GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation case with the MPSC, Consumers expects to recover all of its gas
costs. In June 2003, Consumers filed a reconciliation of GCR costs and revenues
for the 12-months ended March 2003. Consumers proposes to recover from its
customers a net under-recovery of approximately $6 million using a roll-in
methodology. The roll-in methodology incorporates the under-recovery in the GCR
factor charged in the next GCR year. The roll-in tariff provision was approved
by the MPSC in a November 2002 order.

In July 2003, the MPSC approved a settlement agreement authorizing Consumers to
increase its gas cost recovery factor for the remainder of the current GCR plan
year (August 2003 through March 2004) and to implement a quarterly ceiling price
adjustment mechanism, based on a formula that tracks changes in NYMEX natural
gas prices. Consistent with the terms of the settlement, the ceiling price is
$6.11 per mcf. However, Consumers will utilize a GCR factor of $5.41 per mcf
commencing in November 2003 bills. All recoveries pursuant to such factors are
subject to final reconciliation by the MPSC.

2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. In November 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 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: In March 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 return on equity, based on a 2004 test year.
Contemporaneously with this filing, Consumers has requested interim rate relief
in the same amount. In August 2003, the MPSC Staff recommended interim rate
relief of $80 million be granted in this proceeding, subject to Consumers
voluntarily agreeing to limit its dividends to its parent, CMS Energy, to a
maximum of $190 million in any calendar year.

In September 2003, Consumers filed an update to its gas rate case that lowered
the requested revenue increase from $156 million to $139 million and revised the
return on common equity from 13.5 percent to 12.75 percent. The majority of the
reduction is related to lower debt costs and changes in the projected capital
structure. The MPSC Staff and ABATE filed their cases in early October. The
Staff made no change to its interim position of $80 million and continued to
propose the same dividend limitation. ABATE did not make a specific
recommendation for a final rate increase, but did discuss the rate design used
to recover any rate increase granted. A proposal for decision is expected from
the administrative law judge in January 2004.

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 $36 million in

                                     CE-26

<PAGE>

                                                        Consumers Energy Company

annual gas 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."

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) an inadequate regulatory response to applications for requested
rate increases; 5) market and regulatory responses to increases in gas costs,
including a reduced average consumption per residential customer; 6) increase in
costs for pipeline integrity, safety, and homeland security initiatives that are
not recoverable on a timely basis from customers; 7) potentially rising pension
costs due to market losses and lump sum payments (as discussed above in
Accounting for Pension and OPEB); and 8) potential adverse appliance service
plan ruling or related legislation. For further information about these
uncertainties, see Note 2, Uncertainties.

OTHER OUTLOOK

SECURITY COSTS: 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 September 30, 2003,
Consumers has incurred approximately $7 million in incremental security costs,
including operating, capital, and decommissioning and removal costs, mainly
relating to its nuclear facilities. Consumers estimates it may incur additional
incremental security costs for the last three months of 2003 of approximately $3
million, of which $2 million relates to nuclear security costs. 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 nuclear electric division
security costs incurred during the rate freeze and cap periods imposed by the
Customer Choice Act. In February 2003, the MPSC adopted filing requirements for
the recovery of enhanced security costs.

LITIGATION AND REGULATORY INVESTIGATIONS

SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions by
CMS MST, CMS Energy's Board of Directors established a Special Committee 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 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. Previously, CMS Energy
terminated its speculative trading business and revised its risk management
policy. The Board of Directors adopted, and CMS Energy has implemented the
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. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within 45 days that they have taken certain specified remedial measures with
respect to the reporting of natural gas trading data to publications that
compile and

                                     CE-27

<PAGE>

                                                        Consumers Energy Company

publish price indices. CMS MST made a written submission to the FERC on June 11,
2003 in compliance with the FERC's directives. On July 29, 2003, the FERC issued
an order stating that CMS MST met the requirements of the FERC's April 30, 2003
order. Other than the FERC investigation, 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 were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan by shareholders who allege that they purchased
CMS Energy's securities during a purported class period. The cases were
consolidated into a single lawsuit and an amended and a consolidated class
action complaint was filed on May 1, 2003. The consolidated complaint contains a
purported class period beginning on May 1, 2000 and running through March 31,
2003. It generally seeks unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about CMS Energy's business and
financial condition, particularly with respect to revenues and expenses recorded
in connection with round-trip trading by CMS MST. The companies intend to defend
vigorously against this action but cannot predict the outcome of this
litigation.

ERISA 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
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 was 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 defended vigorously. Consumers cannot predict the outcome of this
litigation.

OTHER MATTERS

CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES: Consumers' management, with the
participation of its CEO and CFO, has evaluated the effectiveness of Consumers'
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, Consumers' CEO and CFO have concluded
that, as of the end of such period, Consumers' disclosure controls and
procedures are effective.

INTERNAL CONTROL OVER FINANCIAL REPORTING: There have not been any changes in
Consumers' internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter
to which this report relates that have materially affected, or are reasonably
likely to materially affect, Consumers' internal control over financial
reporting.

                                     CE-28

<PAGE>

                                                        Consumers Energy Company

CASH MANAGEMENT

In August 2002, FERC issued a NOPR concerning the management of funds by certain
FERC-regulated companies. The proposed rule could establish limits on the amount
of funds that may be swept from a regulated subsidiary to a non-regulated parent
under cash management programs. The proposed rule would require written cash
management arrangements that would specify the duties and restrictions of the
participants, the methods of calculating interest and allocating interest income
and expenses, and the restrictions on deposits or borrowings by money pool
members. These cash management agreements also may require participants to
provide documentation of certain transactions. In the NOPR, FERC proposed that
to participate in a cash management or money pool arrangement, FERC-regulated
entities would be required to maintain a minimum proprietary capital balance
(stockholder's equity) of 30 percent and both the FERC-regulated entity and its
parent would be required to maintain investment grade credit ratings. In October
2003, a final rule was issued by FERC. The rule will require Consumers, as a
FERC-regulated company, to file its cash management agreements with the FERC and
to notify the FERC within 45 days after the end of each calendar quarter when
their proprietary capital ratio drops below 30 percent, and when it subsequently
returns to or exceeds 30 percent. The rule also requires certain information
about cash management agreements and transactions to be maintained. The rule
becomes effective in late November 2003. Consumers operates its cash management
program independent of CMS Energy and, therefore, does not anticipate additional
reporting requirements as a result of this final rule.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS NO. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES: Issued by the FASB in April 2003, this statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for contracts
entered into or modified after June 30, 2003. Implementation of this statement
has not had an impact on Consumers' consolidated financial statements.

SFAS NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY: Issued by the FASB in May 2003, this statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement requires an issuer to classify financial instruments within its scope
as liabilities. Those instruments were previously classified as mezzanine
equity. SFAS No. 150 became effective July 1, 2003.

Consumers has four trust preferred securities outstanding as of September 30,
2003. The trust preferred securities are issued by consolidated subsidiaries of
Consumers. Each trust holds a subordinated debenture from Consumers. The terms
of the debentures are identical to those of the trust preferred securities,
except that the debenture has an explicit maturity date. The trust documents, in
turn, require that the trust be liquidated upon the repayment of the debenture.
The trust preferred securities are redeemable upon the liquidation of the
subsidiary; and therefore, are considered equity in the financial statements of
the subsidiary.

At their October 29, 2003 Board meeting, the FASB deferred the implementation of
the portion of SFAS No. 150 relating to mandatorily redeemable noncontrolling
interests in subsidiaries when the noncontrolling interests are classified as
equity in the financial statements of the subsidiary. Consumers' trust preferred
securities are included under the deferral. As such, the Consumers trust
preferred securities continue to be accounted for under existing accounting
guidance and are included in mezzanine equity. Consumers continues to study the
FASB developments regarding the SFAS No. 150 deferral.

                                     CE-29

<PAGE>

                                                        Consumers Energy Company

EITF ISSUE NO. 01-08, DETERMINING WHETHER AN ARRANGEMENT CONTAINS A LEASE: In
May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a
lease at its inception. The guidance in the consensus is designed to mandate
reporting revenue as rental or leasing income that otherwise would be reported
as part of product sales or service revenue. EITF Issue No. 01-08 requires both
parties to an arrangement to determine whether a service contract or similar
arrangement is or includes a lease within the scope of SFAS No. 13, Accounting
for Leases.

Historically, Consumers has entered into power purchase and similar service
arrangements. Prospective accounting under EITF Issue No. 01-08, could affect
the timing and classification of revenue and expense recognition. Certain
product sales and service revenue and expenses may be required to be reported as
rental or leasing income and/or expenses. The consensus is to be applied
prospectively to arrangements agreed to, modified, or acquired in business
combinations in fiscal periods beginning July 1, 2003. The adoption of EITF
Issue No. 01-08 has not impacted Consumers' results of operations, cash flows,
or financial position. Consumers will evaluate new or modified contracts under
EITF Issue No. 01-08 prospectively.

ACCOUNTING STANDARDS NOT YET EFFECTIVE

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, this Interpretation requires the primary
beneficiary of a variable interest entity's activities to consolidate the
variable interest entity. The primary beneficiary is the party that absorbs a
majority of the expected losses and/or receives a majority of the expected
residual returns of the variable interest entity's activities. The consolidation
requirements of the interpretation apply immediately to variable interest
entities created after January 31, 2003. Consumers has not created any variable
interest entities in 2003. Therefore, this portion of the interpretation has no
impact on its consolidated financial statements. Public companies, whose fiscal
year is a calendar year, were originally required to implement the guidance in
this interpretation by the third quarter of 2003. However, on October 9, 2003,
the FASB issued FASB Staff Position No. 46-6, Effective Date of FASB
Interpretation No. 46, which defers implementation of FIN 46 until the fourth
quarter of 2003, for variable interest entities and potential variable interest
entities created before February 1, 2003.

If the completed analysis were to require Consumers to disclose information
about or consolidate in its financial statements, the assets, liabilities and
activities of the MCV Partnership and the First Midland Limited Partnership,
including the recognition of the debt of the MCV Partnership on Consumers'
financial statements, this could impact negatively Consumers' various financial
covenants under its financing agreements. As a result, Consumers may have to
seek amendments to the relevant financing agreements to modify the terms of
certain of these covenants in order to remove the effect of this potential
consolidation or refinance the relevant debt. As of September 30, 2003,
Consumers' investments in the MCV Partnership and in the FMLP were $404 million
and $222 million, respectively. For a further description of the nature,
purpose, size and activities of the MCV Partnership, see Note 2, Uncertainties,
Other Electric Uncertainties, "The Midland Cogeneration Venture." Consumers is
continuing to study the implementation of this interpretation and has yet to
determine the effects, if any, on its consolidated financial statements.

EITF ISSUE 03-04, ACCOUNTING FOR CASH BALANCE PENSION PLANS: In May 2003, the
EITF reached consensus in EITF Issue No. 03-04 to specifically address the
accounting for certain cash balance pension plans. EITF Issue No. 03-04
concluded that certain cash balance plans be accounted for as defined benefit
plans under SFAS No. 87, Employers' Accounting for Pensions. EITF No. 03-04
requires the use of the traditional unit credit method for the purposes of
measuring the benefit obligation and annual cost of benefits earned as opposed
to the projected unit credit method. The EITF concluded that the requirements of
this Issue be applied as of the next plan measurement date, which is December
31, 2003 for Consumers. Consumers commenced a cash balance pension plan that
covers employees hired after June 30, 2003. Consumers does account for this plan
as a defined benefit plan under SFAS No. 87. Consumers continues to evaluate the

                                     CE-30

<PAGE>

                                                        Consumers Energy Company

impact, if any, this Issue will have upon adoption.

STATEMENT OF POSITION, ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO
PROPERTY, PLANT, AND EQUIPMENT: At its September 9, 2003 meeting, the Accounting
Standards Executive Committee voted to approve the Statement of Position,
Accounting for Certain Costs and Activities Related to Property, Plant, and
Equipment. The Statement of Position is expected to be presented for FASB
clearance late in the fourth quarter of 2003 and would be applicable for fiscal
years beginning after December 15, 2004. The Accounting Standards Executive
Committee concluded that at transition, a company would have the flexibility to
adopt a property, plant and equipment component accounting policy for
transition-date property, plant and equipment accounts. The property, plant and
equipment component policy may differ from the componentization policy, if any,
previously used by the enterprise. Selecting a policy that differs from the
company's prior level of componentization at the date of adoption of the
Statement of Position would not result in any cumulative effect difference for
adopting such a policy. A company would not have to restate its pre-adoption
assets to conform with its post-adoption componentization policy. The Accounting
Standards Executive Committee concluded that companies would be required to
disclose meaningful ranges with respect to property, plant and equipment
depreciable lives. Consumers continues to evaluate the impact, if any, this
Issue will have upon adoption.

                                     CE-31
<PAGE>

                            CONSUMERS ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED       NINE MONTHS ENDED
SEPTEMBER 30                                                                      2003          2002       2003        2002
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    In Millions
<S>                                                                             <C>             <C>     <C>         <C>
OPERATING REVENUE                                                               $    879        $ 911   $   3,223   $     3,020

EARNINGS (LOSS) FROM EQUITY METHOD INVESTEES                                          (3)           8          31            35

OPERATING EXPENSES
  Operation
    Fuel for electric generation                                                      89           98         245           236
    Purchased power - related parties                                                131          143         383           416
    Purchased and interchange power                                                  103          111         260           244
    Cost of gas sold                                                                  90           20         793           528
    Cost of gas sold - related parties                                                 2           34          27            96
    Other                                                                            178          182         505           487
                                                                                -----------------------------------------------
                                                                                     593          588       2,213         2,007
                                                                                -----------------------------------------------
  Maintenance                                                                         41           43         149           141
  Depreciation, depletion and amortization                                            80           77         275           256
  General taxes                                                                       47           43         130           144
                                                                                -----------------------------------------------
                                                                                     761          751       2,767         2,548
- -------------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                                     115          168         487           507

OTHER INCOME (DEDUCTIONS)
  Dividends and interest from affiliates                                               -            -           -             2
  Accretion expense                                                                   (1)          (1)         (5)           (4)
  Other, net                                                                           2            1          (3)           37
                                                                                -----------------------------------------------
                                                                                       1            -          (8)           35
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
  Interest on long-term debt                                                          51           41         144           111
  Other interest                                                                       2            5          10            16
  Capitalized interest                                                                (2)          (3)         (7)           (8)
                                                                                -----------------------------------------------
                                                                                      51           43         147           119
- -------------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                                            65          125         332           423
INCOME TAXES                                                                          21           41         126           140
                                                                                -----------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE                                                                           44           84         206           283

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR DERIVATIVE
  INSTRUMENTS, NET OF $1 AND $10 TAX EXPENSE IN 2002, RESPECTIVELY                     -            1           -            18
                                                                                -----------------------------------------------
NET INCOME                                                                            44           85         206           301
PREFERRED STOCK DIVIDENDS                                                              -            -           1             1
PREFERRED SECURITIES DISTRIBUTIONS                                                    11           11          33            33
                                                                                -----------------------------------------------

NET INCOME AVAILABLE TO COMMON STOCKHOLDER                                      $     33         $ 74   $     172   $       267
===============================================================================================================================
</TABLE>

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      CE-32

<PAGE>

                            CONSUMERS ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
September 30                                                                              2003           2002
- ----------------------------------------------------------------------------------------------------------------
                                                                                                     In Millions
<S>                                                                                     <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                            $     206    $       301
    Adjustments to reconcile net income to net cash provided by operating activities
       Depreciation, depletion and amortization (includes nuclear decommissioning
          of $4 and $5, respectively)                                                         275            256
       Gain on sale of METC and other assets                                                    -            (38)
       Deferred income taxes and investment tax credit                                         72            (18)
       Loss on CMS Energy stock                                                                12              -
       Capital lease and other amortization                                                    20             11
       Distributions from related parties in excess of (less than) earnings                    14            (20)
       Cumulative effect of accounting changes                                                  -            (18)
       Pension contribution                                                                  (172)           (47)
       Changes in other assets and liabilities:
        Increase in inventories                                                              (335)           (37)
        Decrease in accounts receivable and accrued revenue                                   156             98
        Decrease in accounts payable                                                          (39)           (79)
        Changes in other assets and liabilities                                               (79)            11
                                                                                        ------------------------

       Net cash provided by operating activities                                              130            420
- ----------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures (excludes assets placed under capital lease)                          (306)          (400)
  Cost to retire property, net                                                                (52)           (50)
  Investment in Electric Restructuring Implementation Plan                                     (5)            (6)
  Investments in nuclear decommissioning trust funds                                           (4)            (5)
  Proceeds from nuclear decommissioning trust funds                                            26             19
  Proceeds from sale of METC and other assets                                                  15            298
                                                                                        ------------------------

       Net cash used in investing activities                                                 (326)          (144)
- ----------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from senior notes and bank loans, net                                            1,543            602
  Retirement of bonds and other long-term debt                                               (780)          (409)
  Decrease in notes payable, net                                                             (453)          (182)
  Payment of common stock dividends                                                          (162)          (154)
  Preferred securities distribution                                                           (33)           (33)
  Payment of capital lease obligations                                                        (10)           (11)
  Payment of preferred stock dividends                                                         (1)            (1)
  Restricted cash on hand                                                                      (1)           (14)
  Redemption of preferred securities                                                            -            (30)
  Stockholder's contribution, net                                                               -             50
                                                                                        ------------------------

       Net cash provided by (used in) financing activities                                     103          (182)
- ----------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS                                (93)           94

CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD                                      253            13
                                                                                        ------------------------

CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD                                      $     160    $       107
================================================================================================================

OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
  Interest paid (net of amounts capitalized)                                            $     156    $       116
  Income taxes paid (net of refunds)                                                           32             83
  Pension and OPEB cash contribution                                                          226            101
NON-CASH TRANSACTIONS
  Other assets placed under capital leases                                              $      11    $        50
================================================================================================================
</TABLE>

All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CE-33

<PAGE>

                            CONSUMERS ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30                    SEPTEMBER 30
                                                                        2003     DECEMBER 31            2002
                                                                  (UNAUDITED)           2002      (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
                                                                                                In Millions
<S>                                                             <C>             <C>             <C>
PLANT (AT ORIGINAL COST)
   Electric                                                     $      7,583    $      7,523    $      7,504
   Gas                                                                 2,841           2,719           2,692
   Other                                                                  15              23              22
                                                                --------------------------------------------
                                                                      10,439          10,265          10,218
   Less accumulated depreciation, depletion and amortization           5,365           5,900           5,856
                                                                --------------------------------------------
                                                                       5,074           4,365           4,362
   Construction work-in-progress                                         359             548             463
                                                                --------------------------------------------
                                                                       5,433           4,913           4,825
- ------------------------------------------------------------------------------------------------------------

INVESTMENTS

   Stock of affiliates                                                    17              22              19
   First Midland Limited Partnership                                     222             255             250
   Midland Cogeneration Venture Limited Partnership                      404             388             370
   Consumers Nuclear Services, LLC                                         2               2               2
                                                                --------------------------------------------
                                                                         645             667             641
- ------------------------------------------------------------------------------------------------------------

CURRENT ASSETS
   Cash and temporary cash investments at cost,
      which approximates market                                          160             253             107
   Restricted cash                                                        19              18              18
   Accounts receivable, notes receivable and
      accrued revenue, less allowances of $7, $4 and $4
        respectively                                                      81             236              36
   Accounts receivable - related parties                                   7              13              18
   Inventories at average cost
     Gas in underground storage                                          813             486             601
     Materials and supplies                                               72              71              71
     Generating plant fuel stock                                          44              37              49
   Deferred property taxes                                                88             142              82
   Regulatory assets                                                      19              19              19
   Other                                                                  94              38              27
                                                                --------------------------------------------
                                                                       1,397           1,313           1,028
- ------------------------------------------------------------------------------------------------------------

NON-CURRENT ASSETS
   Regulatory Assets

    Securitized costs                                                    659             689             699
    Postretirement benefits                                              168             185             191
    Abandoned Midland Project                                             10              11              11
    Other                                                                257             168             173
   Nuclear decommissioning trust funds                                   553             536             530
   Other                                                                 147             218             108
                                                                --------------------------------------------
                                                                       1,794           1,807           1,712
                                                                --------------------------------------------

TOTAL ASSETS                                                    $      9,269    $      8,700    $      8,206
============================================================================================================
</TABLE>

                                     CE-34

<PAGE>

STOCKHOLDER'S EQUITY AND LIABILITIES

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30                    SEPTEMBER 30
                                                                        2003     DECEMBER 31            2002
                                                                  (UNAUDITED)           2002      (Unaudited)
- ------------------------------------------------------------------------------------------------------------
                                                                                                In Millions
<S>                                                             <C>             <C>             <C>
CAPITALIZATION

   Common stockholder's equity

   Common stock                                                 $        841    $        841    $        841
   Paid-in capital                                                       682             682             682
   Accumulated other comprehensive loss                                 (191)           (179)             (8)
   Retained earnings since December 31, 1992                             555             545             525
                                                                --------------------------------------------
                                                                       1,887           1,889           2,040

   Preferred stock                                                        44              44              44
   Company-obligated mandatorily redeemable preferred
      securities of subsidiaries                                         490             490             490

   Long-term debt                                                      3,531           2,442           2,701
   Non-current portion of capital leases                                 116             116             110
                                                                --------------------------------------------
                                                                       6,068           4,981           5,385
- ------------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
   Current portion of long-term debt and capital leases                   39             318             224
   Notes payable                                                           4             457             235
   Accounts payable                                                      241             261             212
   Accrued taxes                                                          84             214             152
   Accounts payable - related parties                                     65              84              85
   Deferred income taxes                                                  23              25              18
   Current portion of purchase power contract                             26              26              29
   Other                                                                 168             200             226
                                                                --------------------------------------------
                                                                         650           1,585           1,181
- ------------------------------------------------------------------------------------------------------------

NON-CURRENT LIABILITIES
   Deferred income taxes                                               1,009             949             762
   Postretirement benefits                                               431             563             244
   Regulatory liabilities for income taxes, net                          309             297             282
   Asset retirement obligations                                          362               -               -
   Other regulatory liabilities                                          152               4               -
   Deferred investment tax credit                                         86              91              92
   Power purchase agreement - MCV Partnership                              8              27              30
   Other                                                                 194             203             230
                                                                --------------------------------------------
                                                                       2,551           2,134           1,640
- ------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 1 and 2)

TOTAL STOCKHOLDER'S EQUITY AND LIABILITIES                      $      9,269    $      8,700    $      8,206
============================================================================================================
</TABLE>

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CE-35

<PAGE>

                            CONSUMERS ENERGY COMPANY
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED         NINE MONTHS ENDED
September 30                                                        2003           2002       2003          2002
- -------------------------------------------------------------------------------------------------------------------
                                                                                                        In Millions
<S>                                                             <C>             <C>         <C>         <C>
COMMON STOCK
  At beginning and end of period (a)                            $        841    $     841   $    841    $       841
- -------------------------------------------------------------------------------------------------------------------

OTHER PAID-IN CAPITAL
  At beginning of period                                                 682          682        682            632
  Stockholders' contribution                                               -            -          -            150
  Return of Stockholders' contribution                                     -            -          -           (100)
                                                                ---------------------------------------------------
  At end of period                                                       682          682        682            682
- -------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  Minimum Pension Liability

   At beginning of period                                               (202)           -       (185)             -
   Minimum liability pension adjust (b)                                    -            -        (17)             -
                                                                ---------------------------------------------------
   At end of period                                                     (202)           -       (202)             -
                                                                ---------------------------------------------------
  Investments

   At beginning of period                                                  8           (5)         1             16
   Unrealized gain (loss) on investments (c)                              (2)          (4)         5            (25)
                                                                ---------------------------------------------------
   At end of period                                                        6           (9)         6             (9)
                                                                ---------------------------------------------------
  Derivative Instruments

   At beginning of period (d)                                             11           (3)         5            (12)
   Unrealized gain on derivative instruments (c)                          (4)           1          9              6
   Reclassification adjustments included in
      consolidated net income (loss) (c)                                  (2)           3         (9)             7
                                                                ---------------------------------------------------
   At end of period                                                        5            1          5              1
- -------------------------------------------------------------------------------------------------------------------

Total Accumulated Other Comprehensive Income (Loss)                     (191)          (8)      (191)            (8)
- -------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS
  At beginning of period                                                 522          480        545            441
  Net income                                                              44           85        206            301
  Cash dividends declared - Common Stock                                   -          (29)      (162)          (183)
  Cash dividends declared - Preferred Stock                                -            -         (1)            (1)
  Preferred securities distributions                                     (11)         (11)       (33)           (33)

                                                                ---------------------------------------------------
   At end of period                                                      555          525        555            525
- -------------------------------------------------------------------------------------------------------------------

TOTAL COMMON STOCKHOLDER'S EQUITY                               $      1,887    $   2,040   $  1,887    $     2,040
===================================================================================================================
</TABLE>

                                     CE-36

<PAGE>

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED               NINE MONTHS ENDED
September 30                                                         2003             2002            2003            2002
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>              <C>            <C>
(a) Number of shares of common stock outstanding was
      84,108,789 for all periods presented.

(b) Because of the significant change in the makeup of the
pension plan due to the sale of Panhandle, SFAS No. 87 required
a remeasurement of the obligation at the date of sale. The
remeasurement resulted in an additional charge to Accumulated
Other Comprehensive Income (Loss) of approximately $27 million
($17 million after tax) as a result of the increase in the
additional minimum pension liability.

(c) Disclosue of Comprehensive Income:
       Minimum pension liability adjustment (b)                   $          -    $           -    $       (17)   $          -
       Investments
         Unrealized gain (loss) on investments, net of tax
            of $-, $3, $(3) and $14, respectively                           (2)              (4)             5             (25)
       Derivative Instruments
         Unrealized gain (loss) on derivative instruments, net
            of tax of $2, $(1), $(4) and $(4), respectively                 (4)               1              9               6
         Reclassification adjustments included in net income,
            net of tax of $1, $(2), $5 and $(4), respectively               (2)               3             (9)              7
Net income                                                                  44               85            206             301
                                                                  ------------------------------------------------------------

Total Comprehensive Income                                        $         36    $          85    $       194    $        289
                                                                  ============================================================

(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:
   At the beginning of the period                                 $         13    $           1    $         8    $         (8)
   Unrealized gain (loss) on derivative instruments                         (5)               1              8               7
   Reclassification adjustments included in net income                      (2)               2            (10)              5
                                                                  ------------------------------------------------------------
 At the end of the period                                         $          6    $           4    $         6    $          4
                                                                  ============================================================
</TABLE>

THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                     CE-37
<PAGE>

                                                        Consumers Energy Company

                            CONSUMERS ENERGY COMPANY
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

These interim Consolidated Financial Statements have been prepared by Consumers
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. Certain prior year amounts have been reclassified to
conform to the presentation in the current year. In management's opinion, the
unaudited information contained in this report reflects all adjustments of a
normal recurring nature necessary to assure the fair presentation of financial
position, results of operations and cash flows for the periods presented. The
Condensed Notes to Consolidated Financial Statements and the related
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained in the Consumers' Form 10-K for the year ended December 31, 2002,
which includes the Reports of Independent Auditors. Due to the seasonal nature
of Consumers' operations, the results as presented for this interim period are
not necessarily indicative of results to be achieved for the fiscal year.

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.

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. On March 26, 2003, Consumers reached a tentative agreement with
the Union for a collective bargaining agreement for its Call Center employees.
The agreement was subsequently ratified by the membership and became effective
April 1, 2003, and covers approximately 300 employees. The agreement will
continue in full force and effect until August 1, 2005.

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 and disclosure of contingent assets and liabilities
at the date of the financial statements 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 it is probable
that a loss will be paid in the future as a result of a current event, and when
an amount can be reasonably estimated.  Consumers has used this accounting
principle to record estimated liabilities as discussed in Note 2, Uncertainties.


REPORTABLE SEGMENTS: Consumers has two reportable segments: electric and gas.
The electric segment consists of activities associated with the generation and
distribution of electricity. The gas segment consists of 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 described in Consumers' 2002 Form 10-K.
Consumers' management has changed its evaluation of the performance of the
electric and gas segments from operating income to net income available to
common stockholder. Intersegment sales and transfers are accounted for at
current market prices and are eliminated in consolidated net income available to
common stockholder by segment. The other business unit 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. The operating revenue and net income (loss) available to
common stockholder by

                                     CE-38

<PAGE>

                                                        Consumers Energy Company

reportable segment are as follows:

<TABLE>
<CAPTION>
                                                                                           In Millions
- ------------------------------------------------------------------------------------------------------
                                                         Three Months Ended       Nine Months Ended
September 30                                               2003       2002       2003         2002
- ------------------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>         <C>       <C>
Operating revenue
     Electric                                           $     714   $     775   $ 1,970   $      2,015
     Gas                                                      164         135     1,252          1,002
     Other                                                      1           1         1              3
- ------------------------------------------------------------------------------------------------------
Total Operating Revenue                                 $     879   $     911   $ 3,223   $      3,020
======================================================================================================
Net income available to common stockholder
     Electric                                           $      59   $      88   $   145   $        222
     Gas                                                      (19)        (18)       40             13
     Other                                                     (7)          4       (13)            32
- ------------------------------------------------------------------------------------------------------
Total Net Income                                        $      33   $      74   $   172   $        267
======================================================================================================
</TABLE>

FINANCIAL INSTRUMENTS: Consumers accounts for its investments in debt and equity
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 accumulated other comprehensive income and are excluded from earnings, unless
such changes in fair value are other than temporary. Unrealized gains or losses
from changes in the fair value of Consumers' nuclear decommissioning investments
are reported as regulatory liabilities. The fair value of these investments is
determined from quoted market prices. For further information regarding
financial instruments, see Note 4, Financial and Derivative Instruments -
Financial Instruments.

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.

In 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. However,
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 allowed
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business beginning in the fourth quarter of 2002, including regulatory
accounting treatment of costs required to be recognized in accordance with SFAS
No. 143. See Note 5, Implementation of New Accounting Standards, "SFAS No. 143,
Accounting for Asset Retirement Obligations."

                                     CE-39

<PAGE>

                                                        Consumers Energy Company

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.

RESTRICTED CASH: At September 30, 2003, Consumers' restricted cash on hand
totaled $19 million. Restricted cash primarily consists of cash dedicated for
repayment of securitization bonds.  It is classified as a current asset as the
payments on the related securitization bonds occur within one year.

STOCK-BASED COMPENSATION: In December 2002, the FASB issued SFAS No. 148. 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 the fourth quarter of 2002, Consumers adopted the fair value
method of accounting for stock-based compensation under SFAS No. 123 as amended
by SFAS No. 148, applying the prospective method. If compensation cost for stock
option had been determined in accordance with SFAS No. 123 for the three and
nine month periods ended September 30, 2002, consolidated net income as reported
and pro forma would have been as follows:

<TABLE>
<CAPTION>
                                                                                          In Millions
- ------------------------------------------------------------------------------------------------------
Three Months Ended September 30                                                                   2002
- ------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
Net income, as reported                                                                   $         85
Add:  Stock-based employee compensation expense included
   in reported net income, net of taxes                                                              -
Deduct:  Total stock-based  compensation  expense
   determined under fair value based method for all
   awards, net of tax                                                                                -
                                                                                          ------------
Pro forma net income                                                                      $         85
======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                          In Millions
- ------------------------------------------------------------------------------------------------------
Nine Months Ended September 30                                                                    2002
- ------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
Net income, as reported                                                                   $        301
Add:  Stock-based employee compensation expense included
   in reported net income, net of taxes                                                              -
Deduct:  Total stock-based  compensation  expense
   determined under fair value based method for all
   awards, net of tax                                                                               (1)
                                                                                          ------------
Pro forma net income                                                                      $        300
======================================================================================================
</TABLE>

In the third quarter of 2003, Consumers granted 500,000 stock options to
employees. As a result, Consumers expensed approximately $3 million related to
the fair value of those stock options. Fair value is estimated using the Black
Scholes model, a mathematical formula used to value options traded on the
securities exchange.

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 and gas 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) pending
litigation regarding PURPA qualifying facilities; 5) electric industry
restructuring issues; 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'
status as an electric transmission customer and not as an electric transmission
owner/operator; 9) sufficient reserves for transmission rate refunds; 10)
uncertainties relating to the storage and ultimate disposal of spent nuclear
fuel; 11) the effects of derivative accounting and

                                     CE-40

<PAGE>

                                                        Consumers Energy Company

potential earnings volatility; 12) potential environmental costs at a number of
sites, including sites formerly housing manufactured gas plant facilities; 13)
future gas industry restructuring initiatives; 14) an inadequate regulatory
response to applications for requested rate increases; 15) market and regulatory
responses to increases in gas costs, including a reduced average use per
residential customer; 16) increased costs for pipeline integrity and safety and
homeland security initiatives that are not recoverable on a timely basis from
customers; 17) Consumers' ability to recover any of its net stranded costs under
the regulatory policies being followed by the MPSC; 18) the effects of lost
electric supply load from retail open access and the recovery of associated
margin loss; and 19) the uncertain effects, including exposure to liability,
increased regulatory requirement and new legislation, due to the future
conclusions about the causes of the August 14, 2003 blackout.

SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions by
CMS MST, CMS Energy's Board of Directors established a Special Committee 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 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. Previously, CMS Energy
terminated its speculative trading business and revised its risk management
policy. The Board of Directors adopted, and CMS Energy has implemented the
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. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within 45 days that they have taken certain specified remedial measures with
respect to the reporting of natural gas trading data to publications that
compile and publish price indices. CMS MST made a written submission to the FERC
on June 11, 2003 in compliance with the FERC's directives. On July 29, 2003, the
FERC issued an order stating that CMS MST met the requirements of the FERC's
April 30, 2003 order. Other than the FERC investigation, 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 were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan by shareholders who allege that they purchased
CMS Energy's securities during a purported class period. The cases were
consolidated into a single lawsuit and an amended and a consolidated class
action complaint was filed on May 1, 2003. The consolidated complaint contains a
purported class period beginning on May 1, 2000 and running through March 31,
2003. It generally seeks unspecified damages based on allegations that the
defendants violated United States securities laws and regulations by making
allegedly false and misleading statements about CMS Energy's business and
financial condition, particularly with respect to revenues and expenses recorded
in connection with round-trip trading by CMS MST. The companies intend to defend
vigorously against this action but cannot predict the outcome of this
litigation.

ERISA LAWSUITS: CMS Energy is a named defendant, along with Consumers, 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 was filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
plan

                                     CE-41

<PAGE>

                                                        Consumers Energy Company

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 defended vigorously. 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 regulations requiring the state of Michigan
to further limit nitrogen oxide emissions. The Michigan Department of
Environmental Quality finalized rules to comply with the EPA regulations in
December 2002 and submitted these rules for approval to the EPA in the first
quarter of 2003. The EPA has issued additional 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 regulations require
Consumers to make significant capital expenditures estimated to be $770 million.
As of September 30, 2003, Consumers has incurred $437 million in capital
expenditures to comply with the EPA regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009. 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.

Consumers expects to supplement its environmental regulation 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 and their price could change substantially.

The EPA has proposed changes to the rules which govern generating plant cooling
water intake systems. The proposed rules will require significant abatement of
fish mortality. The proposed rules are scheduled to become final in the first
quarter of 2004 and some of Consumers' facilities would be required to comply by
2006. Consumers is studying the proposed rules to determine the most
cost-effective solutions for compliance. Until the method of compliance is
determined, Consumers is unable to estimate the cost of compliance with the
proposed rules.

The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek permits from the EPA.
Consumers has received and responded to information requests from the EPA on
this subject. Consumers believes that it has properly interpreted the
requirements of "routine maintenance". If Consumers' interpretation is
eventually found to be incorrect, it may be required to install additional
pollution controls at some or all of its coal-fired plants and could call into
question the viability of certain plants remaining in operation.

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
September 30, 2003, Consumers had accrued the minimum amount of the range for
its estimated Superfund liability.

                                     CE-42
<PAGE>

                                                        Consumers Energy Company

In October 1998, 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.

LITIGATION: In October 2003, a group of eight PURPA qualifying facilities
selling power to Consumers filed a lawsuit in Ingham County Circuit Court
against Consumers. The lawsuit alleges that Consumers incorrectly calculated the
energy charge payments made pursuant to power purchase agreements between the
qualifying facilities and Consumers. More specifically, the lawsuit alleges that
Consumers should be basing the energy charge calculation on the cost of more
expensive eastern coal, rather than on the cost of the coal actually burned by
Consumers for use in its coal-fired generating plants. Consumers believes it has
been performing the calculation in the manner prescribed by the power purchase
agreements, and has filed a request with the MPSC (as a supplement to the PSCR
plan) that asks the MPSC to review this issue and to confirm that Consumers'
method of performing the calculation is correct. Also, Consumers has filed a
motion to dismiss the lawsuit in the Ingham County Circuit Court due to the
pending request at the MPSC in regard to the PSCR plan case. Although only eight
qualifying facilities have currently raised the issue, the same energy charge
methodology is used in the PPA with the MCV Partnership and in approximately 20
additional power purchase agreements with Consumers, representing approximately
1,670 MW of electric capacity. Consumers cannot predict the outcome of this
litigation.

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 Securitization bonds to refinance qualified costs, as
defined by the act; 5) establishes a market power supply test that if not met
may require transferring control of generation resources in excess of that
required to serve firm retail sales requirements (In September 2003, the MPSC
issued an order finding that Consumers is in compliance with the market power
test set forth in the Customer Choice Act.); 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. (In
July 2002, the MPSC issued an order approving the plan to achieve the increased
transmission capacity. The MPSC found that once the planned projects were
completed and verification was submitted, a utility was in technical compliance.
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.); 8) allows deferred recovery of an annual return of
and on capital expenditures 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.

Under Public Act 141, Consumers currently offers standby generation services to
certain retail open access customers. The obligation to offer this service does
not extend beyond the later of December 31, 2001 or the date the MPSC finds that
Consumers complies with the market power test set forth in the Customer Choice
Act and has completed the projects necessary to meet Consumers', Detroit
Edison's and American Electric Power's obligation to jointly expand their
available transmission capability by at least 2,000 MW. As stated above, in
September 2003, the MPSC issued an order finding that Consumers is in compliance
with the market power test and in December 2002, Consumers filed verification
with the MPSC indicating that Consumers met the

                                     CE-43
<PAGE>

                                                        Consumers Energy Company

transmission capability expansion requirements. As a result, Consumers filed a
notice with the MPSC indicating that it was terminating retail open access
standby service on December 31, 2003. Also, as a result of Consumers meeting the
transmission capability expansion requirements and the market power test,
Consumers has met the requirements under Public Act 141 to return to the PSCR
process. For further discussion on the PSCR process see, "Power Supply Costs" in
this Note.

The rate-freeze imposed by Public Act 141 ends at December 31, 2003. After that
date, the statute would allow customers to petition the MPSC for rate reductions
below the cap. Consumers would have the opportunity to respond to such a
petition before rates could be reduced.

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 (as noted below in "Power Supply Costs"
in this Note, 603 MW of load is currently being served by 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: The Customer Choice Act allows for the use of Securitization
bonds to refinance certain qualified costs, as defined by the act.
Securitization typically involves issuing asset-backed bonds with a higher
credit rating than conventional utility corporate financing. In 2000 and 2001,
the MPSC issued orders authorizing Consumers to issue Securitization bonds.
Consumers issued its first Securitization bonds in late 2001. Securitization
resulted in lower interest costs and a longer amortization period for the
securitized assets, and offset the impact of the required residential rate
reduction. The Securitization 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.

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. 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 and cap period expire and an electric rate case is processed.
Securitization charge collections, $37 million for the nine months ended
September 30 2003, and $39 million for the nine months ended September 30, 2002,
are remitted to a trustee for the Securitization bonds. Securitization charge
collections are dedicated to the repayment of the principal and interest on the
Securitization bonds and payment

                                     CE-44
<PAGE>

                                                        Consumers Energy Company

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.

In March 2003, Consumers filed an application with the MPSC seeking approval to
issue Securitization bonds in the amount of approximately $1.084 billion. The
application sought recovery of costs associated with Clean Air Act expenditures,
Palisades expenditures previously not securitized, retail open access
implementation costs through December 31, 2003, certain pension fund costs, and
expenses associated with the issuance of the bonds. In June 2003, the MPSC
issued a financing order authorizing the issuance of Securitization bonds in the
amount of approximately $554 million. This amount relates to Clean Air Act
expenditures and associated return on those expenditures through December 31,
2002, retail open access implementation costs and previously authorized return
on those expenditures through December 31, 2000, and the "up front" other
qualified costs related to issuance of the Securitization bonds. The MPSC
rejected Palisades expenditures previously not securitized as eligible
securitized costs. Therefore, Palisades expenditures previously not securitized
should be included as a component of "net" Stranded Costs and will be included
as a component of a future electric rate case proceeding with the MPSC.

In the June 2003 financing order, the MPSC also adopted a rate design that would
allow retail open access customers to pay a securitization charge (and related
tax charge) that are a small fraction of the amounts paid by full service
bundled sales customers and special contract customers of the utility. The
financing order provides that the securitization charges (and related tax
charges) for the full service and bundled sales customers are increased under
the rate design in the financing order in order to be sufficient to repay the
principal, interest and all other "ongoing" qualified costs related to servicing
the Securitization bonds. The financing order also restricts the amount of
common dividends payable by Consumers to its "earnings." In July 2003, Consumers
filed for rehearing and clarification on a number of features in the financing
order, including the rate design, accounting treatment of unsecuritized
qualified costs and dividend restriction. Also in July 2003, the Attorney
General filed a claim of appeal related to the financing order and the Attorney
General indicated it would challenge the lawfulness of the rate design. In
October 2003, the Court of Appeals dismissed the appeal and indicated that the
Attorney General could resubmit the appeal after the MPSC acted on Consumers'
rehearing request. Subsequently, the Attorney General filed a motion of
rehearing asking for reconsideration of the Court of Appeals' dismissal.  The
financing order will become effective after rehearing, resolution of appeals and
upon acceptance by Consumers.

ELECTRIC PROCEEDINGS: Stranded 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. According to
the MPSC, "net" Stranded Costs are 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 for 2000 and $43 million for 2001. Consumers in its hearing brief, filed
in August 2002, revised its request for Stranded Costs to $7 million for 2000
and $4 million for 2001. 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. As discussed above in
"Securitization", Consumers filed a request with the MPSC for authority to issue
Securitization bonds that would allow recovery of the Clean Air Act expenditures
that were excluded from the Stranded Cost calculation.

                                     CE-45
<PAGE>

                                                        Consumers Energy Company

In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to resolve numerous
issues regarding the "net" Stranded Cost methodology in a way 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 have also filed rehearing
petitions with the MPSC. Consumers has also initiated an appeal at the Michigan
Court of Appeals related to the MPSC's December 2001 "net" Stranded Cost order.

In March 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 Palisades expenditures,
previously not securitized, were approved as proposed in its securitization case
as discussed above in "Securitization", then Consumers' "net" Stranded Costs
incurred in 2002 would be 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.

In June 2003, the MPSC issued a financing order in the securitization case,
authorizing the issuance of Securitization bonds in the amount of approximately
$554 million. Included in this amount were Clean Air Act expenditures. However,
the MPSC rejected Palisades expenditures previously not securitized as eligible
securitized costs. As a result, the Palisades expenditures previously not
securitized should be included as a component of "net" Stranded Costs and will
be included as a component of a future electric rate case proceeding with the
MPSC. With the inclusion of the Palisades expenditures previously not
securitized, Consumers' "net" Stranded Costs incurred in 2002 are estimated to
be approximately $50 million.

In July 2003, Consumers filed a petition for rehearing and clarification on a
number of features in the MPSC's financing order on securitization. Once a final
financing order by the MPSC on securitization is issued, the amount of
Consumers' request for "net" Stranded Cost recovery for 2002 will be known.
Consumers cannot predict how the MPSC will rule on its request for the
recoverability of Stranded Costs, and therefore Consumers 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 has participated in this collaborative process. In July 2003, the
staff suspended formal discussion while it considers possible conclusions and
recommendations.

Implementation Costs - 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        Pending       Pending
====================================================================================
</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 order received for the year 2001, the MPSC also reserved the right to review
again the implementation costs depending upon the progress and success of the

                                     CE-46
<PAGE>

                                                        Consumers Energy Company

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 September 30, 2003, Consumers incurred and deferred as a regulatory asset, $2
million of additional implementation costs and has also recorded a regulatory
asset of $16 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 is expected to begin after the rate freeze or rate cap
period has expired. As discussed above, Consumers has asked to include
implementation costs through December 31, 2000 in the pending securitization
case. If approved, the sale of Securitization bonds will allow for the recovery
of these costs. Consumers cannot predict the amounts the MPSC will approve as
allowable costs.

Also, Consumers is 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. In May 2003, the FERC
issued an order denying MISO's request for authorization to reimburse Consumers.
In June 2003, Consumers and MISO filed a joint petition for rehearing with the
FERC. In September 2003, the FERC denied Consumers' and MISO's joint request.
Consumers plans to appeal the FERC ruling at the United States Court of Appeals
for the District of Columbia and pursue other potential means of recovery. In
November 2003, in conjunction with Consumers' appeal of the September Order
denying recovery, Consumers persuaded MISO to file a request with the FERC
seeking authority to reimburse METC, the legal successor in interest to the
Alliance RTO start-up costs. As part of the contract for sale of Consumers'
former transmission system, should the Commission approve the new MISO filing,
METC is contractually obligated to flow-through to Consumers the full amount of
any Alliance RTO start-up costs that it is authorized to recover through FERC.
Consumers cannot predict the outcome of the appeal process, the MISO request or
the amount of implementation costs, if any; the FERC ultimately will allow to be
collected.

Transmission Rates - 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 final FERC
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 and Detroit Edison used the same rates for JOATT transmission rates.
Approval of the JOATT transmission rates application is pending FERC approval.
Consumers believes its reserve is sufficient to satisfy its refund obligation
under current rate applications. As of October 2003, Consumers has paid $27
million in refunds. In October 2003, Consumers filed with FERC its formal notice
of cancellation of its transmission tariffs since Consumers no longer has any
transmission customers.

TRANSMISSION: In May 2002, Consumers sold its electric transmission system for
approximately $290 million to MTH, a non-affiliated limited partnership whose
general partner is a subsidiary of Trans-Elect, Inc. The pretax gain was $31
million ($26 million, net of tax). Remaining open issues are not expected to
materially impact the amount of the gain.

As a result of the sale, Consumers anticipates its after-tax earnings will
decrease by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a 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.

Under an 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 until May 1, 2007 under a
contract with MTH.

                                     CE-47
<PAGE>

                                                        Consumers Energy Company

AUGUST 14, 2003 BLACKOUT: On August 14, 2003, the electric transmission grid
serving parts of the Midwest and the Northeast experienced a significant
disturbance, which impacted electric service to millions of homes and businesses
throughout a vast region. In Michigan, more than 2 million electric customers
were without electricity. Consumers had five fossil-fueled generating unit
outages and, of Consumers' 1.7 million electric customers, approximately
100,000 were without power for approximately 24 hours as a result of the
disturbance. The impact was felt most heavily in the southeastern part of
Consumers' service territory.

As discussed above in "Transmission", Consumers sold its transmission system in
May 2002 to MTH, with Consumers providing transmission system maintenance under
a five-year contract with MTH. MTH now owns, controls, and plans for the
transmission system that serves Consumers. Consumers incurred approximately $1
million of immediate financial impact as a result of the blackout. Consumers
continues to cooperate with investigations of the blackout by several federal
and state agencies. Consumers cannot predict the outcome of these
investigations.

In November 2003, the MPSC released its report on the August 14 blackout, which
found no evidence to suggest that the events in Michigan or actions taken by the
Michigan utilities or transmission operators were factors contributing to the
cause of the blackout. As a result of its investigation, the MPSC is
recommending that Congress pass legislation that would empower the FERC, where
necessary, to order membership into a RTO and that Congress should provide the
FERC with the authority to develop and enforce mandatory transmission
reliability standards with penalties for noncompliance.

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. As it did in 2003, Consumers is currently planning for a
reserve margin of approximately 11 percent for summer 2004 or supply resources
equal to 111 percent of projected summer peak load. Of the 111 percent,
approximately 100 percent is expected to be met from owned electric generating
plants and long-term power purchase contracts and 11 percent from short-term
contracts and options for physical deliveries and other agreements. The ultimate
use of the reserve margin 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 October 2003, alternative
electric suppliers are providing 603 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.

Currently, Consumers is required to provide backup service to ROA customers on a
"best efforts" basis. In October 2003, Consumers provided notice to the MPSC
that it would terminate the provision of backup service in accordance with
Public Act 141, effective January 1, 2004.

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 and energy contracts for the physical delivery
of electricity primarily in the summer months and to a lesser degree in the
winter months. As of September 30, 2003, Consumers purchased capacity and energy
contracts partially covering the estimated reserve margin requirements for 2004
through 2007. As a result, Consumers has a recognized asset of $21 million for
unexpired capacity and energy contracts. The total premium cost of electricity
call option and capacity and energy contracts for 2003 is expected to be
approximately $10 million.

                                     CE-48
<PAGE>

                                                        Consumers Energy Company

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, effective 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.

On September 30, 2003, Consumers submitted a PSCR filing to the MPSC that would
reinstate the PSCR process for customers whose rates will no longer be frozen or
capped as of January 1, 2004. The proposed PSCR charge allows Consumers to
recover a portion of its increased power supply costs from large commercial and
industrial customers effective January 1, 2004. This is the first customer class
for which the rate freeze and cap expire. Consumers will, pursuant to its right
under applicable law, self-implement the proposed PSCR charge on January 1,
2004, unless the MPSC issues an order before that date establishing a different
charge. The charge is subject to subsequent change by the MPSC during the PSCR
period (calendar-year 2004). The revenues received pursuant to the PSCR charge
by statute are also subject to subsequent reconciliation when the year is
finished and actual costs have been reviewed for reasonableness and prudence.
Consumers cannot predict the outcome of this filing.

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, which at September 30, 2003 and 2002 are $238 million and
$217 million, respectively.

Summarized Statements of Income for CMS Midland and CMS Holdings

<TABLE>
<CAPTION>
                                                                                                       In Millions
- ------------------------------------------------------------------------------------------------------------------
                                                                       Three Months Ended        Nine Months Ended
September 30                                                             2003       2002          2003      2002
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>          <C>        <C>
Earnings (loss) from equity method investees                            $ (3)       $  8          $ 31      $ 35
Operating taxes and other                                                 (1)          2            18        11
                                                                        ----------------------------------------

Income (loss) before cumulative effect of accounting change               (2)          6            13        24

Cumulative effect of change in method of accounting for
  derivatives, net of $1 and $10 million tax expense in 2002 (a)           -           1             -        18
                                                                        ----------------------------------------
Net income (loss)                                                       $ (2)       $  7          $ 13      $ 42
================================================================================================================
</TABLE>

                                     CE-49
<PAGE>

                                                         Consumer Energy Company

Summarized Statements of Income for the MCV Partnership

<TABLE>
<CAPTION>
                                                                                                        In Millions
                                                                       Three Months Ended         Nine Months Ended
September 30                                                            2003        2002            2003      2002
- -------------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>         <C>             <C>       <C>
Operating revenue                                                       $148        $156            $443      $451
Operating expenses                                                       138         120             322       318
                                                                        -------------------------------------------

Operating income                                                          10          36             121       133
Other expense, net                                                        25          27              82        86
                                                                        -------------------------------------------
Income (loss) before cumulative effect of accounting change              (15)          9              39        47

Cumulative effect of change in method of accounting for
  derivative option contracts (a)                                          -           -               -        58
                                                                        -------------------------------------------
Net income (loss)                                                       $(15)       $  9            $ 39     $ 105
===================================================================================================================
</TABLE>

(a) 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 cumulative effect adjustment for the change in
accounting principle was recorded as an increase to earnings.

Power Supply Purchases from the MCV Partnership - Consumers' annual obligation
to purchase capacity from the MCV Partnership is 1,240 MW through the term of
the PPA ending 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 and a fixed energy charge, and also to pay 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 regulatory out 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. The remaining estimated future PPA liability associated with the
loss totaled $34 million at September 30, 2003 and $59 million at September 30,
2002. 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
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.

                                     CE-50
<PAGE>

                                                        Consumers Energy Company

Under Michigan's electric restructuring law, Consumers will return to unfrozen
rates for large industrial customers beginning January 1, 2004, including the
resumption of the PSCR process. Under the process, Consumers will recover from
customers capacity and fixed energy charges on the basis of availability, to the
extent that availability does not exceed 88.7 percent availability established
in previous MPSC orders. Recovery of capacity and fixed energy charges will be
subject to certain rate caps as discussed in Note 2, Uncertainties, "Electric
Rate Matters - Electric Restructuring." For capacity and energy 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. The
regulatory out provision relieves Consumers of the obligation to pay more for
capacity and energy payments than the MPSC allows Consumers to collect from its
customers. Consumers estimates 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. If the MCV Facility's generating availability remains at the maximum
98.5 percent level, Consumers' cash underrecoveries associated with the PPA
could be as follows:

<TABLE>
<CAPTION>
                                                                                   In Millions
- ----------------------------------------------------------------------------------------------
                                                              2003   2004   2005  2006    2007
- ----------------------------------------------------------------------------------------------
<S>                                                           <C>    <C>    <C>   <C>     <C>
Estimated cash underrecoveries at 98.5% (a)                   $ 57   $ 56   $ 56  $ 55    $ 39

Amount to be charged to operating expense                     $ 28   $ 27   $ 56  $ 55    $ 39
Amount to be charged to PPA liability                         $ 29   $ 29   $  -  $  -    $  -
==============================================================================================
</TABLE>

(a) For the nine months ended September 30, 2003, Consumers' cash
underrecoveries associated with the PPA were $43 million.

As previously noted, until September 2007, the PPA and settlement require
Consumers to pay capacity costs based on the MCV Facility's actual availability
up to the 98.5 percent cap. After September 2007, Consumers expects to exercise
the "regulatory out" clause in the PPA, limiting its capacity payments to the
MCV Partnership to the amount collected from its customers. Depending on the
MPSC's future actions with respect to the capacity payments recoverable from its
customers subsequent to September 2007, the earnings of the MCV Partnership and
the value of Consumers' equity interest in the MCV Partnership, may be affected
negatively.

Further, under the PPA, energy payments to the MCV Partnership are based on the
cost of coal burned at Consumers' coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with Consumers' coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.

As of January 1, 2004, Consumers intends to return to forced (uneconomic)
dispatch of the MCV Facility in order to maximize recovery of its capacity
payments. As such, if the spread between MCV Facility's variable electricity
production costs and its energy payment revenues stays constant or widens, the
negative impacts on MCV Partnership's financial performance, and on the value of
Consumers' equity interest in the MCV Partnership, will be worse.

Consumers cannot estimate, at this time, the impact of these issues on its
future earnings or cash flow from its interest in the MCV Partnership. The
forward price of natural gas for the next 22 years and the MPSC decision in 2007
or later related to Consumers' recovery of capacity payments are the two most
significant variables in

                                     CE-51
<PAGE>

                                                        Consumers Energy Company

the analysis of MCV Partnership's future financial performance. Natural gas
prices have historically been volatile and presently there is no consensus in
the marketplace on the price or range of prices of natural gas beyond the next
five years. Further, it is not presently possible for Consumers to predict the
actions of the MPSC in 2007 or later. For these reasons, at this time Consumers
cannot predict the impact of these issues on its future earnings, cash flows, or
on the value of its $404 million equity interest in the MCV Partnership.

Consumers is exploring possible alternatives for utilizing the MCV Facility
without increasing costs to customers. Any changes regarding the recovery of MCV
capacity costs would require MPSC approval. Consumers cannot predict the outcome
of this matter.

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 PURPA. In July 1999, the district
court granted MCV Partnership's motion for summary judgment. The district 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: Significant progress continues to be made in the
decommissioning of Big Rock. Following the successful loading of spent fuel into
dry storage (see below under "Spent Nuclear Fuel Storage"), the spent fuel
storage racks were removed and disposed of and the spent fuel pool cleaned and
drained. The reactor vessel closure head was shipped for disposal in May 2003
and in August 2003, the reactor vessel was moved from the plant and sealed into
a specially designed shipping container. In October 2003, the shipping container
was transported to the licensed disposal facility in Barnwell, South Carolina.
The License Termination Plan was submitted to the NRC staff for review in April
2003. System dismantlement and building demolition continue on a schedule to
return the 560-acre site to a natural setting for unrestricted use in early
2006. The NRC and Michigan Department of Environmental Quality continue to find
that all decommissioning activities at Big Rock are being performed in
accordance with applicable regulatory and license requirements.

In July 2003, the NRC completed its mid-cycle plant performance assessment of
Palisades. The mid-cycle review for Palisades covered the period from January 1,
2003 through the end of July 2003. 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 September 2004.

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." Spent fuel was then loaded into the dry casks from the fuel pool and
transported to the temporary onsite storage pad. A total of seven dry casks have
been loaded with spent fuel. An additional eighth cask, containing high-level
radioactive waste material, was also loaded. This radioactive material was made
up of reactor vessel components that could not be shipped or stored with the
reactor vessel. These transportable dry casks will remain onsite until the DOE
moves the material to a national fuel repository.

At Palisades, the amount of spent nuclear fuel discharged from the reactor to
date exceeds Palisades' temporary onsite storage pool capacity. Consequently,
Consumers is using dry casks for temporary onsite storage. As of September 30,
2003, Consumers had loaded 18 dry casks with spent nuclear fuel at Palisades.
Palisades will

                                     CE-52
<PAGE>

                                                        Consumers Energy Company

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 onsite,
with storage pad capacity for up to seven additional loaded dry casks. Consumers
anticipates that licensed transportable dry casks for additional storage, along
with more storage pad capacity, will be available prior to 2004.

As of September 30, 2003, Consumers has a recorded liability to the DOE of $139
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 the interest.

In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin
accepting deliveries of spent nuclear fuel for disposal by January 31, 1998.
Subsequent U.S. Court of Appeals 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 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,
including Consumers, which filed its complaint in December 2002, have commenced
litigation in the Court of Claims. The Chief Judge of the Court of Claims
identified six lead cases to be used as vehicles for resolving dispositive
motions. Consumers' case is not a lead case. It is unclear what impact this
decision by the Chief Judge will have on the outcome of Consumers' litigation.
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. However, there is no assurance that
the litigation against the DOE will be successful.

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.

In March 2003, the Michigan Environmental Council, the Public Interest Research
Group in Michigan, and the Michigan Consumer Federation submitted a complaint to
the MPSC, which was served on Consumers by the MPSC in April 2003. The complaint
asks the MPSC to commence a generic investigation and contested case to review
all facts and issues concerning costs associated with spent nuclear fuel storage
and disposal. The complaint seeks a variety of relief with respect to Consumers,
Detroit Edison, Indiana & Michigan Electric Company, Wisconsin Electric Power
Company and Wisconsin Public Service Corporation, including establishing
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 related to the storage and disposal of spent nuclear fuel. In May 2003,
Consumers and the other named utilities each filed a motion to dismiss the
complaint. Consumers is unable to predict the outcome of this matter.

Palisades Plant Operations: In March 2002, corrosion problems were discovered in
the reactor head at an unaffiliated nuclear power plant in Ohio. As a result,
the NRC requested that all United States nuclear plants utilizing pressurized
water reactors provide reports detailing their reactor head inspection
histories, design capabilities and future inspection plans. In response to the
issues identified at this and other nuclear plants worldwide, a bare metal
visual inspection was completed on the Palisades reactor vessel head during the
spring 2003 refueling outage. No indication of leakage was detected on any of
the 54 penetrations of the reactor head. Consumers will continue to comply with
the more aggressive reactor head inspection requirements in future

                                     CE-53
<PAGE>

                                                        Consumers Energy Company

planned outages at Palisades.

Insurance: Consumers maintains primary and excess nuclear property insurance
from NEIL, totaling $2.750 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 $26 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 $10.862 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 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 $101 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 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.

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
resolution of environmental issues at sites as studies are completed. Consumers
has estimated its costs related to investigation and remedial action for all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. A revised cost estimate, completed in September 2003, estimated remaining
costs to be between $37 million and $90 million. The range reflects multiple
alternatives with various assumptions for resolving the environmental issues at
each site. The estimates are based on discounted 2003 costs using a discount
rate of three percent. The discount rate represents a ten-year average of U.S.
Treasury bond rates reduced for increases in the consumer price index. Consumers
expects to fund a significant portion of these costs through insurance proceeds
and through MPSC approved rates charged to its customers. As of September 30,
2003, Consumers has an accrued liability of $47 million, net of $35 million of
expenditures incurred to date, and a regulatory asset of $68 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.

                                     CE-54
<PAGE>

                                                        Consumers Energy Company

The MPSC, in its November 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 COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation case with the MPSC, Consumers expects to recover all of its gas
costs. In June 2003, Consumers filed a reconciliation of GCR costs and revenues
for the 12-months ended March 2003. Consumers proposes to recover from its
customers a net under-recovery of approximately $6 million using a roll-in
methodology. The roll-in methodology incorporates the under-recovery in the GCR
factor charged in the next GCR year. The roll-in tariff provision was approved
by the MPSC in a November 2002 order.

In July 2003, the MPSC approved a settlement agreement authorizing Consumers to
increase its gas cost recovery factor for the remainder of the current GCR plan
year (August 2003 through March 2004) and to implement a quarterly ceiling price
adjustment mechanism, based on a formula that tracks changes in NYMEX natural
gas prices. Consistent with the terms of the settlement, the ceiling price is
$6.11 per mcf. However, Consumers will utilize a GCR factor of $5.41 per mcf
commencing in November 2003 bills. All recoveries pursuant to such factors are
subject to final reconciliation by the MPSC.

2003 GAS RATE CASE: In March 2003, Consumers filed an application with the MPSC
seeking a $156 million increase in its gas delivery and transportation rates,
which included a 13.5 percent return on equity, based on a 2004 test year.
Contemporaneously with this filing, Consumers requested interim rate relief in
the same amount. In August 2003, the MPSC Staff recommended interim rate relief
of $80 million be granted in this proceeding, subject to Consumers voluntarily
agreeing to limit its dividends to its parent, CMS Energy, to a maximum of $190
million in any calendar year.

In September 2003, Consumers filed an update to its gas rate case that lowered
the requested revenue increase from $156 million to $139 million and revised the
return on common equity from 13.5 percent to 12.75 percent. The majority of the
reduction is related to lower debt costs and changes in the projected capital
structure. The MPSC Staff and ABATE filed their cases in early October. The
Staff made no change to its interim position of $80 million and continued to
propose the same dividend limitation. ABATE did not make a specific
recommendation for a final rate increase, but did discuss the rate design used
to recover any rate increase granted. A proposal for decision is expected from
the administrative law judge in January 2004.

OTHER UNCERTAINTIES

SECURITY COSTS: 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 September 30, 2003,
Consumers has incurred approximately $7 million in incremental security costs,
including operating, capital, and decommissioning and removal costs, mainly
relating to its nuclear facilities. Consumers estimates it may incur additional
incremental security costs for the last three months of 2003 of approximately $3
million, of which $2 million relates to nuclear security costs. 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 nuclear electric division
security costs incurred during the rate freeze and cap periods imposed by the
Customer

                                     CE-55
<PAGE>

                                                        Consumers Energy Company

Choice Act. In February 2003, the MPSC adopted filing requirements for the
recovery of enhanced security costs.

DERIVATIVE ACTIVITIES: Consumers may use 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
be adjusted to 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 4, Financial and
Derivative Instruments.

OTHER: 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 September 30, 2003, Consumers had
FERC authorization, through June 2004, to issue or guarantee up to $1.1 billion
of short-term securities outstanding at any one time. As of September 30, 2003,
Consumers had $400 million outstanding as collateral for the revolving credit
facility (discussed below) and had an additional $700 million available for
future issuances of short-term securities. At September 30, 2003, Consumers also
had remaining FERC authorization, through June 2004, to issue up to $800 million
of long-term securities for refinancing or refunding purposes, $560.3 million of
long-term securities for general corporate purposes, and $2.06 billion of
long-term first mortgage bonds to be issued solely as collateral for other
long-term securities. Also, FERC has granted waivers of its competitive
bid/negotiated placement requirements applicable to the long-term securities
authorization indicated above.

SHORT-TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
In September 2003, this facility was amended and restated as a $400 million
revolving credit facility. The interest rate of the facility was reduced from
LIBOR plus 350 to LIBOR plus 175 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. At September 30, 2003, all of the $400
million is available for general corporate purposes. At September 30, 2003, a
total of $4 million was outstanding on all short-term financings at a weighted
average interest rate of 2.79 percent, compared with $235 million outstanding at
September 30, 2002 at a weighted average interest rate of 3.7 percent.

                                     CE-56
<PAGE>

                                                        Consumers Energy Company

LONG-TERM DEBT:

The following is a summary of Consumers' Long-Term Debt as of September 30, 2003
and December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                In Millions
- -----------------------------------------------------------------------------------------------------------
                                                                             September 30       December 31
                                              Interest Rate (%)   Maturity       2003              2002
- -----------------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>        <C>                <C>
   Senior Notes                                  6.000              2005        $   300           $  300
                                                 6.250              2006            332              332
                                                 6.375              2008            159              159
                                                 6.200(a)           2008              -              250
                                                 6.875              2018            180              180
                                                 6.500(b)           2018            141              141
                                                 6.500(c)           2028            142              142
                                                                                ---------------------------
                                                                                  1,254            1,504
                                                                                ---------------------------

   Securitization Bonds                          5.075(d)         2005-2015         434              453
   First Mortgage Bonds                          5.240(d)         2008-2023       1,482              208
   Long-Term Bank Debt                          Floating            2009            140              328
   Nuclear Fuel Disposal Liability                                   (e)            139              138
   Pollution Control Revenue Bonds              Various           2010-2018         126              126
   Other                                                                              6                8
                                                                                ---------------------------
                                                                                  2,327            1,261
                                                                                ---------------------------

Principal Amount Outstanding                                                      3,581            2,765
Current Amounts                                                                     (28)            (305)
Net Unamortized Discount                                                            (22)             (18)
                                                                                ---------------------------
Total Long-Term Debt                                                            $ 3,531           $2,442
===========================================================================================================
</TABLE>

(a) These notes were subject to a call option by the callholder or a mandatory
    put on May 1, 2003.

(b) Senior remarketed notes subject to optional redemption by Consumers after
    June 15, 2005.

(c) Callable at par on or after October 1, 2003.

(d) Represents the weighted average interest rate at September 30, 2003.

(e) Maturity date uncertain.

FIRST MORTGAGE BONDS: In April 2003, Consumers sold $625 million principal
amount of first mortgage bonds in a private offering to institutional investors;
$250 million were issued at an interest rate of 4.25 percent, maturing in April
2008, and net proceeds were approximately $248 million; $375 million were issued
at an interest rate 5.375 percent, maturing in April 2013, and net proceeds were
approximately $371 million. Consumers used the net proceeds to replace a $250
million senior reset put bond that matured in May 2003, to pay an associated $32
million option call payment, and for general corporate purposes that included
paying down additional debt. The $32 million option call payment was deferred
and is being amortized to interest expense over the term of the replacement debt
in accordance with SFAS No. 71. Consumers agreed to file a registration
statement with the SEC by December 26, 2003 to permit holders of the first
mortgage bonds to exchange the bonds for new bonds that will be registered under
the Securities Act of 1933.

                                     CE-57
<PAGE>

                                                        Consumers Energy Company

In May 2003, Consumers sold $250 million principal amount of first mortgage
bonds in a private offering to institutional investors; the bonds were issued at
an interest rate of 4.00 percent, maturing May 2010, and net proceeds were
approximately $247 million. Consumers used the net proceeds to pay down existing
debt. Consumers agreed to file a registration statement with the SEC by December
26, 2003 to permit holders of the first mortgage bonds to exchange the bonds for
new bonds that will be registered under the Securities Act of 1933.

In August 2003, Consumers sold $400 million principal amount of first mortgage
bonds in a private offering to institutional investors; $200 million were issued
at an interest rate of 4.80 percent, maturing in February 2009, and net proceeds
were approximately $198 million and $200 million were issued at an interest rate
of 6.00 percent, maturing in February 2014, and net proceeds were approximately
$198 million. Consumers used the net proceeds to pay down existing debt and for
general corporate purposes. Consumers agreed to file a registration statement
with the SEC by April 14, 2004 to permit holders of the first mortgage bonds to
exchange the bonds for new bonds that will be registered under the Securities
Act of 1933.

SENIOR NOTES: 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. Proceeds from this
loan were used for general corporate purposes.

In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan had a three-year maturity expiring in March 2006.
This term loan was paid in full with the proceeds of first mortgage bonds issued
in August 2003.

COMPANY-OBLIGATED 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.
In each case, the primary asset of the trust 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 terms, 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. For further information, see Note 5,
Implementation of New Accounting Standards.

<TABLE>
<CAPTION>
                                                                                           In Millions
- ------------------------------------------------------------------------------------------------------
                                                                 Amount                     Earliest
Trust and Securities                                Rate      Outstanding     Maturity     Redemption
- ------------------------------------------------------------------------------------------------------
September 30                                                 2003    2002
- ------------------------------------------------------------------------------------------------------
<S>                                                 <C>      <C>     <C>      <C>          <C>
Consumers Power Company Financing I,
  Trust Originated Preferred Securities (a)         8.36%    $  70   $ 70       2015           2000
Consumers Energy Company Financing II,
  Trust Originated Preferred Securities (a)         8.20%      120    120       2027           2002
Consumers Energy Company Financing III,
  Trust Originated Preferred Securities (b)         9.25%      175    175       2029           2004
Consumers Energy Company Financing IV,
  Trust Preferred Securities (c)                    9.00%      125    125       2031           2006
                                                             ------------
Total Amount Outstanding                                     $ 490   $490
======================================================================================================
</TABLE>

                                     CE-58
<PAGE>

                                                        Consumers Energy Company

(a) Consumers can currently redeem these securities at par value.

(b) Consumers cannot redeem these securities until 2004. If Consumers were
    to redeem these securities as of September 30, 2003, they would be
    required to pay market value, which is approximately $180 million.

(c) Consumers cannot redeem these securities until 2006. If Consumers were
    to redeem these securities, as of September 30, 2003, they would be
    required to pay market value, which is approximately $128 million.

REQUIRED RATIOS: The revolving credit facility has contractual restrictions that
require Consumers to maintain, as of the last day of each fiscal quarter, the
following:

<TABLE>
<CAPTION>
                                                              Limitation                 Ratio at September 30, 2003
====================================================================================================================
<S>                                                 <C>                                  <C>
Debt to Capital Ratio (a)(b)                        Not more than 0.65 to 1.00                   0.58 to 1.00
Interest Coverage Ratio - Revolver (a)              Not less than 2.00 to 1.00                   3.34 to 1.00
====================================================================================================================
</TABLE>

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

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

Consumers is subject to covenants in its financing agreements that could limit
its ability to incur additional indebtedness. Consumers has agreed in several of
its financing agreements to maintain specified levels of cash coverage of its
interest requirements and to not allow its indebtedness to exceed specified
levels of its consolidated capitalization (the "Debt Percentage Tests").
Consumers is in compliance with these requirements as of the most recent
measurement date, September 30, 2003. These covenants make use of both generally
accepted accounting principles and defined contractual terms in specifying how
the relevant calculations are made. Consumers sought and received amendments to
certain of its relevant financing agreements to modify the terms of the Debt
Percentage Tests in order to, among other things, remove the effect of the
adoption of SFAS No. 150, portions of which have now been deferred indefinitely,
regarding Trust Preferred Securities on the calculations.

OTHER: Under a revolving accounts receivable sales program, Consumers currently
sells certain accounts receivable to a wholly owned, consolidated, bankruptcy
remote special purpose entity, Consumers Receivables Funding II. In turn,
Consumers Receivables Funding II may sell an undivided interest in up to $325
million of the receivables to a bank-sponsored commercial paper conduit. The
amount sold to the conduit was $254 million at September 30, 2003 and $325
million at September 30, 2002. These amounts are excluded from accounts
receivable in Consumers' consolidated balance sheets. Consumers continues to
service the receivables sold, however, the purchaser of the receivables has no
recourse against Consumers' other assets for failure of a debtor to pay when due
and the purchaser has no right to any receivables not sold. No gain or loss has
been recorded on the receivables sold and Consumers retains no interest in the
receivables sold.

                                     CE-59
<PAGE>

                                                        Consumers Energy Company

Certain cash flows received from and paid to Consumers under its accounts
receivable sales program are shown below:

<TABLE>
<CAPTION>
                                                                                       In Millions
- --------------------------------------------------------------------------------------------------
                                                             Three Months Ended  Nine Months Ended
September 30                                                  2003        2002    2003       2002
- --------------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>    <C>        <C>
Proceeds from sales (remittance of collections)
     under the program                                       $ 204        $ 14   $  (71)    $   (9)
Collections reinvested under the program                       920         918    3,379      3,141
==================================================================================================
</TABLE>

DIVIDEND RESTRICTIONS: Under the provisions of its articles of incorporation,
Consumers had $412 million of unrestricted retained earnings available to pay
common dividends at September 30, 2003. However, covenants in Consumers' debt
facilities cap common stock dividend payments at $300 million in a calendar
year. Through September 30, 2003, Consumers paid $162 million in common
dividends. In October 2003, Consumers declared a $57 million common dividend
payable in November 2003.

For information on the potential cap on common dividends payable included in the
MPSC Securitization order see Note 2, Uncertainties, Electric Rate Matters,
"Securitization." Also, for information on the potential cap on common dividends
payable included in the MPSC Staff's recommendation in Consumers' gas rate case
see Note 2, Uncertainties, "Gas Rate Matters - 2003 Gas Rate Case."

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>
September 30, 2003                                                                                In Millions
- -------------------------------------------------------------------------------------------------------------
                                                             Expiration    Maximum    Carrying     Recourse
Guarantee Description                           Issue Date      Date     Obligation    Amount    Provision(a)
- -------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>         <C>          <C>        <C>
Standby letters of credit                         Various     Various      $   7       $   -        $   -
Surety bonds                                      Various     Various          8           -            -
Nuclear insurance retrospective premiums          Various     Various        133           -            -
=============================================================================================================
</TABLE>

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

                                     CE-60
<PAGE>

                                                        Consumers Energy Company

Following is additional information regarding Consumers' guarantees:

<TABLE>
<CAPTION>
September 30, 2003
- ------------------------------------------------------------------------------------------------------------------
                                                                                      Events That Would Require
    Guarantee Description                       How Guarantee Arose                          Performance
- ------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                        <C>
Standby letters of credit              Normal operations of coal power plants     Noncompliance with environmental
                                                                                  regulations
                                       Self-insurance requirement                 Nonperformance
Surety bonds                           Normal operating activity,  permits and    Nonperformance
                                       license
Nuclear insurance retrospective        Normal operations of nuclear plants        Call by NEIL and Price Anderson
premiums                                                                          Act for nuclear incident
==================================================================================================================
</TABLE>

4: 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 financial instruments, except as shown below,
approximate fair value. For held-to-maturity securities and related-party
financial instruments, see Note 1.

<TABLE>
<CAPTION>
                                                                                                               In Millions
- --------------------------------------------------------------------------------------------------------------------------
September 30                                                    2003                                 2002
- --------------------------------------------------------------------------------------------------------------------------
                                                       Cost        Fair    Unrealized      Cost       Fair      Unrealized
                                                                  Value    Gain (Loss)                Value     Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>       <C>            <C>        <C>        <C>
Long-Term Debt (a)                                    $3,531     $3,633    $    (102)     $2,701     $2,694       $    7
Trust Preferred Securities                               490        497           (7)        490        439           51
Preferred Stock                                           44         33           11          44         23           21
Available for sale securities:
Common stock of CMS Energy (b)                            10         17            7          35         19          (16)
SERP                                                      17         20            3          18         19            1
Nuclear decommissioning investments (c)                  450        553          103         464        530           66
==========================================================================================================================
</TABLE>

(a) Settlement of long-term debt is generally not expected until maturity.

(b) Consumers recognized a $12 million loss on this investment in 2002 and an
additional $12 million loss in the first quarter of 2003 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 September 30, 2003, Consumers held 2.4 million
shares of CMS Energy Common Stock.

(c) On January 1, 2003, Consumers adopted SFAS No. 143 and began classifying its
unrealized gains and losses on nuclear decommissioning investments as regulatory
liabilities. Consumers previously classified these investments in accumulated
depreciation.

                                     CE-61
<PAGE>

                                                        Consumers Energy Company

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. Established
policies and procedures are used to manage the risks associated with market
fluctuations.

Consumers may use 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.

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.

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. 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
accumulated 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 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 uses a combination of quoted
market prices and mathematical valuation models to determine fair value of those
contracts requiring derivative accounting. 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.

                                     CE-62
<PAGE>

                                                        Consumers Energy Company

The following table reflects the fair value of contracts requiring derivative
accounting:

<TABLE>
<CAPTION>
                                                                              In Millions
- -----------------------------------------------------------------------------------------
September 30                                                   2003                 2002
- -----------------------------------------------------------------------------------------
                                                               Fair                  Fair
Derivative Instruments                                Cost    Value       Cost      Value
- -----------------------------------------------------------------------------------------
<S>                                                   <C>     <C>         <C>       <C>
Electric - related contracts                          $  -    $   -       $  8      $   1
Gas contracts                                            3        -          -          1
Interest rate risk contracts                             -        -          -         (2)
Derivative contracts associated with Consumers'
  equity investment in the MCV Partnership               -       10          -          7
=========================================================================================
</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. Effective April
1, 2002, the MCV Partnership changed its accounting for derivatives, see Note 2,
Uncertainties, Other Electric Uncertainties, The Midland Cogeneration Venture.

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 electricity to
customers, to manage electric costs and to ensure a reliable source of capacity
during peak demand periods. As of September 30, 2003, Consumers did not have any
unexpired purchased electric call option contracts subject to derivative
accounting. All remaining purchased electric call option contracts subject to
derivative accounting as of June 2003, expired in the third quarter of 2003. As
of September 30, 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 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 in
earnings related to these contracts, particularly related to the PPA could be
material to the financial statements.

Consumers' electric business also uses gas option and 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 contracts are financial contracts that
are used to offset increases in the price of potential gas purchases. These
contracts do not qualify for hedge accounting. Therefore, Consumers records any
change in the fair value of these contracts directly in earnings as part of
power supply costs. As of September 30, 2003, gas fuel for generation call
option contracts entered into in the second quarter of 2003 had expired. As of
September 30, 2002, gas fuel for generation swap contracts had a fair value of
less than $1 million. These contracts expired in December 2002.

For the three months ended September 30, 2003, Consumers recorded an unrealized
loss in accumulated other comprehensive income related to its proportionate
share of the effects of derivative accounting related to its equity investment
in the MCV Partnership of $5 million, net of tax. For the nine months ended
September 30, 2003, Consumers recorded an unrealized gain in accumulated other
comprehensive income related to its proportionate share of the effects of
derivative accounting related to its equity investment in the MCV Partnership of
$8 million, net of tax. As of September 30, 2003, the cumulative total of
unrealized gains recorded in other accumulated comprehensive income related to
Consumers' proportionate share of the effects

                                     CE-63
<PAGE>

                                                        Consumers Energy Company

of derivative accounting related to its equity investment in the MCV Partnership
is $6 million, net of tax. Consumers expects to reclassify this gain, if this
value remains, as an increase to earnings from equity method investees 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
call and put options, and other types of contracts, to meet its regulatory
obligation to provide gas to its customers at a reasonable and prudent cost. As
of September 30, 2003, weather-based gas call options and gas call and put
options requiring derivative accounting had a net fair value that was less than
$1 million. The original cost of the options was a net $3 million. Consumers
recorded an unrealized loss of $3 million associated with these options directly
in earnings as part of other income, and then directly offset this loss and
recorded it on the balance sheet as a regulatory asset. Any subsequent changes
in fair value will be recorded in a similar manner.

As of September 30, 2002, Consumers' gas supply contracts and weather-based gas
call options and gas put options requiring derivative accounting had a fair
value of $1 million, representing a fair value gain on the contracts since the
date of inception. Changes in fair value were recorded in a similar manner as
stated above for weather-based gas call options and gas call and put options.

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
records any change in the fair value of these contracts in accumulated other
comprehensive income unless the swaps are sold. As of September 30, 2003,
Consumers did not have any interest rate swaps outstanding. As of September 30,
2002, Consumers had entered into a swap to fix the interest rate on $75 million
of variable-rate debt. This swap expired in June 2003. As of September 30, 2002,
this interest rate swap had a negative fair value of $2 million.

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

5: IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

SFAS NO. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: Beginning January
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.

Prior to adoption of SFAS No. 143, Consumers classified the removal cost
liability of assets included in the scope of SFAS No. 143 as part of the reserve
for accumulated depreciation. For these assets, the removal cost of $448 million
which was classified as part of the reserve at December 31, 2002, was
reclassified in January 2003, in part, as: 1) a $364 million ARO liability; 2) a
$134 million regulatory liability; 3) a $42 million regulatory asset; and 4) a
$7 million net increase to property, plant, and equipment as prescribed by SFAS
No. 143. As required by SFAS No. 71 for regulated entities, Consumers is
reflecting a regulatory asset and liability instead of a cumulative effect of a
change in accounting principle.

The fair value of ARO liabilities has been calculated using an expected present
value technique. This technique reflects assumptions, such as costs, inflation,
and profit margin that third parties would consider in order to take on the
settlement of the obligation. Fair value, to the extent possible, should include
a market risk premium for unforeseeable circumstances. No market risk premium
was included in Consumers' ARO fair value estimate since a reasonable estimate
could not be made. If a five percent market risk premium were assumed,
Consumers' ARO liability would be $381 million.

                                     CE-64
<PAGE>

                                                        Consumers Energy Company

If a reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, such as assets with an indeterminate life,
the liability is to be recognized when a reasonable estimate of fair value can
be made. Generally, transmission and distribution assets have an indeterminate
life, retirement cash flows cannot be determined and there is a low probability
of a retirement date, therefore no liability has been recorded for these assets.
No liability has been recorded for assets that have an insignificant cumulative
disposal cost, such as substation batteries. The initial measurement of the ARO
liability for Consumers' Palisades Nuclear Plant and Big Rock Nuclear Plant is
based on decommissioning studies, which are based largely on third party cost
estimates.

The following table is a general description of the AROs and their associated
long-lived assets.

<TABLE>
<CAPTION>
September 30, 2003                                                                                       In Millions
- --------------------------------------------------------------------------------------------------------------------
                                                In Service                                                     Trust
ARO Description                                    Date                 Long Lived Assets                      Fund
- --------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>                                          <C>
Palisades - decommission plant site                 1972          Palisades nuclear plant                      $ 462
Big Rock - decommission plant site                  1962          Big Rock nuclear plant                          90
JHCampbell intake/discharge water line              1980          Plant intake/discharge water line
Closure of coal ash disposal areas               Various          Generating plants coal ash areas
Closure of wells at gas storage fields           Various          Gas storage fields
Indoor gas services equipment relocations        Various          Gas meters located inside structures
====================================================================================================================
</TABLE>

The following table is a reconciliation of the carrying amount of the AROs.

<TABLE>
<CAPTION>
September 30, 2003                                                                                       In Millions
- --------------------------------------------------------------------------------------------------------------------
                                    Pro forma           ARO Liability                                         ARO
                                  ARO liability  ---------------------------                 Cash flow     liability
ARO                                   1/1/02     1/1/03   Incurred   Settled    Accretion    Revisions      9/30/03
- ---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>       <C>      <C>        <C>        <C>          <C>           <C>
Palisades - decommission               $ 232     $  249   $      -   $     -      $  14         $   -        $ 263
Big Rock - decommission                   94         61          -       (28)        10             -           43
JHCampbell intake line                     -          -          -         -          -             -            -
Coal ash disposal areas                   46         51          -        (2)         4             -           53
Wells at gas storage fields                2          2          -         -          -             -            2
Indoor gas services relocations            1          1          -         -          -             -            1
                                       ---------------------------------------------------------------------------

Total                                  $ 375     $  364   $      -   $   (30)     $  28         $   -        $ 362
==================================================================================================================
</TABLE>

SFAS NO. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES: Issued by the FASB in April 2003, this statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for contracts
entered into or modified after June 30, 2003. Implementation of this statement
has not had an impact on Consumers' Consolidated Financial Statements.

                                     CE-65
<PAGE>

                                                        Consumers Energy Company

SFAS NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY: Issued by the FASB in May 2003, this statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement requires an issuer to classify financial instruments within its scope
as liabilities. Those instruments were previously classified as mezzanine
equity. SFAS No. 150 became effective July 1, 2003.

Consumers has four trust preferred securities outstanding as of September 30,
2003. The trust preferred securities are issued by consolidated subsidiaries of
Consumers. Each trust holds a subordinated debenture from Consumers. The terms
of the debentures are identical to those of the trust preferred securities,
except that the debenture has an explicit maturity date. The trust documents, in
turn, require that the trust be liquidated upon the repayment of the debenture.
The trust preferred securities are redeemable upon the liquidation of the
subsidiary; and therefore, are considered equity in the financial statements of
the subsidiary.

At their October 29, 2003 Board meeting, the FASB deferred the implementation of
the portion of SFAS No. 150 relating to mandatorily redeemable noncontrolling
interests in subsidiaries when the noncontrolling interests are classified as
equity in the financial statements of the subsidiary. Consumers' trust preferred
securities are included under the deferral. As such, the Consumers trust
preferred securities continue to be accounted for under existing accounting
guidance and are included in mezzanine equity. Consumers continues to study the
FASB developments regarding the SFAS No. 150 deferral.

EITF ISSUE NO. 01-08, DETERMINING WHETHER AN ARRANGEMENT CONTAINS A LEASE: In
May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a
lease at its inception. The guidance in the consensus is designed to mandate
reporting revenue as rental or leasing income that otherwise would be reported
as part of product sales or service revenue. EITF Issue No. 01-08 requires both
parties to an arrangement to determine whether a service contract or similar
arrangement is or includes a lease within the scope of SFAS No. 13, Accounting
for Leases.

Historically, Consumers has entered into power purchase and similar service
arrangements. Prospective accounting under EITF Issue No. 01-08, could affect
the timing and classification of revenue and expense recognition. Certain
product sales and services revenue and expenses may be required to be reported
as rental or leasing income and/or expenses. The consensus is to be applied
prospectively to arrangements agreed to, modified, or acquired in business
combinations in fiscal periods beginning July 1, 2003. The adoption of EITF
Issue No. 01-08 has not impacted Consumers' results of operations, cash flows,
or financial position. Consumers will evaluate new or modified contracts under
EITF Issue No. 01-08 prospectively.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, FIN 46 requires the primary beneficiary of a
variable interest entity's activities to consolidate the variable interest
entity. The primary beneficiary is the party that absorbs a majority of the
expected losses and/or receives a majority of the expected residual returns of
the variable interest entity's activities. The consolidation requirements of the
interpretation apply immediately to variable interest entities created after
January 31, 2003. Consumers has not created any variable interest entities in
2003. Therefore, this portion of the interpretation has no impact on its
consolidated financial statements. Public companies, whose fiscal year is a
calendar year, were originally required to implement the guidance in this
interpretation by the third quarter of 2003. However, on October 9, 2003, the
FASB issued FASB Staff Position No. 46-6, Effective Date of FASB Interpretation
No. 46, which defers implementation of FIN 46 until the fourth quarter of 2003
for variable interest entities and potential variable interest entities created
before February 1, 2003.

If the completed analysis were to require Consumers to disclose information
about or consolidate in its financial statements, the assets, liabilities and
activities of the MCV Partnership and the First Midland Limited

                                     CE-66
<PAGE>

                                                        Consumers Energy Company

Partnership, including the recognition of the debt of the MCV Partnership on its
financial statements, this could impact negatively Consumers' various financial
covenants under its financing agreements. As a result, Consumers may have to
seek amendments to the relevant financing agreements to modify the terms of
certain of these covenants in order to remove the effect of this potential
consolidation or refinance the relevant debt. As of September 30, 2003,
Consumers' investments in the MCV Partnership and in the FMLP were $404 million
and $222 million, respectively. For further description of the nature, purpose,
size and activities of the MCV Partnership, see Note 2, Uncertainties, Other
Electric Uncertainties, "The Midland Cogeneration Venture." Consumers is
continuing to study the implementation of this interpretation and has yet to
determine the effects, if any, on its consolidated financial statements.

EITF ISSUE 03-04, ACCOUNTING FOR CASH BALANCE PENSION PLANS: In May 2003, the
EITF reached consensus in EITF Issue No. 03-04 to specifically address the
accounting for certain cash balance pension plans. EITF Issue No. 03-04
concluded that certain cash balance plans be accounted for as defined benefit
plans under SFAS No. 87, Employers' Accounting for Pensions. EITF No. 03-04
requires the use of the traditional unit credit method for the purposes of
measuring the benefit obligation and annual cost of benefits earned as opposed
to the projected unit credit method. The EITF concluded that the requirements of
this Issue be applied as of the next plan measurement date, which is December
31, 2003 for Consumers. Consumers commenced a cash balance pension plan that
covers employees hired after June 30, 2003. Consumers does account for this plan
as a defined benefit plan under SFAS No. 87. Consumers continues to evaluate the
impact, if any, this Issue will have upon adoption.

STATEMENT OF POSITION, ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO
PROPERTY, PLANT, AND EQUIPMENT: At its September 9, 2003 meeting, the Accounting
Standards Executive Committee voted to approve the Statement of Position,
Accounting for Certain Costs and Activities Related to Property, Plant, and
Equipment. The Statement of Position is expected to be presented for FASB
clearance late in the fourth quarter of 2003 and would be applicable for fiscal
years beginning after December 15, 2004. The Accounting Standards Executive
Committee concluded that at transition, a company would have the flexibility to
adopt a property, plant and equipment component accounting policy for
transition-date property, plant and equipment accounts. The property, plant and
equipment component policy may differ from the componentization policy, if any,
previously used by the enterprise. Selecting a policy that differs from the
company's prior level of componentization at the date of adoption of the
Statement of Position would not result in any cumulative effect difference for
adopting such a policy. A company would not have to restate its pre-adoption
assets to conform with its post-adoption componentization policy. The Accounting
Standards Executive Committee concluded that companies would be required to
disclose meaningful ranges with respect to property, plant and equipment
depreciable lives. Consumers continues to evaluate the impact, if any, this
Issue will have upon adoption.

                                     CE-67
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CMS ENERGY

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CMS ENERGY CORPORATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS, which is
incorporated by reference herein.

CONSUMERS

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CONSUMERS ENERGY COMPANY'S MANAGEMENT'S DISCUSSION AND ANALYSIS, which is
incorporated by reference herein.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The discussion below is limited to an update of developments that have occurred
in various judicial and administrative proceedings, many of which are more fully
described in CMS Energy's Form 10-K/A filed on July 1, 2003 and Consumers' Form
10-K, for the year ended December 31, 2002. Reference is also made to the
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, in particular Note 4 -
Uncertainties for CMS Energy and Note 2, Uncertainties for Consumers, included
herein for additional information regarding various pending administrative and
judicial proceedings involving rate, operating, regulatory and environmental
matters.

CMS ENERGY

DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS

The Board of Directors of CMS Energy received a demand, on behalf of a
shareholder of CMS Energy Common Stock, that it commence civil actions (i) to
remedy alleged breaches of fiduciary duties by CMS Energy officers and directors
in connection with round-trip trading at CMS MST, and (ii) to recover damages
sustained by CMS Energy as a result of alleged insider trades alleged to have
been made by certain current and former officers of CMS Energy and its
subsidiaries. If the Board elects not to commence such actions, the shareholder
has stated that he will initiate a derivative suit, bringing such claims on
behalf of CMS Energy. CMS Energy has elected two new members to its Board of
Directors who are serving as an independent litigation committee to determine
whether it is in the best interest of the company to bring the action demanded
by the shareholder. Counsel for the shareholder has agreed to extend the time
for CMS Energy to respond to the demand. CMS Energy cannot predict the outcome
of this litigation.

INTEGRUM LAWSUIT

A complaint was filed in Wayne County, Michigan Circuit Court on July 17, 2003
by Integrum Energy Ventures LLC ("Integrum") against CMS Energy, CMS Enterprises
and Australian Pipeline Trust ("APT"). Integrum alleges several causes of action
against APT, CMS Energy and CMS Enterprises in connection with an offer by
Integrum to purchase certain CMS Enterprises pipeline assets in Michigan and
Australia (the "CMS Pipeline Assets"). In addition to seeking unspecified money
damages, Integrum is seeking an order enjoining CMS Enterprises and CMS Energy
from selling, and APT from purchasing, the CMS Pipeline Assets and an order of
specific performance mandating that CMS Energy, CMS

                                      CO-1
<PAGE>

Enterprises and APT complete the sale of the CMS Pipeline Assets to APT and
Integrum. A certain officer and director of Integrum is a former officer and
director of CMS Energy, Consumers and its subsidiaries. The individual was not
employed by CMS Energy, Consumers or its subsidiaries when Integrum made the
offer to purchase the CMS Pipeline Assets. CMS Energy and CMS Enterprises intend
to defend vigorously against this action. CMS Energy and CMS Enterprises cannot
predict the outcome of this litigation.

GAS INDEX PRICE REPORTING LITIGATION

In August 2003, Cornerstone Propane Partners, L.P. ("Cornerstone") filed a
putative class action complaint in the United States District Court for the
Southern District of New York against CMS Energy and 40 other energy companies.
The complaint alleges that false natural gas price reporting by the defendants
manipulated the prices of NYMEX natural gas futures and options. The complaint
contains two counts under the Commodity Exchange Act, one for manipulation and
one for aiding and abetting violations. Cornerstone has agreed to provide a
blanket sixty-day extension of time for all defendants to answer or otherwise
respond to the complaint. CMS Energy intends to defend vigorously against this
action but cannot predict the outcome of this litigation.

CMS ENERGY AND CONSUMERS

ERISA CLASS ACTION LAWSUITS

CMS Energy is a named defendant, along with Consumers, 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 for the Eastern District of Michigan, were consolidated
by the trial judge, and an amended consolidated complaint was 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 Common Stock
held in the Plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be defended vigorously. CMS Energy and Consumers cannot predict
the outcome of this litigation.

SECURITIES CLASS ACTION LAWSUITS

Beginning on May 17, 2002, a number of securities class action complaints were
filed against CMS Energy, Consumers, and certain officers and directors of CMS
Energy and its affiliates. The complaints were filed as purported class actions
in the United States District Court for the Eastern District of Michigan by
individuals who allege that they purchased CMS Energy's securities during a
purported class period. The cases were consolidated into a single lawsuit and an
amended and consolidated class action complaint was filed on May 1, 2003. The
consolidated complaint contains a purported class period beginning on May 1,
2000 and running through March 31, 2003. It generally seeks unspecified damages
based on allegations that the defendants violated United States securities laws
and regulations by making allegedly false and misleading statements about CMS
Energy's business and financial condition, particularly with respect to revenues
and expenses recorded in connection with round-trip trading by CMS MST. The
companies intend to defend vigorously against this action but cannot predict the
outcome of this litigation.

ENVIRONMENTAL MATTERS

CMS Energy, Consumers and their 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

                                      CO-2
<PAGE>

legal and factual developments, CMS Energy and Consumers believe that it is
unlikely that these actions, individually or in total, will have a material
adverse effect on their financial condition. See CMS Energy's and Consumers'
MANAGEMENT'S DISCUSSION AND ANALYSIS; and CMS Energy's and Consumers' CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 6, 2003, CMS Energy issued 136,109 CMS Energy Common Stock warrants to
Miller Buckfire Lewis & Co., LLC and 67,891 CMS Energy Common Stock warrants to
Dresdner Klienwort Wasserstein, Inc. (herein collectively referred to as the
"warrants"). The warrants were issued at a price of $8.25 per share and were
granted as partial compensation for general financial advisory and investment
banking services provided to CMS Energy. The warrants were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an
issuer not involving any public offering.

On July 16, 2003, CMS Energy issued, in a private placement to institutional
investors pursuant to Rule 144A of the Securities Act of 1933, as amended, $150
million of 3.375 percent convertible senior notes due July 15, 2023 (the
"notes"). The notes were initially sold to Citigroup Global Markets Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Deutsche Bank Securities
Inc., as initial purchasers. CMS Energy received proceeds of $145,500,000 after
the initial purchasers' discounts and commissions and offering expenses. The
notes are convertible into CMS Energy Common Stock at the option of the holder
under certain circumstances. The initial conversion price is $10.671 per share,
which translates into 93.7137 shares of CMS Energy Common Stock for each $1,000
principal note converted. CMS Energy has agreed to file a shelf registration
statement with the SEC by October 14, 2004 relating to the resale of the notes
and the CMS Energy Common Stock issuable upon conversion thereof.

ITEM 5. OTHER INFORMATION

A shareholder who wishes to submit a proposal for consideration at the CMS
Energy 2004 Annual Meeting pursuant to the applicable rules of the SEC must send
the proposal to reach CMS' Corporate Secretary on or before December 24, 2003.
In any event if CMS has not received written notice of any matter to be proposed
at that meeting by March 8, 2004, the holders of the proxies may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Mr. Michael D. VanHemert, Corporate Secretary, One Energy Plaza,
Jackson, Michigan 49201.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      LIST OF EXHIBITS

(4)(a)         91st Supplemental Indenture, dated as of May 23, 2003, between
               Consumers Energy Company and JPMorgan Chase Bank as Trustee

(4)(b)         92nd Supplemental Indenture, dated as of August 26, 2003, between
               Consumers Energy Company and JPMorgan Chase Bank as Trustee

(4)(c)         93rd Supplemental Indenture, dated as of September 19, 2003,
               between Consumers Energy Company and JPMorgan Chase Bank as
               Trustee

(4)(d)         Registration Rights Agreement dated as of April 30, 2003 between
               Consumers Energy Company and the Initial Purchasers, as defined
               therein

                                      CO-3
<PAGE>

(4)(e)         Registration Rights Agreement dated as of May 23, 2003 between
               Consumers Energy Company and the Initial Purchasers, as defined
               therein

(4)(f)         Registration Rights Agreement dated as of August 26, 2003 between
               Consumers Energy Company and the Initial Purchasers, as defined
               therein

(4)(g)         Amended and Restated Credit Agreement dated September 19, 2003
               among Consumers Energy Company, the Banks, the Agent, the
               Syndication Agent and the Co-Documentation Agents, all as defined
               therein

(10)(a)        Purchase Agreement dated April 23, 2003 between Consumers Energy
               Company and the Initial Purchasers, as defined therein

(10)(b)        Purchase Agreement dated May 20, 2003 between Consumers Energy
               Company and the Initial Purchasers, as defined therein

(10)(c)        Purchase Agreement dated August 19, 2003 between Consumers Energy
               Company and the Initial Purchasers, as defined therein

(31)(a)        CMS Energy Corporation's certification of the CEO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(b)        CMS Energy Corporation's certification of the CFO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(c)        Consumers Energy Company's certification of the CEO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(31)(d)        Consumers Energy Company's certification of the CFO pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

(32)(a)        CMS Energy Corporation's certifications pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

(32)(b)        Consumers Energy Company's certifications pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

(b)      REPORTS ON FORM 8-K

CMS ENERGY

During 3rd Quarter 2003, CMS Energy filed a report on Form 8-K on July 11, 2003
(covering matters pursuant to ITEM 5. OTHER EVENTS), and furnished a report on
Form 8-K on August 13, 2003 (covering matters pursuant to ITEM 12. RESULTS OF
OPERATIONS AND FINANCIAL CONDITION).

CONSUMERS

During 3rd Quarter 2003, Consumers furnished a report on Form 8-K on August 13,
2003 (covering matters pursuant to ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL
CONDITION).

                                      CO-4

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.

                                                   CMS ENERGY CORPORATION

                                                       (Registrant)

Dated: November 12, 2003                       By: /s/ Thomas J. Webb
                                                   -----------------------------
                                                         Thomas J. Webb
                                                    Executive Vice President and
                                                      Chief Financial Officer

                                                   CONSUMERS ENERGY COMPANY
                                                        (Registrant)

Dated: November 12, 2003                       By: /s/ Thomas J. Webb
                                                   -----------------------------
                                                          Thomas J. Webb
                                                    Executive Vice President and
                                                      Chief Financial Officer

                                      C0-5
<PAGE>
                                 EXHIBIT INDEX



Exhibit No.     Description
- -----------     -----------

  (4)(a)        91st Supplemental Indenture, dated as of May 23, 2003, between
                Consumers Energy Company and JPMorgan Chase Bank as Trustee

  (4)(b)        92nd Supplemental Indenture, dated as of August 26, 2003,
                between Consumers Energy Company and JPMorgan Chase Bank as
                Trustee

  (4)(c)        93rd Supplemental Indenture, dated as of September 19, 2003,
                between Consumers Energy Company and JPMorgan Chase Bank as
                Trustee

  (4)(d)        Registration Rights Agreement dated as of April 30, 2003
                between Consumers Energy Company and the Initial Purchasers, as
                defined therein

  (4)(e)        Registration Rights Agreement dated as of May 23, 2003 between
                Consumers Energy Company and the Initial Purchasers, as defined
                therein

  (4)(f)        Registration Rights Agreement dated as of August 26, 2003
                between Consumers Energy Company and the Initial Purchasers, as
                defined therein

  (4)(g)        Amended and Restated Credit Agreement dated September 19, 2003
                among Consumers Energy Company, the Banks, the Agent, the
                Syndication Agent and the Co-Documentation Agents, all as
                defined therein

  (10)(a)       Purchase Agreement dated April 23, 2003 between Consumers
                Energy Company and the Initial Purchasers, as defined therein

  (10)(b)       Purchase Agreement dated May 20, 2003 between Consumers Energy
                Company and the Initial Purchasers, as defined therein

  (10)(c)       Purchase Agreement dated August 19, 2003 between Consumers
                Energy Company and the Initial Purchasers, as defined therein

  (31)(a)       CMS Energy Corporation's certification of the CEO pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002

  (31)(b)       CMS Energy Corporation's certification of the CFO pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002

  (31)(c)       Consumers Energy Company's certification of the CEO pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002

  (31)(d)       Consumers Energy Company's certification of the CFO pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002

  (32)(a)       CMS Energy Corporation's certifications pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002

  (32)(b)       Consumers Energy Company's certifications pursuant to Section
                906 of the Sarbanes-Oxley Act of 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(A)
<SEQUENCE>3
<FILENAME>k80589exv4wxay.txt
<DESCRIPTION>91ST SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE>

                                                                 Exhibit 4(a)

                       NINETY-FIRST SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                  $250,000,000 4.00% SERIES DUE 2010, SERIES E

                                       AND

                  $250,000,000 4.00% SERIES DUE 2010, SERIES F

                                 --------------

                            DATED AS OF MAY 23, 2003

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 80

<PAGE>

                  THIS NINETY-FIRST SUPPLEMENTAL INDENTURE, dated as of May 23,
2003 (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 4 New York Plaza, New York, New York 10004
(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

                                       1

<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 Indenture provides for the issuance of bonds
thereunder in one or more series, and the Company, by appropriate corporate
action in conformity with the terms of the Indenture, has duly determined to
create, and does hereby create, a new series of bonds under the Indenture
designated 4.00% Series due 2010, Series E, each of which bonds shall also bear
the descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2010 Bonds, Series E"), 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 in the title thereof and are to
mature May 15, 2010; and

                  WHEREAS the Company and Banc One Capital Markets, Inc.,
Barclays Capital Inc. and J.P. Morgan Securities Inc. (the "Initial Purchasers")
have entered into a Purchase Agreement dated May 20, 2003 (the "Purchase
Agreement"), pursuant to which the Company agreed to sell and the Initial
Purchasers agreed to buy $250,000,000 in aggregate principal amount of 2010
Bonds, Series E (such 2010 Bonds, Series E, the "Initial Bonds"); and

                                       2

<PAGE>

                  WHEREAS the Company and the Initial Purchasers have entered
into a Registration Rights Agreement dated as of May 23, 2003 (the "Registration
Rights Agreement"); and

                  WHEREAS the Registration Rights Agreement requires the Company
to use its reasonable best efforts to make an Exchange Offer (as defined
therein) which would allow the Initial Purchasers, or permitted successor
holders, of the 2010 Bonds, Series E to exchange such bonds for bonds not
subject to certain restrictions under the Securities Act of 1933, as amended
(the "Securities Act") or to cause a Shelf Registration Statement (as defined in
the Registration Rights Agreement) to be declared effective with respect to the
2010 Bonds, Series E; and

                  WHEREAS the Company has duly determined to create, and does
hereby create, a series of bonds under the Indenture to be issued in exchange
for the 2010 Bonds, Series E, such bonds to be designated 4.00% Series due 2010,
Series F, each of which bonds shall also bear the descriptive title "First
Mortgage Bonds" (the "2010 Bonds, Series F" or "Exchange 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 in the title thereof and are to
mature May 15, 2010; and

                  WHEREAS, each of the registered bonds without coupons of 2010
Bonds, Series E, and the Trustee's Authentication Certificate thereon, and each
of the registered bonds without coupons of the 2010 Bonds, Series F, and the
Trustee's Authentication Certificate thereon, are to be substantially in the
following forms, respectively, to wit:

              [FORM OF REGISTERED BOND OF THE 2010 BONDS, SERIES E]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

                                       3

<PAGE>

                  THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         4.00% SERIES DUE 2010, SERIES E

CUSIP: [210518BR6/U21010AH3]                                        $250,000,000

ISIN: [US210518BR65/USU21010AH32]

No.: ________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Fifty Million Dollars
($250,000,000) on May 15, 2010, and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
November 15, 2003 in which case from May 23, 2003 (or if this bond is dated
between the record date for any interest payment date and such interest payment
date, then from such interest payment date, provided, however, that if the
Company shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to which
interest has been paid on the bonds of this series, or if such interest payment
date is November 15, 2003, from May 23, 2003), at the rate per annum, until the
principal hereof shall have become due and payable, specified in the title of
this bond, payable on November 15 and May 15 in each year. If the Company does
not comply with certain of its obligations under the Registration Rights
Agreement entered into by the Company as of May 23, 2003, (in which case the
Company shall notify the Trustee thereof), the bonds of this series shall, in
accordance with Section 5 of such Registration Rights Agreement, bear additional
interest ("Additional Interest") in addition to the

                                       4

<PAGE>

interest provided for in the immediately preceding sentence. For purposes of the
bonds of this series, the term "interest" shall be deemed to include interest
provided for in the second immediately preceding sentence and Additional
Interest, if any.

                  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

                                       5

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                         4.00% SERIES DUE 2010, SERIES E

                  The interest payable on any November 15 or May 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such November 15 or May 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.00% Series due 2010, Series E (sometimes herein referred to as
the "2010 Bonds, Series E" or the "Bonds") issued and to be issued from time to
time 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 2010 Bonds, Series E are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 20 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as

                                       6

<PAGE>

defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. or, if such
firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                                       7

<PAGE>

                  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 reduce any premium payable on the redemption 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 upon the approval or consent of the holders of
which modifications or alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2010 Bonds, Series E 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2010 BONDS, SERIES E]

                          - - - - - - - - - - - - - - -

                                       8

<PAGE>

              [FORM OF REGISTERED BOND OF THE 2010 BONDS, SERIES F]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         4.00% SERIES DUE 2010, SERIES F

CUSIP: __________________                                           $250,000,000

ISIN: __________________

No.: ________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Fifty Million Dollars
($250,000,000) on May 15, 2010 and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
November 15, 2003, in which case from May 23, 2003, or unless the date hereof is
after November 15, 2003 but prior to the first date when any interest hereon has
been paid, in which case from the last interest payment date on the Company's
First Mortgage Bonds, 4.00% Series due 2010, Series E, to which interest has
been paid (or if this bond is dated between the record date for any interest
payment date and such interest payment date, then from such interest payment
date, provided,

                                       9

<PAGE>

however, that if the Company shall default in payment of the interest due on
such interest payment date, then from the next preceding semi-annual interest
payment date to which interest has been paid on the bonds of this series, or if
such interest payment date is November 15, 2003, from May 23, 2003), at the rate
per annum, until the principal hereof shall have become due and payable,
specified in the title of this bond, payable on November 15 and May 15 in each
year.

                  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

                                       10

<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                         4.00% SERIES DUE 2010, SERIES F

                  The interest payable on any November 15 or May 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such November 15 or May 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.00% Series due 2010, Series F (sometimes herein referred to as
the "2010 Bonds, Series F" or the "Bonds") issued and to be issued from time to
time 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 2010 Bonds, Series F are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 20 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as

                                       11

<PAGE>

defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. or, if such
firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                                       12

<PAGE>

                  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 reduce any premium payable on the redemption 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 upon the approval or consent of the holders of
which modifications or alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2010 Bonds, Series F 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2010 BONDS, SERIES F]

                            - - - - - - - - - - - - -

                                       13

<PAGE>

                  AND WHEREAS all acts and things necessary to make the 2010
Bonds, Series E, and the 2010 Bonds, Series F (collectively referred to herein
as the "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, this Supplemental Indenture, 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, 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
$250,000,000 principal amount of the 2010 Bonds, Series E and of the Exchange
Bonds, if issued, 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, alienate 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 12 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.

                                       14

<PAGE>

                  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;

                  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
2010 Bonds, Series E) 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 2010 Bonds, Series E shall be
issued in the aggregate principal amount of $250,000,000, shall mature on May
15, 2010 and shall be issued only as registered bonds without coupons in
denominations of $1,000 and any multiple thereof. The serial numbers of the 2010
Bonds, Series E 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 2010 Bonds, Series E
shall bear interest at the rate per annum, until the principal thereof shall
have become due and payable, specified in the title thereto, payable
semi-annually on November 15 and May 15 in each year. If the Company does not
comply with certain of its obligations under the Registration Rights Agreement,
(in which case the Company shall notify the Trustee thereof), the 2010 Bonds,
Series E shall, in accordance with Section 5 of the Registration Rights
Agreement, bear additional interest ("Additional Interest") in addition to the
interest provided for in the immediately preceding sentence. For purposes of
this Supplemental Indenture and the 2010 Bonds, Series E, the term "interest"
shall be deemed to include interest provided for in the second immediately
preceding sentence and Additional Interest, if any. The principal of and the
premium, if any, and the interest on said bonds shall be payable in any coin or
currency of the United States of America which at the time of payment is legal
tender for public and private

                                       15

<PAGE>

debts, at the office or agency of the Company in the City of New York,
designated for that purpose.

                  SECTION 2. The Company and the Initial Purchasers have entered
into the Registration Rights Agreement. The Registration Rights Agreement
provides that the 2010 Bonds, Series E that are issued and sold without
registration under the Securities Act may be exchanged for the 2010 Bonds,
Series F, which will be registered under the Securities Act and will otherwise
have substantially the same terms as the 2010 Bonds, Series E. In the event such
exchange does not occur, the Company is required to cause a Shelf Registration
Statement, as defined in and pursuant to the Registration Rights Agreement, to
be declared effective with respect to the 2010 Bonds, Series F to be issued upon
the surrender of the 2010 Bonds, Series E as provided in the Registration Rights
Agreement.

                  SECTION 3. Terms of Bonds.

                  3.01     Form of Bonds.

                  (a)      The 2010 Bonds, Series E offered and sold to a
Qualified Institutional Buyer (within the meaning of Rule 144A under the
Securities Act) in reliance on Rule 144A under the Securities Act ("Rule 144A")
or in reliance on Regulation S under the Securities Act ("Regulation S"), in
each case as provided in the Purchase Agreement, shall in each case be issued
initially in the form of one or more permanent Global Bonds in definitive, fully
registered form without interest coupons with the global securities legend and
restricted securities legend set forth in Section 3.02(b) hereof (each, a
"Restricted Global Bond"), which shall be deposited on behalf of the purchasers
of the Initial Bonds represented thereby with the Trustee, at its corporate
trust office, as securities custodian (or with such other securities custodian
as the Depository (as defined below) may direct), and registered in the name of
the Depository or a nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Global Bonds may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided. Exchange Bonds shall be issued in global form. Exchange
Bonds issued in global form and Restricted Global Bonds are sometimes referred
to in this Supplemental Indenture as "Global Bonds." The Depositary for the
Global Bonds shall be The Depository Trust Company, a New York corporation, or
its duly appointed successor (the "Depository").

                  (b)      This Section 3.01(b) shall apply only to a Global
Bond deposited with or on behalf of the Depository.

                  The Company shall execute and the Trustee shall, in the case
of each of the 2010 Bonds, Series E and the 2010 Bonds, Series F, in accordance
with this Section 3.01(b), authenticate and deliver initially one or more Global
Bonds that (a) shall be registered in the name of the Depository or the nominee
of the Depository and (b) shall be delivered by the Trustee to the Depository or
pursuant to the Depository's instructions or held by the Trustee as securities
custodian.

                                       16

<PAGE>

                  Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Supplemental Indenture with respect to
any Global Bond held on their behalf by the Depository or by the Trustee as the
securities custodian or under such Global Bond, and the Company, the Trustee and
any agent of the Company or the Trustee shall be entitled to treat the
Depository as the absolute owner of such Global Bond for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Bond.

                  (c)      Except as provided in this Section 3.01, Section 3.02
or Section 3.03, owners of beneficial interests in Restricted Global Bonds shall
not be entitled to receive physical delivery of certificated Bonds.

                  3.02     Transfer and Exchange.

                  (a)      Transfer and Exchange of Global Bonds.

                           (i)      The transfer and exchange of Global Bonds or
         beneficial interests therein shall be effected through the Depository,
         in accordance with this Supplemental Indenture (including applicable
         restrictions on transfer set forth herein, if any) and the procedures
         of the Depository therefor.

                           (ii)     Notwithstanding any other provision of this
         Supplemental Indenture (other than the provisions set forth in Section
         3.03), a Global Bond may not be transferred as a whole except by the
         Depository to a nominee of the Depository or by a nominee of the
         Depository to the Depository or another nominee of the Depository or by
         the Depository or any such nominee to a successor Depository or a
         nominee of such successor Depository.

                           (iii)    In the event that a Restricted Global Bond
         is exchanged for Bonds in certificated registered form pursuant to
         Section 3.03 prior to the consummation of a registered exchange offer
         or the effectiveness of a Shelf Registration Statement (as defined in
         the Registration Rights Agreement) with respect to such Initial Bonds,
         such Restricted Global Bond may be exchanged only in accordance with
         such procedures as are substantially consistent with the provisions of
         this Section 3.02 and such other procedures as may from time to time be
         adopted by the Company; provided, however, the Trustee shall be
         notified of such event.

                  (b)      Legend.

                           (i)      Except as permitted by the following
         paragraphs (ii), (iii) and (iv), each Bond certificate evidencing a
         Transfer Restricted Security (as defined in the Registration Rights
         Agreement) shall bear a legend in substantially the following form:

         THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")

                                       17

<PAGE>

         AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
         (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
         INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
         SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
         QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS
         OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION
         COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
         SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
         THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4)
         IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
         OF THE SECURITIES ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT
         TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
         IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
         UNITED STATES.

                           (ii)     Upon any sale or transfer of a Transfer
         Restricted Security (as defined in the Registration Rights Agreement)
         (including any Transfer Restricted Security (as defined in the
         Registration Rights Agreement) represented by a Restricted Global Bond)
         pursuant to Rule 144, the security registrar shall, subject to approval
         by the Company, permit the transferee thereof to exchange such Transfer
         Restricted Security (as defined in the Registration Rights Agreement)
         for a certificated Bond that does not bear the legend set forth above
         and rescind any restriction on the transfer of such Transfer Restricted
         Security (as defined in the Registration Rights Agreement), if the
         transferor thereof certifies in writing to the security registrar that
         such sale or transfer was made in reliance on Rule 144.

                           (iii)    After a transfer of any Initial Bonds
         pursuant to and during the period of the effectiveness of a Shelf
         Registration Statement (as defined in the Registration Rights
         Agreement) with respect to such Initial Bonds all requirements
         pertaining to legends on such Initial Bonds with respect to such Bonds
         transferred will cease to apply and Initial Bonds in global form,
         without restrictive transfer legends, will be available to the
         transferee of the holder of such Initial Bonds upon written directions
         to transfer such holder's interest in the Global Bond.

                           (iv)     Upon the consummation of a registered
         exchange offer with respect to the Initial Bonds, Exchange Bonds in
         global form will be available to holders that exchange such Initial
         Bonds in such registered exchange offer.

                  (c)      Cancellation or Adjustment of Global Bond. At such
time as all beneficial interests in a Global Bond have either been exchanged for
certificated Bonds, redeemed, purchased or canceled, such Global Bond shall be
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Bond is exchanged for certificated Bonds,
redeemed, purchased or canceled, the principal amount of Bonds represented by
such Global Bond shall be reduced and an adjustment shall be made on the books
and records of the securities custodian with respect to such Global Bond.

                                       18

<PAGE>

                  (d)      Obligations with Respect to Transfers and Exchanges
of Bonds.

                           (i)      To permit registrations of transfers and
         exchanges, the Company shall execute and the Trustee shall authenticate
         certificated Bonds and Global Bonds at the security registrar's
         request.

                           (ii)     No service charge shall be made for
         registration of transfer or exchange, but the Company may require
         payment of a sum sufficient to cover any transfer tax, assessments or
         similar governmental charge payable in connection therewith.

                           (iii)    Prior to the due presentation for
         registration of transfer of any Bond, the Company, the Trustee, the
         paying agent or the security registrar may deem and treat the person in
         whose name a Bond is registered as the absolute owner of such Bond for
         the purpose of receiving payment of principal of and interest on such
         Bond and for all other purposes whatsoever, whether or not such Bond is
         overdue, and none of the Company, the Trustee, the paying agent or the
         security registrar shall be affected by notice to the contrary.

                           (iv)     All Bonds issued upon any transfer or
         exchange pursuant to the terms of the Indenture shall evidence the same
         debt and shall be entitled to the same benefits under the Indenture as
         the Bonds surrendered upon such transfer or exchange.

                  (e)      No Obligation of Trustee.

                           (i)      The Trustee (whether in its capacity as
         Trustee or otherwise) shall have no responsibility or obligation to any
         beneficial owner of a Global Bond, Agent Member or other person with
         respect to the accuracy of the records of the Depository or its nominee
         or of any Agent Member, with respect to any ownership interest in the
         Bonds or with respect to the delivery to any Agent Member, beneficial
         owner or other person (other than the Depository) of any notice
         (including any notice of redemption) or the payment of any amount,
         under or with respect to such Bonds. All notices and communications to
         be given to the holders and all payments to be made to holders under
         the Bonds shall be given or made only to or upon the order of the
         registered holders (which shall be the Depository or its nominee in the
         case of a Global Bond). The rights of beneficial owners in any Global
         Bond shall be exercised only through the Depository subject to the
         applicable rules and procedures of the Depository. The Trustee may rely
         and shall be fully protected in relying upon information furnished by
         the Depository with respect to its Agent Members and any beneficial
         owners.

                           (ii)     The Trustee shall have no obligation or duty
         to monitor, determine or inquire as to compliance with any restrictions
         on transfer imposed under this Supplemental Indenture or under
         applicable law with respect to any transfer of any interest in any Bond
         (including any transfers between or among Agent Members or beneficial
         owners in any Global Bond) other than to require delivery of such
         certificates and other documentation or evidence as are expressly
         required by, and to do so if and when expressly required by, the terms
         of the Indenture.

                                       19

<PAGE>

                  3.03     Certificated Bonds.

                  (a)      A Global Bond deposited with the Depository or with
the Trustee as securities custodian pursuant to Section 3.01 shall be
transferred to the beneficial owners thereof in the form of certificated Bonds
in an aggregate principal amount equal to the principal amount of such Global
Bond, in exchange for such Global Bond, only if such transfer complies with this
Section 3.03 and the conditions set forth in Article II of the Indenture.

                  (b)      Any Global Bond that is transferable to the
beneficial owners thereof pursuant to this Section 3.03 shall be surrendered by
the Depository to the Trustee at its corporate trust office to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Bond, an equal aggregate principal amount of certificated Bonds of
authorized denominations. Any portion of a Global Bond transferred pursuant to
this Section 3.03 shall be executed, authenticated and delivered only in
denominations of $1,000 principal amount and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Bond delivered in exchange for an interest in the Global Bond shall bear
the restricted securities legend set forth in Section 3.02(b) hereof.

                  (c)      Subject to the provisions of Section 3.03(b), the
registered holder of a Global Bond shall be entitled to grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a holder is
entitled to take under the Indenture or the Bonds.

                  3.04     Issuance of Exchange Bonds. The Trustee shall not
authenticate the 2010 Bonds, Series F for issuance until (i) such bonds are
issued in principal amount equal to the principal amount of retired 2010 Bonds,
Series E made the basis for such issuance in accordance with Article V of the
Indenture and (ii) the Trustee shall have received (or shall receive
concurrently with the granting of the application of the Company for the
authentication and delivery by the Trustee of such bonds) the documents required
by Article V of the Indenture.

                  SECTION 4. The 2010 Bonds, Series E and the 2010 Bonds, Series
F, are redeemable upon notice given by mailing the same, postage prepaid, not
less than thirty days nor more than sixty days prior to the date fixed for
redemption to each registered holder of a bond to be redeemed (in whole or in
part) at the last address of such holder appearing on the registry books. Any or
all of the bonds of this series may be redeemed by the Company, at any time and
from time to time prior to maturity, at a redemption price equal to the greater
of (1) 100% of the principal amount of the Bonds and (2) the sum of the present
values of the Remaining Scheduled Payments (as defined below) of principal and
interest on the Bonds discounted to the redemption date semiannually (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate (as
defined below), plus 20 basis points, plus accrued interest on the Bonds to the
date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage

                                       20

<PAGE>

of its principal amount) equal to the Comparable Treasury Price (as defined
below) for such redemption date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. or, if such
firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J.P. Morgan Securities Inc. and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  SECTION 5. The 2010 Bonds, Series E and the 2010 Bonds, Series
F are not redeemable by the operation of the maintenance and replacement
provisions of the Indenture or

                                       21

<PAGE>

with the proceeds of released property or in any other manner except as set
forth in Section 4 hereof.

                  SECTION 6. The Company reserves the right, without any
consent, vote or other action by the holders of the 2010 Bonds, Series E and the
2010 Bonds, Series F, 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.

                           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

                                       22

<PAGE>

                  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 7. 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 8. 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.

                                       23

<PAGE>

                  SECTION 9. 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 10. In the event the date of any notice required or
permitted hereunder shall not be a Business Day (as defined below), 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 10, 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.

                  SECTION 11. This Supplemental Indenture, the 2010 Bonds,
Series E and the 2010 Bonds, Series F 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 12. 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

                                       24

<PAGE>

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.

                 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

                                       25

<PAGE>

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, 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

                                       26

<PAGE>

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.

                                      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

                                       27

<PAGE>

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:

                  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.

                                       28

<PAGE>

                                  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.

                                  BENZIE COUNTY

         Certain land in Benzonia Township, Benzie County, Michigan described
         as:

                                       29

<PAGE>

                  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
         degrees 21'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:

                                       30

<PAGE>

                  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 North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                       31

<PAGE>

                                  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

         Certain land in Mayfield Township, Grand Traverse County, Michigan
         described as:

                                       32

<PAGE>

                  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 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.

                                       33

<PAGE>

                                  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:

                  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

                                       34

<PAGE>

         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:

                  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"

                                       35

<PAGE>

         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:

                  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

                                       36

<PAGE>

         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 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

                                       37

<PAGE>

         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:

                  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

                                       38

<PAGE>

         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.

                                       39

<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.

                                       40

<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

                                       41

<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.

                                       42

<PAGE>

                                 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.

                                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.

                                       43

<PAGE>

                                  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, 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 13. The Company is a transmitting utility under
Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as
defined in M.C.L. 440.9102(1)(aaaa).

                  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.

                                       44

<PAGE>

                                    CONSUMERS ENERGY COMPANY

(SEAL)                              By:   /s/ Paul A. Stadnikia
                                       ----------------------------------------
                                                           Paul A. Stadnikia
Attest:                                                    Treasurer

/s/ Joyce H. Norkey
- ---------------------------
Joyce H. Norkey
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
23rdday of May, 2003, by Paul A. Stadnikia, 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

(SEAL)                              By /s/ L. O'Brien
                                       -----------------------------------------
                                             L. O'Brien
Attest:                                      Vice President

/s/ Rosa Ciaccia
- ---------------------------
Rosa Ciaccia
Trust Officer

Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of

/s William G. Keenan
- ---------------------------
William G. Keenan
Vice Presidaent

/s/ Natalia Rodriguez
- ---------------------------
Natalia Rodriguez
Vice President

STATE OF NEW YORK       )
                          ss.
COUNTY OF NEW YORK      )

                  The foregoing instrument was acknowledged before me this 23rd
day of May, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.

                                    /s/ Emily Fayan
                                    --------------------------------------------
                                    EMILY FAYAN
                                    Notary Public, State of New York
[Seal]                              No. 01FA4737006
                                    Qualified in Kings County
                                    Certificate Filed in New York County
                                    Commission Expires Dec. 31, 2005

Prepared by:                        When recorded, return to:
Kimberly C. Wilson                  Consumers Energy Company
One Energy Plaza, EP11-219          Business Services Real Estate Dept.
Jackson, MI 49201                   Attn: Nancy Fisher EP7-439
                                    One Energy Plaza
                                    Jackson, MI 49201

                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(B)
<SEQUENCE>4
<FILENAME>k80589exv4wxby.txt
<DESCRIPTION>92ND SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE>

                                                                Exhibit 4(b)

                      NINETY-SECOND SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                  $200,000,000 4.80% SERIES DUE 2009, SERIES G,

                  $200,000,000 4.80% SERIES DUE 2009, SERIES H,

                  $200,000,000 6.00% SERIES DUE 2014, SERIES I

                                       AND

                  $200,000,000 6.00% SERIES DUE 2014, SERIES J

                                 --------------

                           DATED AS OF AUGUST 26, 2003

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                         Counterpart _____ of 80

<PAGE>

                  THIS NINETY-SECOND SUPPLEMENTAL INDENTURE, dated as of August
26, 2003 (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 One Energy Plaza, 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 4 New York Plaza, New York, New York
10004 (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

                                        1
<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 Indenture provides for the issuance of bonds
thereunder in one or more series, and the Company, by appropriate corporate
action in conformity with the terms of the Indenture, has duly determined to
create, and does hereby create, a new series of bonds under the Indenture
designated 4.80% Series due 2009, Series G, each of which bonds shall also bear
the descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2009 Bonds, Series G"), 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 in the title thereof and are to
mature February 17, 2009; and

                  WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, and the Company, by appropriate corporate
action in conformity with the terms of the Indenture, has duly determined to
create, and does hereby create, a new series of bonds under the Indenture
designated 6.00% Series due 2014, Series I, each of which bonds shall also bear
the descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2014 Bonds, Series I"), the bonds of
which series are to be issued as registered

                                        2
<PAGE>

bonds without coupons and are to bear interest at the rate per annum specified
in the title thereof and are to mature February 15, 2014; and

                  WHEREAS the Company and Banc One Capital Markets, Inc.,
Barclays Capital Inc., J.P. Morgan Securities Inc., ABN AMRO Incorporated,
Huntington Capital Corp., Tokyo-Mitsubishi International plc, Wachovia
Securities, Inc., Comerica Securities, Inc. and Fifth Third Securities, Inc.,
(the "Initial Purchasers") have entered into a Purchase Agreement dated August
19, 2003 (the "Purchase Agreement"), pursuant to which the Company agreed to
sell and the Initial Purchasers agreed to buy $200,000,000 in aggregate
principal amount of 2009 Bonds, Series G and $200,000,000 of 2014 Bonds, Series
I (such 2009 Bonds, Series G and 2014 Bonds, Series I together, the "Initial
Bonds"); and

                  WHEREAS the Company and the Initial Purchasers have entered
into a Registration Rights Agreement dated as of August 26, 2003 (the
"Registration Rights Agreement"); and

                  WHEREAS the Registration Rights Agreement requires the Company
to use its reasonable best efforts to make an Exchange Offer (as defined
therein) which would allow (i) the Initial Purchasers, or permitted successor
holders, of the 2009 Bonds, Series G to exchange such bonds for bonds not
subject to certain restrictions under the Securities Act of 1933, as amended
(the "Securities Act") or to cause a Shelf Registration Statement (as defined in
the Registration Rights Agreement) to be declared effective with respect to the
2009 Bonds, Series G, and (ii) the Initial Purchasers, or permitted successor
holders, of the 2014 Bonds, Series I to exchange such bonds for bonds not
subject to certain restrictions under the Securities Act or to cause a Shelf
Registration Statement (as defined in the Registration Rights Agreement) to be
declared effective with respect to the 2014 Bonds, Series I; and

                  WHEREAS the Company has duly determined to create, and does
hereby create, a series of bonds under the Indenture to be issued in exchange
for the 2009 Bonds, Series G, such bonds to be designated 4.80% Series due 2009,
Series H, each of which bonds shall also bear the descriptive title "First
Mortgage Bonds" (the "2009 Bonds, Series H"), 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 in the title thereof and are to mature February 17,
2009; and

                  WHEREAS the Company has duly determined to create, and does
hereby create, a series of bonds under the Indenture to be issued in exchange
for the 2014 Bonds, Series I, such bonds to be designated 6.00% Series due 2014,
Series J, each of which bonds shall also bear the descriptive title "First
Mortgage Bonds" (the "2014 Bonds, Series J" and, together with the 2009 Bonds,
Series I, the "Exchange 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 in the title thereof and are to mature February 15, 2014; and

                  WHEREAS, each of the registered bonds without coupons of 2009
Bonds, Series G, and the Trustee's Authentication Certificate thereon, each of
the registered bonds without coupons of the 2009 Bonds, Series H, and the
Trustee's Authentication Certificate thereon, each of the registered bonds
without coupons of the 2014 Bonds, Series I, and the Trustee's

                                        3
<PAGE>

Authentication Certificate thereon, and each of the registered bonds without
coupons of the 2014 Bonds, Series J are to be substantially in the following
forms, respectively, to wit:

              [FORM OF REGISTERED BOND OF THE 2009 BONDS, SERIES G]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

                  THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.

                                        4
<PAGE>

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         4.80% SERIES DUE 2009, SERIES G

CUSIP: [_______]
                                                                    $200,000,000
ISIN: [________]

No.: ________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Million Dollars
($200,000,000) on February 17, 2009, and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
February 15, 2004, in which case from August 26, 2003 (or if this bond is dated
between the record date for any interest payment date and such interest payment
date, then from such interest payment date, provided, however, that if the
Company shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to which
interest has been paid on the bonds of this series, or if such interest payment
date is February 15, 2004, from August 26, 2003), at the rate per annum, until
the principal hereof shall have become due and payable, specified in the title
of this bond, payable on February 15 and August 15 in each year. If the Company
does not comply with certain of its obligations under the Registration Rights
Agreement entered into by the Company as of August 26, 2003 (in which case the
Company shall notify the Trustee thereof), the bonds of this series shall, in
accordance with Section 5 of such Registration Rights Agreement, bear additional
interest ("Additional Interest") in addition to the interest provided for in the
immediately preceding sentence. For purposes of the bonds of this series, the
term "interest" shall be deemed to include interest provided for in the second
immediately preceding sentence and Additional Interest, if any.

                  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

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                         4.80% SERIES DUE 2009, SERIES G

                  The interest payable on any February 15 or August 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such February 15 or August 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.

                                        6
<PAGE>

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.80% Series due 2009, Series G (sometimes herein referred to as
the "2009 Bonds, Series G" or the "Bonds") issued and to be issued from time to
time 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 2009 Bonds, Series G are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., and J. P. Morgan Securities Inc., or, if
such firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal

                                        7
<PAGE>

Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., and J. P. Morgan Securities Inc., and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  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 reduce any premium payable on the redemption 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

                                        8
<PAGE>

percentage of the principal amount of the bonds upon the approval or consent of
the holders of which modifications or alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2009 Bonds, Series G 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2009 BONDS, SERIES G]

                          - - - - - - - - - - - - - - -

              [FORM OF REGISTERED BOND OF THE 2009 BONDS, SERIES H]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED

                                        9
<PAGE>

REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         4.80% SERIES DUE 2009, SERIES H

CUSIP: ________________
                                                                    $200,000,000
ISIN: _________________

No.: __________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Million Dollars
($200,000,000) on February 17, 2009 and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
February 15, 2004, in which case from August 26, 2003 or unless the date hereof
is after February 15, 2004 but prior to the first date when any interest hereon
has been paid, in which case from the last interest payment date on the
Company's First Mortgage Bonds, Series due 2009, Series G, to which interest has
been paid (or if this bond is dated between the record date for any interest
payment date and such interest payment date, then from such interest payment
date, provided, however, that if the Company shall default in payment of the
interest due on such interest payment date, then from the next preceding
semi-annual interest payment date to which interest has been paid on the bonds
of this series, or if such interest payment date is February 15, 2004, from
August 26, 2003), at the rate per annum, until the principal hereof shall have
become due and payable, specified in the title of this bond, payable on February
15 and August 15 in each year. If the Company does not comply with certain of
its obligations under the Registration Rights Agreement entered into by the
Company as of August 26, 2003, (in which case the Company shall notify the
Trustee thereof), the bonds of this series shall, in accordance with Section 5
of such Registration Rights Agreement, bear additional interest ("Additional
Interest") in addition to the interest provided for in the immediately preceding
sentence. For purposes of the bonds of this series, the term "interest" shall be
deemed to include interest provided for in the second immediately preceding
sentence and Additional Interest, if any.

                  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.

                                       10
<PAGE>

                  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

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                         4.80% SERIES DUE 2009, SERIES H

                  The interest payable on any February 15 or August 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such February 15 or August 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the

                                       11
<PAGE>

premium, if any, and interest on this bond shall be payable at the office or
agency of the Company in the Borough of Manhattan, The City of New York,
designated for that purpose, in any coin or currency of the United States of
America which at the time of payment is legal tender for public and private
debts.

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.80% Series due 2009, Series H (sometimes herein referred to as
the "2009 Bonds, Series H" or the "Bonds") issued and to be issued from time to
time 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 2009 Bonds, Series H are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., and J. P. Morgan Securities Inc., or, if
such firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                                       12
<PAGE>

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., and J. P. Morgan Securities Inc., and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  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

                                       13
<PAGE>

extend the time of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption 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 upon the approval or consent the holders of which
modifications or alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2009 Bonds, Series H 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2009 BONDS, SERIES H]

                          - - - - - - - - - - - - - - -

              [FORM OF REGISTERED BOND OF THE 2014 BONDS, SERIES I]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH

                                       14
<PAGE>

OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY)
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.

                  THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         6.00% SERIES DUE 2014, SERIES I

CUSIP: ________________
                                                                    $200,000,000
ISIN: _________________

No.: __________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Million Dollars
($200,000,000) on February 15, 2014 and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
February 15, 2004, in which case from August 26, 2003, (or if this bond is dated
between the record date for any interest payment date and such interest payment
date, then from such interest payment date, provided, however, that if the
Company shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to which
interest

                                       15
<PAGE>

has been paid on the bonds of this series, or if such interest payment date is
February 15, 2004, from August 26, 2003), at the rate per annum, until the
principal hereof shall have become due and payable, specified in the title of
this bond, payable on February 15 and August 15 in each year. If the Company
does not comply with certain of its obligations under the Registration Rights
Agreement entered into by the Company as of August 26, 2003 (in which case the
Company shall notify the Trustee thereof), the bonds of this series shall, in
accordance with Section 5 of such Registration Rights Agreement, bear additional
interest ("Additional Interest") in addition to the interest provided for in the
immediately preceding sentence. For purposes of the bonds of this series, the
term "interest" shall be deemed to include interest provided for in the second
immediately preceding sentence and Additional Interest, if any.

                  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

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                                       16
<PAGE>

                               FIRST MORTGAGE BOND
                         6.00% SERIES DUE 2014, SERIES I

                  The interest payable on any February 15 or August 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such February 15 or August 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 6.00% Series due 2014, Series I (sometimes herein referred to as
the "2014 Bonds, Series I" or the "Bonds") issued and to be issued from time to
time 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 2014 Bonds, Series I are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.

                                       17
<PAGE>

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., and J. P. Morgan Securities Inc., or, if
such firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J. P. Morgan Securities Inc., and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  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

                                       18
<PAGE>

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 reduce any premium payable on the redemption 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 upon the approval or consent of the holders of
which modifications or alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2014 Bonds, Series I 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2014 BONDS, SERIES I]

                          - - - - - - - - - - - - - - -

              [FORM OF REGISTERED BOND OF THE 2014 BONDS, SERIES J]

                                     [FACE]

                  THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITAY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS

                                       19
<PAGE>

AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS
REPRESENTED HEREBY, THIS GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW
YORK CORPORATION (THE "DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS MADE TO CEDE
& CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                         6.00% SERIES DUE 2014, SERIES J

CUSIP: ________________
                                                                    $200,000,000
ISIN: _________________

No.: __________________

                  CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Million Dollars
($200,000,000) on February 15, 2014 and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
February 15, 2004, in which case from August 26, 2003 or unless the date hereof
is after February 15, 2004 but prior to the first date when any interest hereon
has been paid, in which case from the last interest payment date on the
Company's First Mortgage Bonds, 6.00% Series due 2014, Series I, to which
interest has been paid (or if this bond is dated between the record date for any
interest payment date and such interest payment date, then from such interest
payment date, provided, however, that if the Company shall default in payment of
the interest due on such interest payment date, then from the next preceding
semi-annual interest payment date to which interest has been paid on the bonds
of this series, or if such interest payment date is February 15, 2004, from
August 26, 2003), at the rate per annum, until the principal hereof shall have
become due and payable, specified in the title of this bond, payable on February
15 and August 15 in each year.

                                       20
<PAGE>

                  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

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                         6.00% SERIES DUE 2014, SERIES J

                  The interest payable on any February 15 or August 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name

                                       21
<PAGE>

this bond is registered at the close of business on the record date, which shall
be the first calendar day of the month next preceding such interest payment
date, or, if such February 15 or August 15 shall be a legal holiday or a day on
which banking institutions in the Borough of Manhattan, The City of New York,
are authorized to close, the next preceding day which shall not be a legal
holiday or a day on which such institutions are so authorized to close. The
principal of and the premium, if any, and interest on this bond shall be payable
at the office or agency of the Company in the Borough of Manhattan, The City of
New York, designated for that purpose, in any coin or currency of the United
States of America which at the time of payment is legal tender for public and
private debts.

                  This bond is one of the bonds of a series designated as First
Mortgage Bonds, 6.00% Series due 2014, Series J (sometimes herein referred to as
the "2014 Bonds, Series J" or the "Bonds") issued and to be issued from time to
time 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 2014 Bonds, Series J are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days but no more than
sixty days prior to the date fixed for redemption to each registered holder of a
bond to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                                       22
<PAGE>

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc. and J. P. Morgan Securities Inc., or, if
such firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J. P. Morgan Securities Inc., and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former dealer with
another Primary Treasury Dealer and (2) up to four other Primary Treasury
Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  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

                                       23
<PAGE>

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
reduce any premium payable on the redemption 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
upon the approval or consent of the holders of which modifications or
alterations may be made as aforesaid.

                  The Company reserves the right, without any consent, vote or
other action by holders of the 2014 Bonds, Series J 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 premium, if any, 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.

          [END OF FORM OF REGISTERED BOND OF THE 2014 BONDS, SERIES J]

                          - - - - - - - - - - - - - - -

                  AND WHEREAS all acts and things necessary to make the 2009
Bonds, Series G, the 2009 Bonds, Series H, the 2014 Bonds, Series I and the 2014
Bonds, Series J (collectively referred to herein as the "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, this
Supplemental Indenture, 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;

                                       24
<PAGE>

                  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, 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
$200,000,000 principal amount of the 2009 Bonds, Series G, the $200,000,000
principal amount of the 2014 Bonds, Series I and of the Exchange Bonds, if
issued, 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, alienate 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 13 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;

                  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

                                       25
<PAGE>

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
2009 Bonds, Series G) 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 2009 Bonds, Series G shall be
issued in the aggregate principal amount of $200,000,000, shall mature on
February 17, 2009 and shall be issued only as registered bonds without coupons
in denominations of $1,000 and any multiple thereof. The serial numbers of the
2009 Bonds, Series G 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 2009 Bonds,
Series G shall bear interest at the rate per annum, until the principal thereof
shall have become due and payable, specified in the title thereto, payable
semi-annually on February 15 and August 15 in each year. If the Company does not
comply with certain of its obligations under the Registration Rights Agreement,
(in which case the Company shall notify the Trustee thereof), the 2009 Bonds,
Series G shall, in accordance with Section 5 of the Registration Rights
Agreement, bear additional interest ("Additional Interest") in addition to the
interest provided for in the immediately preceding sentence. For purposes of
this Supplemental Indenture and the 2009 Bonds, Series G, the term "interest"
shall be deemed to include interest provided for in the second immediately
preceding sentence and Additional Interest, if any. The principal of and the
premium, if any, and the interest on said bonds shall be payable in any coin or
currency of the United States of America which at the time of payment is legal
tender for public and private debts, at the office or agency of the Company in
the City of New York, designated for that purpose.

                  SECTION 2. There is hereby created one series of bonds (the
2014 Bonds, Series I) 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 2014 Bonds, Series I shall be
issued in the aggregate principal amount of $200,000,000 shall mature on
February 15, 2014 and shall be issued only as registered bonds without coupons
in denominations of $1,000 and any multiple thereof. The serial numbers of the
2014 Bonds, Series I 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 2014 Bonds,
Series I shall bear interest at the rate per annum, until the principal

                                       26
<PAGE>

thereof shall have become due and payable, specified in the title thereto,
payable semi-annually on February 15 and August 15 in each year. If the Company
does not comply with certain of its obligations under the Registration Rights
Agreement, (in which case the Company shall notify the Trustee thereof), the
2014 Bonds, Series I shall, in accordance with Section 5 of the Registration
Rights Agreement, bear Additional Interest in addition to the interest provided
for in the immediately preceding sentence. For purposes of this Supplemental
Indenture and the 2014 Bonds, Series I, the term "interest" shall be deemed to
include interest provided for in the second immediately preceding sentence and
Additional Interest, if any. The principal of and the premium, if any, and the
interest on said bonds shall be payable in any coin or currency of the United
States of America which at the time of payment is legal tender for public and
private debts, at the office or agency of the Company in the City of New York,
designated for that purpose.

                  SECTION 3. The Company and the Initial Purchasers have entered
into the Registration Rights Agreement. The Registration Rights Agreement
provides the 2009 Bonds, Series G and the 2014 Bonds, Series I that are issued
and sold without registration under the Securities Act may be exchanged for the
2009 Bonds, Series H and the 2014 Bonds, Series J, respectively, each of which
will be registered under the Securities Act and will otherwise have
substantially the same terms as the 2009 Bonds, Series G and the 2014 Bonds,
Series I, respectively. In the event such exchange does not occur, the Company
is required to cause a Shelf Registration Statement as defined in and pursuant
to the Registration Rights Agreement to be declared effective with respect to
the 2009 Bonds, Series G and/or the 2014 Bonds, Series I.

                  SECTION 4. Terms of Bonds.

                  4.01     Form of Bonds.

                  (a)      The 2009 Bonds, Series G and the 2014 Bonds, Series I
offered and sold to a Qualified Institutional Buyer (within the meaning of Rule
144A under the Securities Act) in reliance on Rule 144A under the Securities Act
("Rule 144A") or in reliance on Regulation S under the Securities Act
("Regulation S"), in each case as provided in the Purchase Agreement, shall in
each case be issued initially in the form of one or more permanent Global Bonds
in definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Section 4.02(b)
hereof (each, a "Restricted Global Bond"), which shall be deposited on behalf of
the purchasers of the Initial Bonds represented thereby with the Trustee, at its
corporate trust office, as securities custodian (or with such other securities
custodian as the Depository (as defined below) may direct), and registered in
the name of the Depository or a nominee of the Depository, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Global Bonds may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee as hereinafter provided. Exchange Bonds shall be issued in global
form. Exchange Bonds issued in global form and Restricted Global Bonds are
sometimes referred to in this Supplemental Indenture as "Global Bonds." The
Depositary for the Global Bonds shall be The Depository Trust Company, a New
York corporation, or its duly appointed successor (the "Depository").

                                       27
<PAGE>

                  (b)      This Section 4.01(b) shall apply only to a Global
Bond deposited with or on behalf of the Depository.

                  The Company shall execute and the Trustee shall, in the case
of each of the 2009 Bonds, Series G, the 2009 Bonds, Series H, the 2014 Bonds,
Series I and the 2014 Bonds, Series J, in accordance with this Section 4.01(b),
authenticate and deliver initially one or more Global Bonds that (a) shall be
registered in the name of the Depository or the nominee of the Depository and
(b) shall be delivered by the Trustee to the Depository or pursuant to the
Depository's instructions or held by the Trustee as securities custodian.

                  Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Supplemental Indenture with respect to
any Global Bond held on their behalf by the Depository or by the Trustee as the
securities custodian or under such Global Bond, and the Company, the Trustee and
any agent of the Company or the Trustee shall be entitled to treat the
Depository as the absolute owner of such Global Bond for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Bond.

                  (c)      Except as provided in this Section 4.01, Section 4.02
or Section 4.03, owners of beneficial interests in Restricted Global Bonds shall
not be entitled to receive physical delivery of certificated Bonds.

                  4.02     Transfer and Exchange.

                  (a)      Transfer and Exchange of Global Bonds.

                           (i)      The transfer and exchange of Global Bonds or
         beneficial interests therein shall be effected through the Depository,
         in accordance with this Supplemental Indenture (including applicable
         restrictions on transfer set forth herein, if any) and the procedures
         of the Depository therefor.

                           (ii)     Notwithstanding any other provision of this
         Supplemental Indenture (other than the provisions set forth in Section
         4.03), a Global Bond may not be transferred as a whole except by the
         Depository to a nominee of the Depository or by a nominee of the
         Depository to the Depository or another nominee of the Depository or by
         the Depository or any such nominee to a successor Depository or a
         nominee of such successor Depository.

                           (iii)    In the event that a Restricted Global Bond
         is exchanged for Bonds in certificated registered form pursuant to
         Section 4.03 prior to the consummation of a registered exchange offer
         or the effectiveness of a Shelf Registration Statement (as defined in
         the Registration Rights Agreement) with respect to such Initial Bonds,
         such Restricted Global Bond may be exchanged only in accordance with
         such procedures as are substantially consistent with the provisions of
         this Section 4.02 and such other

                                       28
<PAGE>

         procedures as may from time to time be adopted by the Company;
         provided, however, the Trustee shall be notified of such event.

                  (b)      Legend.

                           (i)      Except as permitted by the following
         paragraphs (ii), (iii) and (iv), each Bond certificate evidencing a
         Transfer Restricted Security (as defined in the Registration Rights
         Agreement) shall bear a legend in substantially the following form:

         THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT
         BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
         PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
         BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
         PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
         INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
         144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION COMPLYING
         WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3)
         PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
         PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE WITH
         ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
         ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
         WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.

                           (ii)     Upon any sale or transfer of a Transfer
         Restricted Security (as defined in the Registration Rights Agreement)
         (including any Transfer Restricted Security (as defined in the
         Registration Rights Agreement) represented by a Restricted Global Bond)
         pursuant to Rule 144, the security registrar shall, subject to approval
         by the Company, permit the transferee thereof to exchange such Transfer
         Restricted Security (as defined in the Registration Rights Agreement)
         for a certificated Bond that does not bear the legend set forth above
         and rescind any restriction on the transfer of such Transfer Restricted
         Security (as defined in the Registration Rights Agreement), if the
         transferor thereof certifies in writing to the security registrar that
         such sale or transfer was made in reliance on Rule 144.

                           (iii)    After a transfer of any Initial Bonds
         pursuant to and during the period of the effectiveness of a Shelf
         Registration Statement (as defined in the Registration Rights
         Agreement) with respect to such Initial Bonds all requirements
         pertaining to legends on such Initial Bonds with respect to such Bonds
         transferred will cease to apply and Initial Bonds in global form,
         without restrictive transfer legends, will be available to the
         transferee of the holder of such Initial Bonds upon written directions
         to transfer such holder's interest in the Global Bond.

                                       29
<PAGE>

                           (iv)     Upon the consummation of a registered
         exchange offer with respect to the Initial Bonds, Exchange Bonds in
         global form will be available to holders that exchange such Initial
         Bonds in such registered exchange offer.

                  (c)      Cancellation or Adjustment of Global Bond. At such
time as all beneficial interests in a Global Bond have either been exchanged for
certificated Bonds, redeemed, purchased or canceled, such Global Bond shall be
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Bond is exchanged for certificated Bonds,
redeemed, purchased or canceled, the principal amount of Bonds represented by
such Global Bond shall be reduced and an adjustment shall be made on the books
and records of the securities custodian with respect to such Global Bond.

                  (d)      Obligations with Respect to Transfers and Exchanges
of Bonds.

                           (i)      To permit registrations of transfers and
         exchanges, the Company shall execute and the Trustee shall authenticate
         certificated Bonds and Global Bonds at the security registrar's
         request.

                           (ii)     No service charge shall be made for
         registration of transfer or exchange, but the Company may require
         payment of a sum sufficient to cover any transfer tax, assessments or
         similar governmental charge payable in connection therewith.

                           (iii)    Prior to the due presentation for
         registration of transfer of any Bond, the Company, the Trustee, the
         paying agent or the security registrar may deem and treat the person in
         whose name a Bond is registered as the absolute owner of such Bond for
         the purpose of receiving payment of principal of and interest on such
         Bond and for all other purposes whatsoever, whether or not such Bond is
         overdue, and none of the Company, the Trustee, the paying agent or the
         security registrar shall be affected by notice to the contrary.

                           (iv)     All Bonds issued upon any transfer or
         exchange pursuant to the terms of the Indenture shall evidence the same
         debt and shall be entitled to the same benefits under the Indenture as
         the Bonds surrendered upon such transfer or exchange.

                  (e)      No Obligation of Trustee.

                           (i)      The Trustee (whether in its capacity as
         Trustee or otherwise) shall have no responsibility or obligation to any
         beneficial owner of a Global Bond, Agent Member or other person with
         respect to the accuracy of the records of the Depository or its nominee
         or of any Agent Member, with respect to any ownership interest in the
         Bonds or with respect to the delivery to any Agent Member, beneficial
         owner or other person (other than the Depository) of any notice
         (including any notice of redemption) or the payment of any amount,
         under or with respect to such Bonds. All notices and communications to
         be given to the holders and all payments to be made to holders under
         the Bonds shall be given or made only to or upon the order of the
         registered holders (which shall be the Depository or its nominee in the
         case of a Global Bond). The rights of beneficial owners in any Global
         Bond shall be exercised only through the Depository subject to the
         applicable rules and procedures of the Depository.

                                       30
<PAGE>

         The Trustee may rely and shall be fully protected in relying upon
         information furnished by the Depository with respect to its Agent
         Members and any beneficial owners.

                           (ii)     The Trustee shall have no obligation or duty
         to monitor, determine or inquire as to compliance with any restrictions
         on transfer imposed under this Supplemental Indenture or under
         applicable law with respect to any transfer of any interest in any Bond
         (including any transfers between or among Agent Members or beneficial
         owners in any Global Bond) other than to require delivery of such
         certificates and other documentation or evidence as are expressly
         required by, and to do so if and when expressly required by, the terms
         of the Indenture.

                  4.03     Certificated Bonds.

                  (a)      A Global Bond deposited with the Depository or with
the Trustee as securities custodian pursuant to Section 4.01 shall be
transferred to the beneficial owners thereof in the form of certificated Bonds
in an aggregate principal amount equal to the principal amount of such Global
Bond, in exchange for such Global Bond, only if such transfer complies with this
Section 4.03 and the conditions set forth in Article II of the Indenture.

                  (b)      Any Global Bond that is transferable to the
beneficial owners thereof pursuant to this Section 4.03 shall be surrendered by
the Depository to the Trustee at its corporate trust office to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Bond, an equal aggregate principal amount of certificated Bonds of
authorized denominations. Any portion of a Global Bond transferred pursuant to
this Section 4.03 shall be executed, authenticated and delivered only in
denominations of $1,000 principal amount and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Bond delivered in exchange for an interest in the Global Bond shall bear
the restricted securities legend set forth in Section 4.02(b) hereof.

                  (c)      Subject to the provisions of Section 4.03(b), the
registered holder of a Global Bond shall be entitled to grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a holder is
entitled to take under the Indenture or the Bonds.

                  4.04     Issuance of Exchange Bonds. The Trustee shall not
authenticate the 2009 Bonds, Series H or the 2014 Bonds, Series J for issuance
until (i) such bonds are issued in principal amount equal to the principal
amount of retired 2009 Bonds, Series G and 2014 Bonds, Series I, respectively,
made the basis for such issuance in accordance with Article V of the Indenture
and (ii) the Trustee shall have received (or shall receive concurrently with the
granting of the application of the Company for the authentication and delivery
by the Trustee of such bonds) the documents required by Article V of the
Indenture.

                  SECTION 5. The 2009 Bonds, Series G, the 2009 Bonds, Series H,
the 2014 Bonds, Series I and the 2014 Bonds, Series J, are redeemable upon
notice given by mailing the same, postage prepaid, not less than thirty days nor
more than sixty days prior to the date fixed for redemption to each registered
holder of a bond to be redeemed (in whole or in part) at the last

                                       31
<PAGE>

address of such holder appearing on the registry books. Any or all of the bonds
of this series may be redeemed by the Company, at any time and from time to time
prior to maturity, at a redemption price equal to the greater of (1) 100% of the
principal amount of the Bonds and (2) the sum of the present values of the
Remaining Scheduled Payments (as defined below) of principal and interest on the
Bonds discounted to the redemption date semiannually (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined below),
plus 25 basis points plus accrued interest on the Bonds to the date of
redemption.

                  "Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.

                  "Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.

                  "Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc. and J. P. Morgan Securities Inc., or, if
such firms are unwilling or unable to select the Comparable Treasury Issues, an
independent banking institution of national standing selected by the Company.

                  "Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.

                  "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.

                  "Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc. and J. P. Morgan Securities Inc., and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall replace that former

                                       32
<PAGE>

dealer with another Primary Treasury Dealer and (2) up to four other Primary
Treasury Dealers selected by the Company.

                  "Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.

                  SECTION 6. The 2009 Bonds, Series G, the 2009 Bonds, Series H,
the 2014 Bonds, Series I and the 2014 Bonds, Series J are not redeemable by the
operation of the maintenance and replacement provisions of the Indenture or with
the proceeds of released property or in any other manner except as set forth in
Section 5 hereof.

                  SECTION 7. The Company reserves the right, without any
consent, vote or other action by the holders of the 2009 Bonds, Series G, the
2009 Bonds, Series H, the 2014 Bonds, Series I and the 2014 Bonds, Series J, 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

                                       33
<PAGE>

                  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 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.

                                       34
<PAGE>

                  SECTION 8. 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 9. 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 10. 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 11. In the event the date of any notice required or
permitted hereunder shall not be a Business Day (as defined below), 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 11, 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.

                  SECTION 12. This Supplemental Indenture, the 2009 Bonds,
Series G, the 2009 Bonds, Series H, the 2014 Bonds, Series I and the 2014 Bonds,
Series J 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 13. 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

                                       35
<PAGE>

                  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.

                 GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,

                                       36
<PAGE>

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, permits, privileges, franchises and rights
for or relating to the construction, maintenance or

                                       37
<PAGE>

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.

                                       38

<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 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 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:

                                       39

<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.

                                       40

<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
         degrees 21'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

                                       41

<PAGE>

         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 North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
         degrees 42'30" West 877.76 feet to point of beginning.

                                       42

<PAGE>

                                  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

         Certain land in Mayfield Township, Grand Traverse County, Michigan
         described as:

                                       43

<PAGE>

                  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 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.

                                       44

<PAGE>

                                  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:

                  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

                                       45

<PAGE>

         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:

                  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"

                                       46

<PAGE>

         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:

                  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

                                       47

<PAGE>

         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 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

                                       48

<PAGE>

         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:

                  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

                                       49

<PAGE>

         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.

                                 OAKLAND COUNTY

         Certain land in Wixcom City, Oakland County, Michigan described as:

                                       50

<PAGE>

                  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.

                                  OTSEGO COUNTY

         Certain land in Corwith Township, Otsego County, Michigan described as:

                                       51

<PAGE>

                  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 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

                                       52

<PAGE>

         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

         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

                                       53

<PAGE>

         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

         Certain land in Livonia City, Wayne County, Michigan described as:

                                       54

<PAGE>

                  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 14. The Company is a transmitting utility under
Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as
defined in M.C.L. 440.9102(1)(aaaa).

                  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.

                                       55

<PAGE>

                                            CONSUMERS ENERGY COMPANY

(SEAL)                                  By: /s/ Paul A. Stadnikia
                                            --------------------------------
Attest:                                     Paul A. Stadnikia
                                            Treasurer

/s/ Joyce H. Norkey
- --------------------------------
Joyce H. Norkey
Assistant Secretary

Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of

/s/ Kimberly C. Wilson
- -------------------------------
Kimberly C. Wilson

/s/ Sammie B. Da.lton
- -------------------------------
Sammie B. Dalton

STATE OF MICHIGAN       )
                         ss.
COUNTY OF JACKSON       )

                  The foregoing instrument was acknowledged before me this 26
day of August, 2003, by Paul A. Stadnikia, 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

(SEAL)                                  By: /s/ L. O'Brien
                                            --------------------------------
                                                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/ Rosa Ciaccia
- ------------------------------
Rosa Ciaccia
Trust Officer

/s/ Virginia Dominiguez
- ------------------------------
Virginia Dominiguez
Trust Officer

STATE OF NEW YORK       )
                         ss.
COUNTY OF NEW YORK      )

                  The foregoing instrument was acknowledged before me this 26th
day of August, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a
New York corporation, on behalf of the corporation.

                                            /s/ Emily Fayan
                                            ------------------------------------
                                            EMILY FAYAN
                                            Notary Public, State of New York
[Seal]                                      No. 01FA4737006
                                            Qualified in Kings County
                                            Certificate Filed in New York County
                                            Commission Expires Dec. 31, 2005

Prepared by:                                When recorded, return to:
Kimberly C. Wilson                          Consumers Energy Company
One Energy Plaza, EP11-219                  Business Services Real Estate Dept.
Jackson, MI 49201                           Attn: Nancy Fisher EP7-439
                                            One Energy Plaza
                                            Jackson, MI 49201

                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(C)
<SEQUENCE>5
<FILENAME>k80589exv4wxcy.txt
<DESCRIPTION>93RD SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE>

                                                                    EXHIBIT 4(c)

                       NINETY-THIRD SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

                                 --------------

                         DATED AS OF SEPTEMBER 19, 2003

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                          Counterpart ____ of 80

<PAGE>

         THIS NINETY-THIRD SUPPLEMENTAL INDENTURE, dated as of September 19,
2003 (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 One Energy Plaza, 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 4 New York Plaza, New York, New York 10004
(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

<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 Credit
Agreement dated as of September 19, 2003 (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 has agreed to issue to the Agent, as evidence of
and security for the Obligations (as such term is defined in the Credit
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, 2003-1 Collateral Series (Interest
Bearing), each of which bonds shall also bear the descriptive title "First
Mortgage Bond" (hereinafter provided for and hereinafter sometimes referred to
as the "2003-1 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 on the Termination Date (as such term is
defined in the Credit Agreement); and

                                      -2-

<PAGE>

         WHEREAS, each of the registered bonds without coupons of the 2003-1
Collateral Bonds and the Trustee's Authentication Certificate thereon are to be
substantially in the following form, to wit:

                            [FORM OF REGISTERED BOND

                         OF THE 2003-1 COLLATERAL BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

        No. ___                                                 $400,000,000

         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
Amended and Restated Credit Agreement dated as of September 19, 2003 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 Four
Hundred Million Dollars ($400,000,000) or such lesser principal amount as shall
be equal to 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 the Termination Date (as defined in the Credit Agreement) (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
19, 2003. 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,

                                      -3-

<PAGE>

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
Obligations constituting interest and/or fees are due and payable from time to
time pursuant to the Credit 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 Obligations constituting interest and fees due
under the Credit 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:  _________________________

                                      -4-

<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

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003-1 Collateral Series (Interest Bearing) (sometimes herein referred to
as the "2003-1 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 2003-1 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
2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003-1 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 Loans and/or the
Reimbursement Obligations included in the Obligations shall have been fully or

                                      -5-

<PAGE>

partially paid. Satisfaction of any obligation to the extent that payment is
made with respect to the Loans and/or the Reimbursement Obligations means that
if any payment is made on the principal of the Loans and/or the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003-1 Collateral Bonds shall be deemed discharged in the same amount as the
payment with respect to the Loans and/or the Reimbursement Obligations
discharges the outstanding obligation with respect to such Loans and/or
Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003-1 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 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 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 2003-1 Collateral Bonds shall be
deemed discharged in the same amount as the payment with respect to the Loans
and/or the Reimbursement Obligations discharges the outstanding obligation with
respect to such Loans and/or 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 2003-1 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 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 2003-1
Collateral Bonds equal to the amount of such unpaid principal or Reimbursement
Obligations (but in no event in excess of the principal amount of the 2003-1
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 2003-1 Collateral 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 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

                                      -6-

<PAGE>

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.

         The Company reserves the right, without any consent, vote or other
action by holders of the 2003-1 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.

                                      -7-

<PAGE>

         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 2003-1 COLLATERAL BONDS]

         AND WHEREAS all acts and things necessary to make the 2003-1 Collateral
Bonds (the "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
$400,000,000 principal amount of the 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

                                      -8-

<PAGE>

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;

         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 a series of bonds (the "2003-1
Interest Bearing 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 2003-1 Interest Bearing Collateral Bonds shall be issued in the aggregate
principal amount of $400,000,000, shall mature on the Termination Date (as such
term is defined in the Credit Agreement) 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.

                                      -9-

<PAGE>

         The 2003-1 Collateral 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 2003-1 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 Loans
and/or the Reimbursement Obligations included in the the Obligations shall have
been fully or partially paid. Satisfaction of any obligation to the extent that
payment is made with respect to the Loans and/or the Reimbursement Obligations
means that if any payment is made on the principal of the Loans and/or the
Reimbursement Obligations, a corresponding payment obligation with respect to
the principal of the 2003-1 Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the the Loans and/or the
Reimbursement Obligations discharges the outstanding obligation with respect to
such Loans and/or Reimbursement Obligations. No such payment of principal shall
reduce the principal amount of the 2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003-1 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 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 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 2003-1 Collateral Bonds shall be
deemed discharged in the same amount as the payment with respect to the interest
and/or fees discharges the outstanding obligation with respect to such interest
and/or fees.

         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 2003-1 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.

         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

                                      -10-

<PAGE>

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 by the Agent to the Trustee, the 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.

                  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

                                      -11-

<PAGE>

         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.

         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

                                      -12-

<PAGE>

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.

                           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

                                      -13-

<PAGE>

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.

   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.

                                      -14-

<PAGE>

                                       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, 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

                                      -15-

<PAGE>

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.

                                       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:

                                      -16-

<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:

                  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,

                                      -17-

<PAGE>

         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 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.

                                      -18-

<PAGE>

                                  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
         degrees 21'E 250 feet, thence North along a line parallel with the said
         North and South quarter line of said section 200 feet, thence N89
         degrees 21'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 degrees 53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees 53'30" 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.

                                      -20-

<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
         degrees 42'56"W and 50 feet measured S88 degrees 14'04"W from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees 14'04"W a
         distance of 550 feet; thence N01 degrees 42'56"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 degrees 14'04"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 degrees 42'56"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 degrees 19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees 19'15" 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 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 degrees 54'45" East along
         said centerline 2282.38 feet to the place of beginning of this
         description; thence continuing South 89 degrees 54'45" East along said
         centerline and said centerline extended 660.00 feet to the North-South
         1/4 line of said section; thence South 00 degrees 07'20" West 1461.71
         feet; thence North 89 degrees 34'58" West 660.00 feet; thence North 00
         degrees 07'20" 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

                                      -22-

<PAGE>

         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 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

                                      -23-

<PAGE>

         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 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

                                      -24-

<PAGE>

         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 of beginning for this
         description; thence continuing N 87 degrees 14' 29" E along

                                      -28-

<PAGE>

         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 South 1/4 line of said
         section; thence N 00 degrees 28' 43" W along the said

                                      -29-

<PAGE>

         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 degrees 15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees 15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees 15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees 15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees 15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees 15'36" 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 degrees 22' 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 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).

         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/ Paul A. Stadnikia
                                               --------------------------------
                                                     Paul A. Stadnikia
Attest:                                              Treasurer

/s/ Joyce H. Norkey
- ------------------------------
Joyce H. Norkey
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 19th day of
September, 2003, by Paul A. Stadnikia, 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

(SEAL)                                 By /s/ L. O'Brien
                                         ------------------------------------
                                          L. O'Brien
Attest:                                   Vice President

/s/ Virginia Dominguez
- ----------------------------
Virginia Dominguez
Trust Officer

Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of

/s/ Kathleen Perry
- ----------------------------
Kathleen Perry
Vice President

/s/ William G. Keenan
- ----------------------------
William G. Keenan
Vice President

STATE OF NEW YORK  )
                    ss.
COUNTY OF NEW YORK )

         The foregoing instrument was acknowledged before me this 19th of
September, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.

                                      /s/ Emily Fayan
                                      ---------------------------------------
                                      EMILY FAYAN
                                      Notary Public, State of New York
[Seal]                                No. 01FA4737006
                                      Qualified in Kings County
                                      Certificate Filed in New York County
                                      Commission Expires Dec. 31, 2005

Prepared by:                          When recorded, return to:
Kimberly C. Wilson                    Consumers Energy Company
One Energy Plaza, EP11-219            Business Services Real Estate Dept.
Jackson, MI 49201                     Attn:  Nancy Fisher EP7-439
                                      One Energy Plaza
                                      Jackson, MI 49201


                                      S-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(D)
<SEQUENCE>6
<FILENAME>k80589exv4wxdy.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT, DATED 04/30/03
<TEXT>
<PAGE>

                                                                  Exhibit (4)(d)

                          REGISTRATION RIGHTS AGREEMENT

                           Dated as of April 30, 2003

                                       by

                            Consumers Energy Company

                                       and

                         Banc One Capital Markets, Inc.,
                             Barclays Capital Inc.,
                          J.P. Morgan Securities Inc.,
                            Comerica Securities, Inc.
                                       and
                            Wachovia Securities, Inc.

<PAGE>

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 30, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc., J.P. Morgan Securities Inc., Comerica Securities, Inc. and
Wachovia Securities, Inc. (each an "Initial Purchaser" and, collectively, the
"Initial Purchasers"), which have agreed to purchase the Company's $250,000,000
4.25% First Mortgage Bonds due 2008, Series A (the "Series A Bonds") and
$375,000,000 5.375% First Mortgage Bonds due 2013, Series B (the "Series B
Bonds" and together with the Series A Bonds, the "Restricted Bonds") pursuant to
the Purchase Agreement (as defined below).

         This Agreement is made pursuant to the Purchase Agreement, dated April
23, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 10(f) of the Purchase
Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

         Closing Date: The date hereof.

                                        1

<PAGE>

         Commission: The Securities and Exchange Commission.

         Company: As defined in the first paragraph hereof.

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Series C Bonds in the same aggregate
principal amount as the aggregate principal amount of the Series A Bonds
tendered by Holders thereof and the delivery by the Company to the Registrar of
the Series D Bonds in the same aggregate principal amount as the aggregate
principal amount of the Series B Bonds tendered by holders thereof, in each
case, pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Series C Bonds and the Series D Bonds.

         Exchange Offer: The Series A Exchange Offer and/or the Series B
Exchange Offer, as the case may be.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

                                        2

<PAGE>

         Initial Purchaser: As defined in the first paragraph hereof.

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         Series A Bonds: As defined in the first paragraph hereof.

         Series A Exchange Offer: The registration by the Company under the Act
of the Series C Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series A Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
A Bonds for Series C Bonds in an aggregate principal amount equal to the
aggregate principal amount

                                        3

<PAGE>

of the Transfer Restricted Securities relating to Series A Bonds tendered in
such exchange offer by such Holders.

         Series B Bonds: As defined in the first paragraph hereof.

         Series B Exchange Offer: The registration by the Company under the Act
of the Series D Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series B Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
B Bonds for Series D Bonds in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities relating to
Series B Bonds tendered in such exchange offer by such Holders.

         Series C Bonds: The Company's 4.25% First Mortgage Bonds due 2008,
Series C, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Series A Bonds covered by a Shelf
Registration Statement, in exchange for such Series A Bonds.

         Series D Bonds: The Company's 5.375% First Mortgage Bonds due 2013,
Series D, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any holder of Series B Bonds covered by a Shelf
Registration Statement, in exchange for such Series B Bonds.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

         Transfer Restricted Securities: Each Bond, until the earliest to occur
of (a) the date on which such Restricted Bond is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Restricted Bond has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Restricted Bond is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Restricted Bond is distributed
to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

                                        4

<PAGE>

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 240 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 330
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Bonds to be made under the blue sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Bonds to be offered in
exchange for the Restricted Bonds that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection

                                        5

<PAGE>

with its initial sale of each Exchange Bond received by such Broker-Dealer in
the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers that the Commission
may require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Bonds held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, the Company shall, if, and when, the Company is eligible to use Act Form
S-3, (x) cause to be filed on or prior to 180 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 180 days after the date
on which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 270 days after the
date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) hereof, the Company
is required to file and make effective a Shelf

                                        6

<PAGE>

Registration Statement solely because the Exchange Offer shall not be permitted
under applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
Company shall use its reasonable best efforts to keep the Shelf Registration
Statement discussed in this Section 4(a) continuously effective, supplemented
and amended as required by and subject to the provisions of Sections 6(b) and
(c) hereof to the extent necessary to ensure that it is available for sales of
Transfer Restricted Securities by the Holders thereof entitled to the benefit of
this Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (as extended
pursuant to Section 6(c)(i) hereof) following the date on which such Shelf
Registration Statement first becomes effective under the Act.

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded within 15 Business Days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective within five Business Days (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company agrees to pay
liquidated damages in the form of additional interest on the Transfer Restricted
Securities to each Holder of Transfer Restricted Securities, from and including
the date on which any Registration Default shall occur to, but excluding, the
date on which such Registration Default has been cured, at a rate of 0.50% per
annum. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause

                                        7

<PAGE>

(ii) above, (3) upon Consummation of the Exchange Offer, in the case of clause
(iii) above, or (4) upon the filing of a post-effective amendment to the
Registration Statement or an additional Registration Statement that causes the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made usable, in the
case of clause (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the Commission staff
         an analysis prepared by counsel to the Company setting forth the legal
         bases, if any, upon which such counsel has concluded that such an
         Exchange Offer should be permitted and (C) diligently pursuing a
         resolution (which need not be favorable) by the Commission staff of
         such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the

                                        8

<PAGE>

         Exchange Offer, a written representation to the Company (which may be
         contained in the letter of transmittal contemplated by the Exchange
         Offer Registration Statement) to the effect that (A) it is not an
         affiliate of the Company, (B) it is not engaged in, and does not intend
         to engage in, and has no arrangement or understanding with any Person
         to participate in, a distribution of the Exchange Bonds to be issued in
         the Exchange Offer and (C) it is acquiring the Exchange Bonds in its
         ordinary course of business. Each Holder hereby acknowledges and agrees
         that any Broker-Dealer and any such Holder using the Exchange Offer to
         participate in a distribution of the securities to be acquired in the
         Exchange Offer (1) could not under Commission policy as in effect on
         the date of this Agreement rely on the position of the Commission
         enunciated in Morgan Stanley and Co. Inc. (available June 5, 1991) and
         Exxon Capital Holdings Corp. (available May 13, 1988), as interpreted
         in the Commission's letter to Shearman & Sterling (available July 2,
         1993), and similar no-action letters (including, if applicable, any
         no-action letter obtained pursuant to clause (i) above), and (2) must
         comply with the registration and prospectus delivery requirements of
         the Act in connection with a secondary resale transaction and that such
         a secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of Regulation
         S-K if the resales are of Exchange Bonds obtained by such Holder in
         exchange for Restricted Bonds acquired by such Holder directly from the
         Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the

                                        9

<PAGE>

registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
the intended method or methods of distribution thereof within the time periods
and otherwise in accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective and such Registration Statement and
         the related Prospectus to become usable for their intended purpose(s)
         as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective amendment has been filed, and, with respect to any
         Registration Statement or any post-effective amendment thereto, when
         the same has become effective, (B) of any request by the Commission for
         amendments to the Registration Statement or amendments or supplements
         to the Prospectus or for additional information relating thereto, (C)
         of the issuance by the

                                       10

<PAGE>

         Commission of any stop order suspending the effectiveness of the
         Registration Statement under the Act or of the suspension by any state
         securities commission of the qualification of the Transfer Restricted
         Securities for offering or sale in any jurisdiction, or the initiation
         of any proceeding for any of the preceding purposes, (D) of the
         existence of any fact or the happening of any event that makes any
         statement of a material fact made in the Registration Statement, the
         Prospectus, any amendment or supplement thereto or any document
         incorporated by reference therein untrue, or that requires the making
         of any additions to or changes in the Registration Statement in order
         to make the statements therein not misleading, or that requires the
         making of any additions to or changes in the Prospectus in order to
         make the statements therein, in the light of the circumstances under
         which they were made, not misleading. If at any time the Commission
         shall issue any stop order suspending the effectiveness of the
         Registration Statement, or any state securities commission or other
         regulatory authority shall issue an order suspending the qualification
         or exemption from qualification of the Transfer Restricted Securities
         under state securities or blue sky laws, the Company shall use its best
         efforts to obtain the withdrawal or lifting of such order at the
         earliest possible time;

                  (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders and underwriter(s) in connection with such sale, if
         any, for a period of at least five Business Days, and the Company will
         not file any such Registration Statement or Prospectus or any amendment
         or supplement to any such Registration Statement or Prospectus
         (including all such documents incorporated by reference) to which the
         selling Holders of the Transfer Restricted Securities covered by such
         Registration Statement or the underwriter(s) in connection with such
         sale, if any, shall reasonably object within five Business Days after
         the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such

                                       11

<PAGE>

         Registration Statement and any attorney or accountant retained by such
         selling Holders or any of such underwriter(s), all financial and other
         records, material corporate documents and properties of the Company and
         cause the Company's officers, directors and employees to supply all
         information reasonably requested by any such Holder, underwriter,
         attorney or accountant in connection with such Registration Statement
         or any post-effective amendment thereto subsequent to the filing
         thereof and prior to its effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation, information
         relating to the "Plan of Distribution" of the Transfer Restricted
         Securities, information with respect to the principal amount of
         Transfer Restricted Securities being sold to such underwriter(s), the
         purchase price being paid therefor and any other terms of the offering
         of the Transfer Restricted Securities to be sold in such offering; and
         make all required filings of such Prospectus supplement or
         post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in such connection,

                                       12

<PAGE>

         whether or not an underwriting or similar agreement is entered into and
         whether or not the registration is an Underwritten Registration, the
         Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the date thereof, the
                           matters set forth in Sections 10(d) and 10(e) of the
                           Purchase Agreement and such other similar matters as
                           the Holders, underwriter(s) and/or Restricted
                           Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           required to be stated

                                       13

<PAGE>

                           therein or necessary to make the statements therein
                           not misleading, or that the Prospectus contained in
                           such Registration Statement as of its date and, in
                           the case of the opinion dated the date of
                           Consummation of the Exchange Offer, as of the date of
                           Consummation, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           necessary in order to make the statements therein, in
                           the light of the circumstances under which they were
                           made, not misleading. Without limiting the foregoing,
                           such counsel may state further that such counsel
                           assumes no responsibility for, and has not
                           independently verified, the accuracy, completeness or
                           fairness of the financial statements, Bonds and
                           schedules and other financial data included in any
                           Registration Statement contemplated by this Agreement
                           or the related Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the

                                       14

<PAGE>

underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                  (xii)    (A) issue, upon the request of any Holder of Series A
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series C Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series A Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series C Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Series A Bonds held by such Holder shall be surrendered
         to the Company for cancellation;

                           (B) issue, upon the request of any Holder of Series B
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series D Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series B Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series D Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Series B Bonds held by such Holder shall be surrendered
         to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                                       15

<PAGE>

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the Transfer Restricted
         Securities which are in a form eligible for deposit with The Depository
         Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule 158 under the Act (which
         need not be audited) covering a twelve-month period beginning after the
         effective date of the Registration Statement (as such term is defined
         in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so

                                       16

<PAGE>

         qualified in accordance with the terms of the TIA; and execute and use
         its best efforts to cause the Trustee to execute all documents that may
         be required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing fees, if any,
in connection with listing the Bonds on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

                                       17

<PAGE>

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, or, if any Registration Statement shall be amended or supplemented,
in the Registration Statement as so amended or supplemented, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission which was made in the
Registration Statement or in the Registration Statement as so amended or
supplemented, in reliance upon and in conformity with information furnished in
writing to the Company by any Holder expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in

                                       18

<PAGE>

Section 8(a) hereof, but only with respect to alleged untrue statements or
omissions made in the Registration Statement or in the Registration Statement,
as amended or supplemented (if applicable), in reliance upon and in conformity
with information furnished in writing to the Company by such Holder expressly
for use therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include (x) the
Indemnifying Person and (y) the Indemnified Person and, in the written opinion
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or likely conflicts of
interest between them, in either of which cases the reasonable fees and expenses
of counsel (including disbursements) for such Indemnified Person shall be
reimbursed by the Indemnifying Person to the Indemnified Person. If there is a
conflict as described in clause (ii) above, and the Indemnified Persons have
participated in the litigation or proceeding utilizing separate counsel whose
fees and expenses have been reimbursed by the Indemnifying Person, and the
Indemnified Persons, or any of them, are found to be solely liable, such
Indemnified Person shall repay to the Indemnifying Parties such fees and
expenses of such separate counsel as the Indemnifying Person shall have
reimbursed. It is understood that the Indemnifying Person shall not, in
connection with any litigation or proceeding or related litigation or
proceedings in the same jurisdiction as to which the Indemnified Persons are
entitled to such separate representation, be liable under this Agreement for the
reasonable fees and out-of-pocket expenses of more than one separate firm
(together with not more than one appropriate

                                       19

<PAGE>

local counsel) for all such Indemnified Persons. Subject to the next paragraph,
all such fees and expenses shall be reimbursed by payment to the Indemnified
Persons of such reasonable fees and expenses of counsel promptly after payment
thereof by the Indemnified Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person from
and against any loss, damage, liability or expenses by reason of such settlement
or judgment. The Indemnifying Person shall not, without the prior written
consent of the Indemnified Persons, effect any settlement of any pending or
threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities. If, however, the
allocation provided by the

                                       20

<PAGE>

immediately preceding sentence is not permitted by applicable law, then each
Indemnifying Person shall contribute to such amount paid or payable by such
Indemnified Person in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of each Indemnifying Person, if
any, on the one hand and the Indemnified Person on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions, suits or proceedings (including governmental
investigations) in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Holders on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 8. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages or liabilities (or actions, suits or
proceedings (including governmental proceedings) in respect thereof) referred to
in this Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Person in connection with investigating
or defending any such actions, suits or proceedings (including governmental
proceedings) or claims, provided that the provisions of this Section 8 have been
complied with (in all material respects) in respect of any separate counsel for
such Indemnified Person. Notwithstanding the provisions of this Section 8, no
Holder shall be required to contribute any amount greater than the excess of the
amount by which the total received by such Holder with respect to the sale of
its Transfer Restricted Securities pursuant to a Registration Statement exceeds
the sum of (A) the amount paid by such Holder for such Transfer Restricted
Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations in this Section 8 to contribute are
several in proportion to their respective obligations and not joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule

                                       21

<PAGE>

144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by the Company of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

                                       22

<PAGE>

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186, Attention: Chief
                           Financial Officer

                  With a copy at the same address to:

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or

                                       23

<PAGE>

assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

                                       24

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                        CONSUMERS ENERGY COMPANY

                                        By: /s/ Thomas J. Webb
                                            --------------------------
                                            Name: Thomas J. Webb
                                            Title: Executive Vice President and
                                                   Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
COMERICA SECURITIES, INC.
WACHOVIA SECURITIES, INC.

By: Banc One Capital Markets, Inc.

By:/s/ Ted Pfiffner
   ---------------------------------
   Name: Ted Pfiffner
   Title: Director

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(E)
<SEQUENCE>7
<FILENAME>k80589exv4wxey.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT, DATED 05/23/03
<TEXT>
<PAGE>

                                                                  Exhibit (4)(e)

                          REGISTRATION RIGHTS AGREEMENT

                            Dated as of May 23, 2003

                                       by

                            Consumers Energy Company

                                       and

                         Banc One Capital Markets, Inc.,
                              Barclays Capital Inc.
                                       and
                           J.P. Morgan Securities Inc.

<PAGE>

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 23, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc. and J.P. Morgan Securities Inc. (each an "Initial Purchaser" and,
collectively, the "Initial Purchasers"), which have agreed to purchase the
Company's $250,000,000 4.00% First Mortgage Bonds due 2010, Series E (the
"Restricted Bonds") pursuant to the Purchase Agreement (as defined below).

         This Agreement is made pursuant to the Purchase Agreement, dated May
20, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 10(f) of the Purchase
Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

         Closing Date: The date hereof.

         Commission: The Securities and Exchange Commission.

         Company: As defined in the first paragraph hereof.

                                        1

<PAGE>

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Exchange Bonds in the same aggregate
principal amount as the aggregate principal amount of the Restricted Bonds
tendered by Holders thereof pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Company's 4.00% First Mortgage Bonds due 2010,
Series F, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Restricted Bonds covered by a Shelf
Registration Statement, in exchange for such Restricted Bonds.

         Exchange Offer: The registration by the Company under the Act of the
Exchange Bonds pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities relating to Restricted Bonds the opportunity to exchange all such
outstanding Transfer Restricted Securities relating to Restricted Bonds for
Exchange Bonds in an aggregate principal amount equal to the aggregate principal
amount of the Transfer Restricted Securities relating to Restricted Bonds
tendered in such exchange offer by such Holders.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act, or to persons who
are not "U.S. persons", as such term is defined in Regulation S under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

                                       2

<PAGE>

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

         Initial Purchaser: As defined in the first paragraph hereof.

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         S-3 Ineligibility Date: As defined in Section 12(l) hereof.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

                                       3

<PAGE>

         Transfer Restricted Securities: Each Bond, until the earliest to occur
of (a) the date on which such Restricted Bond is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Restricted Bond has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Restricted Bond is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Restricted Bond is distributed
to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 217 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 307
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Bonds to be made under the blue sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Bonds to be offered in
exchange for the Restricted Bonds that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds

                                        4

<PAGE>

shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Bond received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Bonds held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such

                                       5

<PAGE>

Holder, the Company shall, if, and when, the Company is eligible to use Act Form
S-3, (x) cause to be filed on or prior to 180 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 180 days after the date
on which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 270 days after the
date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) hereof, the Company
is required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company shall use its reasonable
best efforts to keep the Shelf Registration Statement discussed in this Section
4(a) continuously effective, supplemented and amended as required by and subject
to the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i) hereof)
following the date on which such Shelf Registration Statement first becomes
effective under the Act.

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this

                                       6

<PAGE>

Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
within 15 Business Days by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within
five Business Days (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company agrees to pay liquidated damages in
the form of additional interest on the Transfer Restricted Securities to each
Holder of Transfer Restricted Securities, from and including the date on which
any Registration Default shall occur to, but excluding, the date on which such
Registration Default has been cured, at a rate of 0.50% per annum.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause (ii) above,
(3) upon Consummation of the Exchange Offer, in the case of clause (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable, in the case of clause (iv) above,
the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable,
shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the

                                       7

<PAGE>

         Commission staff an analysis prepared by counsel to the Company setting
         forth the legal bases, if any, upon which such counsel has concluded
         that such an Exchange Offer should be permitted and (C) diligently
         pursuing a resolution (which need not be favorable) by the Commission
         staff of such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the Exchange Offer, a written
         representation to the Company (which may be contained in the letter of
         transmittal contemplated by the Exchange Offer Registration Statement)
         to the effect that (A) it is not an affiliate of the Company, (B) it is
         not engaged in, and does not intend to engage in, and has no
         arrangement or understanding with any Person to participate in, a
         distribution of the Exchange Bonds to be issued in the Exchange Offer
         and (C) it is acquiring the Exchange Bonds in its ordinary course of
         business. Each Holder hereby acknowledges and agrees that any
         Broker-Dealer and any such Holder using the Exchange Offer to
         participate in a distribution of the securities to be acquired in the
         Exchange Offer (1) could not under Commission policy as in effect on
         the date of this Agreement rely on the position of the Commission
         enunciated in Morgan Stanley and Co. Inc. (available June 5, 1991) and
         Exxon Capital Holdings Corp. (available May 13, 1988), as interpreted
         in the Commission's letter to Shearman & Sterling (available July 2,
         1993), and similar no-action letters (including, if applicable, any
         no-action letter obtained pursuant to clause (i) above), and (2) must
         comply with the registration and prospectus delivery requirements of
         the Act in connection with a secondary resale transaction and that such
         a secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of Regulation
         S-K if the resales are of Exchange Bonds obtained by such Holder in
         exchange for Restricted Bonds acquired by such Holder directly from the
         Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

                                        8

<PAGE>

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective and such Registration Statement and
         the related Prospectus to become usable for their intended purpose(s)
         as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective amendment has been filed, and, with respect to any
         Registration Statement or any post-effective

                                       9

<PAGE>

         amendment thereto, when the same has become effective, (B) of any
         request by the Commission for amendments to the Registration Statement
         or amendments or supplements to the Prospectus or for additional
         information relating thereto, (C) of the issuance by the Commission of
         any stop order suspending the effectiveness of the Registration
         Statement under the Act or of the suspension by any state securities
         commission of the qualification of the Transfer Restricted Securities
         for offering or sale in any jurisdiction, or the initiation of any
         proceeding for any of the preceding purposes, (D) of the existence of
         any fact or the happening of any event that makes any statement of a
         material fact made in the Registration Statement, the Prospectus, any
         amendment or supplement thereto or any document incorporated by
         reference therein untrue, or that requires the making of any additions
         to or changes in the Registration Statement in order to make the
         statements therein not misleading, or that requires the making of any
         additions to or changes in the Prospectus in order to make the
         statements therein, in the light of the circumstances under which they
         were made, not misleading. If at any time the Commission shall issue
         any stop order suspending the effectiveness of the Registration
         Statement, or any state securities commission or other regulatory
         authority shall issue an order suspending the qualification or
         exemption from qualification of the Transfer Restricted Securities
         under state securities or blue sky laws, the Company shall use its best
         efforts to obtain the withdrawal or lifting of such order at the
         earliest possible time;

                  (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders and underwriter(s) in connection with such sale, if
         any, for a period of at least five Business Days, and the Company will
         not file any such Registration Statement or Prospectus or any amendment
         or supplement to any such Registration Statement or Prospectus
         (including all such documents incorporated by reference) to which the
         selling Holders of the Transfer Restricted Securities covered by such
         Registration Statement or the underwriter(s) in connection with such
         sale, if any, shall reasonably object within five Business Days after
         the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                                       10

<PAGE>

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such Registration Statement and any attorney or
         accountant retained by such selling Holders or any of such
         underwriter(s), all financial and other records, material corporate
         documents and properties of the Company and cause the Company's
         officers, directors and employees to supply all information reasonably
         requested by any such Holder, underwriter, attorney or accountant in
         connection with such Registration Statement or any post-effective
         amendment thereto subsequent to the filing thereof and prior to its
         effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation, information
         relating to the "Plan of Distribution" of the Transfer Restricted
         Securities, information with respect to the principal amount of
         Transfer Restricted Securities being sold to such underwriter(s), the
         purchase price being paid therefor and any other terms of the offering
         of the Transfer Restricted Securities to be sold in such offering; and
         make all required filings of such Prospectus supplement or
         post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in

                                       11

<PAGE>

         such connection, whether or not an underwriting or similar agreement is
         entered into and whether or not the registration is an Underwritten
         Registration, the Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the date thereof, the
                           matters set forth in Sections 10(d) and 10(e) of the
                           Purchase Agreement and such other similar matters as
                           the Holders, underwriter(s) and/or Restricted
                           Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact

                                       12

<PAGE>

                           required to be stated therein or necessary to make
                           the statements therein not misleading, or that the
                           Prospectus contained in such Registration Statement
                           as of its date and, in the case of the opinion dated
                           the date of Consummation of the Exchange Offer, as of
                           the date of Consummation, contained an untrue
                           statement of a material fact or omitted to state a
                           material fact necessary in order to make the
                           statements therein, in the light of the circumstances
                           under which they were made, not misleading. Without
                           limiting the foregoing, such counsel may state
                           further that such counsel assumes no responsibility
                           for, and has not independently verified, the
                           accuracy, completeness or fairness of the financial
                           statements, Bonds and schedules and other financial
                           data included in any Registration Statement
                           contemplated by this Agreement or the related
                           Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                                       13

<PAGE>

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                  (xii)    issue, upon the request of any Holder of Restricted
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Exchange Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Restricted Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Exchange Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Restricted Bonds held by such Holder shall be
         surrendered to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                                       14

<PAGE>

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the Transfer Restricted
         Securities which are in a form eligible for deposit with The Depository
         Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule 158 under the Act (which
         need not be audited) covering a twelve-month period beginning after the
         effective date of the Registration Statement (as such term is defined
         in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the Trustee to execute all documents that may be
         required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent

                                       15

<PAGE>

file copies then in such Holder's possession, of the Prospectus covering such
Transfer Restricted Securities that was current at the time of receipt of either
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of such Registration Statement set forth in
Section 3 or 4 hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the
date when each selling Holder covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof or shall have received the Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing fees, if any,
in connection with listing the Bonds on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue

                                       16

<PAGE>

statement or alleged untrue statement of a material fact contained in any
Registration Statement, or, if any Registration Statement shall be amended or
supplemented, in the Registration Statement as so amended or supplemented, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any such untrue
statement or alleged untrue statement or omission or alleged omission which was
made in the Registration Statement or in the Registration Statement as so
amended or supplemented, in reliance upon and in conformity with information
furnished in writing to the Company by any Holder expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
the Registration Statement or in the Registration Statement, as amended or
supplemented (if applicable), in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified

                                       17

<PAGE>

Person shall have the right to participate in such litigation or proceeding and
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Indemnifying Person and
the Indemnified Person shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include (x) the Indemnifying Person and (y) the Indemnified
Person and, in the written opinion of counsel to such Indemnified Person,
representation of both parties by the same counsel would be inappropriate due to
actual or likely conflicts of interest between them, in either of which cases
the reasonable fees and expenses of counsel (including disbursements) for such
Indemnified Person shall be reimbursed by the Indemnifying Person to the
Indemnified Person. If there is a conflict as described in clause (ii) above,
and the Indemnified Persons have participated in the litigation or proceeding
utilizing separate counsel whose fees and expenses have been reimbursed by the
Indemnifying Person, and the Indemnified Persons, or any of them, are found to
be solely liable, such Indemnified Person shall repay to the Indemnifying
Parties such fees and expenses of such separate counsel as the Indemnifying
Person shall have reimbursed. It is understood that the Indemnifying Person
shall not, in connection with any litigation or proceeding or related litigation
or proceedings in the same jurisdiction as to which the Indemnified Persons are
entitled to such separate representation, be liable under this Agreement for the
reasonable fees and out-of-pocket expenses of more than one separate firm
(together with not more than one appropriate local counsel) for all such
Indemnified Persons. Subject to the next paragraph, all such fees and expenses
shall be reimbursed by payment to the Indemnified Persons of such reasonable
fees and expenses of counsel promptly after payment thereof by the Indemnified
Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

                                       18

<PAGE>

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person from
and against any loss, damage, liability or expenses by reason of such settlement
or judgment. The Indemnifying Person shall not, without the prior written
consent of the Indemnified Persons, effect any settlement of any pending or
threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each Indemnifying Person shall contribute to such amount
paid or payable by such Indemnified Person in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of each
Indemnifying Person, if any, on the one hand and the Indemnified Person on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, suits or proceedings
(including governmental investigations) in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Holders on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 8. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages or liabilities (or
actions, suits or proceedings (including governmental proceedings) in respect
thereof) referred to in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 have been complied with (in all material respects) in respect of any
separate counsel for such Indemnified Person. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute any amount greater
than the excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted

                                       19

<PAGE>

Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations in this Section 8 to contribute are
several in proportion to their respective obligations and not joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights

                                       20

<PAGE>

under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by the Company
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.

         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186, Attention: Chief
                           Financial Officer

                  With a copy at the same address to:

                                       21

<PAGE>

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

         (l)      S-3 Ineligibility. If the Company is not eligible to use Act
Form S-3 by the 270th day after the date on which it determines that it is not
required to file the Exchange Offer Registration Statement pursuant to Section
4(a)(i) hereof or the 270th day after the date on which it receives the notice
specified in Section 4(a)(ii) hereof (either, the "S-3 Ineligibility Date"), the

                                       22

<PAGE>

Company shall (A) cause to be filed as soon as practicable after the S-3
Ineligibility Date a registration statement containing a resale prospectus on
whatever Act form the Company is then eligible to use relating to all Transfer
Restricted Securities the Holders of which shall have provided the information
required pursuant to Section 4(b) hereof and (B) use its best efforts to cause
such shelf registration statement to become effective as soon as practicable.

                                       23

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                    CONSUMERS ENERGY COMPANY

                                    By: /s/ Thomas J. Webb
                                       -----------------------
                                       Name: Thomas J. Webb
                                       Title: Executive Vice President and
                                              Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.

By: Banc One Capital Markets, Inc.

By: Robert B. Nordlinger
    -------------------------
   Name: Robert B. Nordlinger
   Title:Managing Director

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(F)
<SEQUENCE>8
<FILENAME>k80589exv4wxfy.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT, DATED 08/26/03
<TEXT>
<PAGE>

                                                                  Exhibit (4)(f)

                          REGISTRATION RIGHTS AGREEMENT

                           Dated as of August 26, 2003

                                       by

                            Consumers Energy Company

                         Banc One Capital Markets, Inc.
                              Barclays Capital Inc.
                           J.P. Morgan Securities Inc.
                              ABN AMRO Incorporated
                            Huntington Capital Corp.
                       Tokyo-Mitsubishi International plc
                            Wachovia Securities, LLC
                            Comerica Securities, Inc.

                                       and

                          Fifth Third Securities, Inc.

<PAGE>

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 26, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc., J.P. Morgan Securities Inc., ABN AMRO Incorporated, Huntington
Capital Corp., Tokyo-Mitsubishi International plc, Wachovia Securities, LLC,
Comerica Securities, Inc. and Fifth Third Securities, Inc. (each an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), which have agreed to
purchase the Company's $200,000,000 4.80% First Mortgage Bonds due 2009, Series
G (the "Series G Bonds") and $200,000,000 6.00% First Mortgage Bonds due 2014,
Series I (the "Series I Bonds" and together with the Series G Bonds, the
"Restricted Bonds") pursuant to the Purchase Agreement (as defined below).

         This Agreement is made pursuant to the Purchase Agreement, dated August
19, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers in the Purchase Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

         Closing Date: The date hereof.

<PAGE>

         Commission: The Securities and Exchange Commission.

         Company: As defined in the first paragraph hereof.

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Series H Bonds in the same aggregate
principal amount as the aggregate principal amount of the Series G Bonds
tendered by Holders thereof and the delivery by the Company to the Registrar of
the Series J Bonds in the same aggregate principal amount as the aggregate
principal amount of the Series I Bonds tendered by holders thereof, in each
case, pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Series H Bonds and the Series J Bonds.

         Exchange Offer: The Series G Exchange Offer and/or the Series I
Exchange Offer, as the case may be.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act, or to persons who
are not "U.S. persons", as such term is defined in Regulation S under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

                                       2

<PAGE>

         Initial Purchaser: As defined in the first paragraph hereof.

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         S-3 Ineligibility Date: As defined in Section 12(l) hereof.

         Series G Bonds: As defined in the first paragraph hereof.

         Series G Exchange Offer: The registration by the Company under the Act
of the Series H Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series G Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
G Bonds for Series H Bonds in an aggregate principal amount equal to the
aggregate

                                       3

<PAGE>

principal amount of the Transfer Restricted Securities relating to Series G
Bonds tendered in such exchange offer by such Holders.

         Series I Bonds: As defined in the first paragraph hereof.

         Series I Exchange Offer: The registration by the Company under the Act
of the Series J Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series I Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
I Bonds for Series J Bonds in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities relating to
Series I Bonds tendered in such exchange offer by such Holders.

         Series H Bonds: The Company's 4.80% First Mortgage Bonds due 2009,
Series H, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Series G Bonds covered by a Shelf
Registration Statement, in exchange for such Series G Bonds.

         Series J Bonds: The Company's 6.00% First Mortgage Bonds due 2014,
Series J, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any holder of Series I Bonds covered by a Shelf
Registration Statement, in exchange for such Series I Bonds.

         Shelf Filing Date: As defined in Section 4(a) hereof.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

         Transfer Restricted Securities: Each Restricted Bond, until the
earliest to occur of (a) the date on which such Restricted Bond is exchanged in
the Exchange Offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Restricted Bond has been disposed of in accordance with a
Shelf Registration Statement, (c) the date on which such Restricted Bond is
disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery of
the Prospectus contained therein) or (d) the date on which such Restricted Bond
is distributed to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

                                       4

<PAGE>

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 240 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 330
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Bonds to be made under the blue sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Bonds to be offered in
exchange for the Restricted Bonds that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Bond received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such

                                       5

<PAGE>

Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Bonds held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, the Company shall, provided that the Company is then eligible to use Act
Form S-3 and subject to Section 12(l) hereof, (x) cause to be filed on or prior
to 90 days after the date on which the Company determines that it is not
required to file the Exchange Offer Registration Statement pursuant to clause
(i) above or 90 days after the date on which the Company receives the notice
specified in clause (ii) above (each such date, a "Shelf Filing Date") a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 180 days after the
Shelf Filing Date. Subject to Section 12(l) hereof, if the Company is not
eligible to use Act Form S-3 on a Shelf Filing Date, then its obligation to file
a Shelf Registration Statement shall be deferred until the 30th day after the
earliest time that such eligibility is restored. If, after the Company has filed
an Exchange Offer Registration Statement which satisfies the requirements of
Section 3(a) hereof, the Company is required to file and make effective a Shelf
Registration Statement solely because the

                                       6

<PAGE>

Exchange Offer shall not be permitted under applicable federal law, then the
filing of the Exchange Offer Registration Statement shall be deemed to satisfy
the requirements of clause (x) above. Such an event shall have no effect on the
requirements of clause (y) above. The Company shall use its reasonable best
efforts to keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i) hereof)
following the date on which such Shelf Registration Statement first becomes
effective under the Act.

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded within 15 Business Days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective within five Business Days (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company agrees to pay
liquidated damages in the form of additional interest on the Transfer Restricted
Securities to each Holder of Transfer Restricted Securities, from and including
the date on which any Registration Default shall occur to, but excluding, the
date on which such Registration Default has been cured, at a rate of 0.50% per
annum. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause (ii) above,
(3) upon Consummation of the Exchange Offer, in the case of clause (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional

                                       7

<PAGE>

Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable, in the case of clause (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the Commission staff
         an analysis prepared by counsel to the Company setting forth the legal
         bases, if any, upon which such counsel has concluded that such an
         Exchange Offer should be permitted and (C) diligently pursuing a
         resolution (which need not be favorable) by the Commission staff of
         such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the Exchange Offer, a written
         representation to the Company (which may be contained in the letter of
         transmittal contemplated by the Exchange Offer Registration Statement)
         to the effect that (A) it is not an affiliate of the Company, (B) it is
         not engaged in, and does not intend to engage in, and has no
         arrangement or understanding with any Person to participate in, a
         distribution of the Exchange Bonds to be issued in the Exchange Offer
         and (C) it is acquiring the Exchange

                                       8

<PAGE>

         Bonds in its ordinary course of business. Each Holder hereby
         acknowledges and agrees that any Broker-Dealer and any such Holder
         using the Exchange Offer to participate in a distribution of the
         securities to be acquired in the Exchange Offer (1) could not under
         Commission policy as in effect on the date of this Agreement rely on
         the position of the Commission enunciated in Morgan Stanley and Co.
         Inc. (available June 5, 1991) and Exxon Capital Holdings Corp.
         (available May 13, 1988), as interpreted in the Commission's letter to
         Shearman & Sterling (available July 2, 1993), and similar no-action
         letters (including, if applicable, any no-action letter obtained
         pursuant to clause (i) above), and (2) must comply with the
         registration and prospectus delivery requirements of the Act in
         connection with a secondary resale transaction and that such a
         secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of Regulation
         S-K if the resales are of Exchange Bonds obtained by such Holder in
         exchange for Restricted Bonds acquired by such Holder directly from the
         Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the

                                       9

<PAGE>

related Prospectus, to the extent that the same are required to be available to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers), the Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective and such Registration Statement and
         the related Prospectus to become usable for their intended purpose(s)
         as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective amendment has been filed, and, with respect to any
         Registration Statement or any post-effective amendment thereto, when
         the same has become effective, (B) of any request by the Commission for
         amendments to the Registration Statement or amendments or supplements
         to the Prospectus or for additional information relating thereto, (C)
         of the issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement under the Act or of the
         suspension by any state securities commission of the qualification of
         the Transfer Restricted Securities for offering or sale in any
         jurisdiction, or the initiation of any proceeding for any of the
         preceding purposes, (D) of the existence of any fact or the happening
         of any event that makes any statement of a material fact made in the
         Registration Statement, the Prospectus, any amendment or supplement
         thereto or any document incorporated by reference therein untrue, or
         that requires the making of any additions to or changes in the
         Registration Statement in order to make the statements therein not
         misleading, or that requires the making of any additions to or changes
         in the Prospectus in order to make the statements therein, in the light

                                       10

<PAGE>

         of the circumstances under which they were made, not misleading. If at
         any time the Commission shall issue any stop order suspending the
         effectiveness of the Registration Statement, or any state securities
         commission or other regulatory authority shall issue an order
         suspending the qualification or exemption from qualification of the
         Transfer Restricted Securities under state securities or blue sky laws,
         the Company shall use its best efforts to obtain the withdrawal or
         lifting of such order at the earliest possible time;

                 (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders and underwriter(s) in connection with such sale, if
         any, for a period of at least five Business Days, and the Company will
         not file any such Registration Statement or Prospectus or any amendment
         or supplement to any such Registration Statement or Prospectus
         (including all such documents incorporated by reference) to which the
         selling Holders of the Transfer Restricted Securities covered by such
         Registration Statement or the underwriter(s) in connection with such
         sale, if any, shall reasonably object within five Business Days after
         the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such Registration Statement and any attorney or
         accountant retained by such selling Holders or any of such
         underwriter(s), all financial and other records, material corporate
         documents and properties of the Company and cause the Company's
         officers, directors and employees to supply all information reasonably
         requested by any such Holder, underwriter, attorney or accountant in
         connection with such Registration Statement or any post-effective
         amendment thereto subsequent to the filing thereof and prior to its
         effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation,

                                       11

<PAGE>

         information relating to the "Plan of Distribution" of the Transfer
         Restricted Securities, information with respect to the principal amount
         of Transfer Restricted Securities being sold to such underwriter(s),
         the purchase price being paid therefor and any other terms of the
         offering of the Transfer Restricted Securities to be sold in such
         offering; and make all required filings of such Prospectus supplement
         or post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in such connection, whether or not an underwriting or
         similar agreement is entered into and whether or not the registration
         is an Underwritten Registration, the Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the

                                       12

<PAGE>

                           date thereof, the matters set forth in Sections 10(d)
                           and 10(e) of the Purchase Agreement and such other
                           similar matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           required to be stated therein or necessary to make
                           the statements therein not misleading, or that the
                           Prospectus contained in such Registration Statement
                           as of its date and, in the case of the opinion dated
                           the date of Consummation of the Exchange Offer, as of
                           the date of Consummation, contained an untrue
                           statement of a material fact or omitted to state a
                           material fact necessary in order to make the
                           statements therein, in the light of the circumstances
                           under which they were made, not misleading. Without
                           limiting the foregoing, such counsel may state
                           further that such counsel assumes no responsibility
                           for, and has not independently verified, the
                           accuracy, completeness or fairness of the financial
                           statements, Bonds and schedules and other financial
                           data included in any Registration Statement

                                       13

<PAGE>

                           contemplated by this Agreement or the related
                           Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                                       14

<PAGE>

                  (xii)    (A) issue, upon the request of any Holder of Series G
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series H Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series G Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series H Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Series G Bonds held by such Holder shall be surrendered
         to the Company for cancellation;

                           (B) issue, upon the request of any Holder of Series I
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series J Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series I Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series J Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Series I Bonds held by such Holder shall be surrendered
         to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the

                                       15

<PAGE>

         Transfer Restricted Securities which are in a form eligible for deposit
         with The Depository Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule 158 under the Act (which
         need not be audited) covering a twelve-month period beginning after the
         effective date of the Registration Statement (as such term is defined
         in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the Trustee to execute all documents that may be
         required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration

                                       16

<PAGE>

Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing fees, if any,
in connection with listing the Bonds on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, or, if any Registration Statement shall be amended or supplemented,
in the Registration Statement as so amended or supplemented, or arise out of or
are based upon any omission or

                                       17

<PAGE>

alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission which was made in the Registration Statement or in the
Registration Statement as so amended or supplemented, in reliance upon and in
conformity with information furnished in writing to the Company by any Holder
expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
the Registration Statement or in the Registration Statement, as amended or
supplemented (if applicable), in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person
shall have mutually

                                       18

<PAGE>

agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include (x) the Indemnifying Person
and (y) the Indemnified Person and, in the written opinion of counsel to such
Indemnified Person, representation of both parties by the same counsel would be
inappropriate due to actual or likely conflicts of interest between them, in
either of which cases the reasonable fees and expenses of counsel (including
disbursements) for such Indemnified Person shall be reimbursed by the
Indemnifying Person to the Indemnified Person. If there is a conflict as
described in clause (ii) above, and the Indemnified Persons have participated in
the litigation or proceeding utilizing separate counsel whose fees and expenses
have been reimbursed by the Indemnifying Person, and the Indemnified Persons, or
any of them, are found to be solely liable, such Indemnified Person shall repay
to the Indemnifying Parties such fees and expenses of such separate counsel as
the Indemnifying Person shall have reimbursed. It is understood that the
Indemnifying Person shall not, in connection with any litigation or proceeding
or related litigation or proceedings in the same jurisdiction as to which the
Indemnified Persons are entitled to such separate representation, be liable
under this Agreement for the reasonable fees and out-of-pocket expenses of more
than one separate firm (together with not more than one appropriate local
counsel) for all such Indemnified Persons. Subject to the next paragraph, all
such fees and expenses shall be reimbursed by payment to the Indemnified Persons
of such reasonable fees and expenses of counsel promptly after payment thereof
by the Indemnified Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person

                                       19

<PAGE>

from and against any loss, damage, liability or expenses by reason of such
settlement or judgment. The Indemnifying Person shall not, without the prior
written consent of the Indemnified Persons, effect any settlement of any pending
or threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each Indemnifying Person shall contribute to such amount
paid or payable by such Indemnified Person in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of each
Indemnifying Person, if any, on the one hand and the Indemnified Person on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, suits or proceedings
(including governmental investigations) in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Holders on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 8. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages or liabilities (or
actions, suits or proceedings (including governmental proceedings) in respect
thereof) referred to in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 have been complied with (in all material respects) in respect of any
separate counsel for such Indemnified Person. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute any amount greater
than the excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent

                                       20

<PAGE>

misrepresentation. The Holders' obligations in this Section 8 to contribute are
several in proportion to their respective obligations and not joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by the Company of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

                                       21

<PAGE>

         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186, Attention: Chief
                           Financial Officer

                  With a copy at the same address to:

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the

                                       22

<PAGE>

mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

         (l)      S-3 Ineligibility. If the Company becomes required to file a
Shelf Registration Statement but is not eligible to use Act Form S-3 by the
240th day after the date of this Agreement (the "S-3 Ineligibility Date"), the
Company shall (A) cause to be filed as soon as practicable after the S-3
Ineligibility Date a Shelf Registration Statement containing a resale prospectus
on whatever Act form the Company is then eligible to use relating to all
Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof and (B) use its best
efforts to cause such Shelf Registration Statement to become effective as soon
as practicable.

                                       23

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                    CONSUMERS ENERGY COMPANY

                                    By: /s/ Thomas J. Webb
                                        --------------------
                                        Name: Thomas J. Webb
                                        Title: Executive Vice President and
                                               Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
ABN AMRO INCORPORATED
HUNTINGTON CAPITAL CORP.
TOKYO-MITSUBISHI INTERNATIONAL PLC
WACHOVIA SECURITIES, LLC
COMERICA SECURITIES, INC.
FIFTH THIRD SECURITIES, INC.

By: Banc One Capital Markets, Inc.

By: /s/ Robert Nordlinger
    ----------------------
    Name:  Robert Nordlinger
    Title: Managing Director

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.(G)
<SEQUENCE>9
<FILENAME>k80589exv4wxgy.txt
<DESCRIPTION>AMENDED & RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 4(g)

                                                               EXECUTION VERSION

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

                      AMENDED AND RESTATED CREDIT AGREEMENT

                         Dated as of September 19, 2003

                                      among

                            CONSUMERS ENERGY COMPANY,
                                as the Borrower,

                    THE FINANCIAL INSTITUTIONS NAMED HEREIN,
                                  as the Banks,

                                  BANK ONE, NA,
                                    as Agent,

                               BARCLAYS BANK PLC,
                              as Syndication Agent

                                       and

                          CITICORP NORTH AMERICA, INC.,
                              JPMORGAN CHASE BANK,
                         UNION BANK OF CALIFORNIA, N.A.,
                           as Co-Documentation Agents

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

                         BANC ONE CAPITAL MARKETS, INC.
                       as Co-Lead Arranger and Book Runner

                                       and

                                BARCLAYS CAPITAL
                               as Co-Lead Arranger

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

<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....................................................          12

ARTICLE II            THE ADVANCES....................................................          12

     2.1          Commitment..........................................................          12
     2.2          Required Payments; Termination; Extension of Termination Date.......          12
     2.3          Ratable Loans.......................................................          13
     2.4          Types of Advances...................................................          13
     2.5          Commitment Fee and Reductions of Commitment.........................          13
     2.6          Minimum Amount of Advances..........................................          13
     2.7          Optional Principal Payments.........................................          13
     2.8          Method of Selecting Types and Interest Periods for New Advances.....          14
     2.9          Conversion and Continuation of Outstanding Advances.................          14
     2.10         Interest Rates, Interest Payment Dates..............................          15
     2.11         Rate after Maturity.................................................          15
     2.12         Method of Payment...................................................          15
     2.13         Bonds; Record-keeping; Telephonic Notices...........................          16
     2.14         Lending Installations...............................................          16
     2.15         Non-Receipt of Funds by the Agent...................................          17

ARTICLE III           LETTER OF CREDIT FACILITY.......................................          17

     3.1          Issuance............................................................          17
     3.2          Participations......................................................          17
     3.3          Notice..............................................................          17
     3.4          LC Fees.............................................................          18
     3.5          Administration; Reimbursement by Banks..............................          18
     3.6          Reimbursement by Company............................................          19
     3.7          Obligations Absolute................................................          19
     3.8          Actions of LC Issuer................................................          20
     3.9          Indemnification.....................................................          20
     3.10         Banks' Indemnification..............................................          20
</TABLE>

                                      -i-
<PAGE>

                          EXISTING FACILITY LC SCHEDULE
<TABLE>
<CAPTION>
                       L/C                                                              EFFECTIVE     EXPIRATION      UNDRAWN STATED
ACCOUNT PARTY        NUMBER        ISSUER                   BENEFICIARY                   DATE           DATE             AMOUNT
- ----------------   ---------      --------    --------------------------------------    ---------     ----------      --------------
<S>                <C>            <C>         <C>                                       <C>           <C>             <C>
CONSUMERS ENERGY    00332006      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $  500,000.00
                    00332007      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $1,000,000.00
                    00332008      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $1,000,000.00
                    00332009      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $1,000,000.00
                    00332010      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $1,000,000.00
                    00332011      Bank One    City of Sterling Heights, Michigan         05/19/03       05/19/04      $   10,000.00
                    00332012      Bank One    Charter Township of Oakland                05/19/03       05/19/04      $   25,463.00
                    00332013      Bank One    Michigan Dept of Environmental Quality     05/19/03       05/19/04      $2,000,000.00
</TABLE>
<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
     3.11         Rights as a Bank....................................................          21

ARTICLE IV            CHANGE IN CIRCUMSTANCES.........................................          21

     4.1          Yield Protection....................................................          21
     4.2          Replacement Bank....................................................          22
     4.3          Availability of Eurodollar Rate Loans...............................          22
     4.4          Funding Indemnification.............................................          23
     4.5          Taxes...............................................................          23
     4.6          Bank Certificates, Survival of Indemnity............................          25

ARTICLE V             REPRESENTATIONS AND WARRANTIES..................................          25

     5.1          Incorporation and Good Standing.....................................          25
     5.2          Corporate Power and Authority: No Conflicts.........................          25
     5.3          Governmental Approvals..............................................          26
     5.4          Legally Enforceable Agreements......................................          26
     5.5          Financial Statements................................................          26
     5.6          Litigation..........................................................          26
     5.7          Margin Stock........................................................          26
     5.8          ERISA...............................................................          27
     5.9          Insurance...........................................................          27
     5.10         Taxes...............................................................          27
     5.11         Investment Company Act..............................................          27
     5.12         Public Utility Holding Company Act..................................          27
     5.13         Bonds...............................................................          27
     5.14         Disclosure..........................................................          27

ARTICLE VI            AFFIRMATIVE COVENANTS...........................................          27

     6.1          Payment of Taxes, Etc...............................................          27
     6.2          Maintenance of Insurance............................................          28
     6.3          Preservation of Corporate Existence, Etc............................          28
     6.4          Compliance with Laws, Etc...........................................          28
     6.5          Visitation Rights...................................................          28
     6.6          Keeping of Books....................................................          28
</TABLE>

                                      -ii-

<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
     6.7          Reporting Requirements..............................................          28
     6.8          Use of Proceeds.....................................................          30
     6.9          Maintenance of Properties, Etc......................................          30
     6.10         Bonds...............................................................          30

ARTICLE VII           NEGATIVE COVENANTS..............................................          31

     7.1          Liens...............................................................          31
     7.2          Sale of Assets......................................................          32
     7.3          Mergers, Etc........................................................          32
     7.4          Compliance with ERISA...............................................          32
     7.5          Change in Nature of Business........................................          32
     7.6          Restricted Payments.................................................          32
     7.7          Off-Balance Sheet Liabilities.......................................          33
     7.8          Transactions with Affiliates........................................          33

ARTICLE VIII          FINANCIAL COVENANTS.............................................          33

     8.1          Debt to Capital Ratio...............................................          33
     8.2          Interest Coverage Ratio.............................................          33

ARTICLE IX            EVENTS OF DEFAULT...............................................          33

     9.1          Events of Default...................................................          33
     9.2          Remedies............................................................          35

ARTICLE X             WAIVERS, AMENDMENTS AND REMEDIES................................          36

     10.1         Amendments..........................................................          36
     10.2         Preservation of Rights..............................................          37

ARTICLE XI            CONDITIONS PRECEDENT............................................          37

     11.1         Initial Credit Extension............................................          37
     11.2         Each Credit Extension...............................................          38

ARTICLE XII           GENERAL PROVISIONS..............................................          38

     12.1         Successors and Assigns..............................................          38
     12.2         Survival of Representations.........................................          40
     12.3         Governmental Regulation.............................................          40
     12.4         Taxes...............................................................          40
</TABLE>

                                      -iii-
<PAGE>

                                TABLE OF CONTENTS
                                  (continued)

<TABLE>
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<S>                                                                                            <C>
     12.5         Choice of Law.......................................................          40
     12.6         Headings............................................................          41
     12.7         Entire Agreement....................................................          41
     12.8         Expenses; Indemnification...........................................          41
     12.9         Severability of Provisions..........................................          41
     12.10        Setoff..............................................................          42
     12.11        Ratable Payments....................................................          42
     12.12        Nonliability of Bank................................................          42
     12.13        Other Agents........................................................          42

ARTICLE XIII          THE AGENT.......................................................          43

     13.1         Appointment.........................................................          43
     13.2         Powers..............................................................          43
     13.3         General Immunity....................................................          43
     13.4         No Responsibility for Loans, Recitals, Etc..........................          43
     13.5         Action on Instructions of Banks.....................................          43
     13.6         Employment of Agents and Counsel....................................          43
     13.7         Reliance on Documents; Counsel......................................          44
     13.8         Agent's Reimbursement and Indemnification...........................          44
     13.9         Rights as a Lender..................................................          44
     13.10        Bank Credit Decision................................................          44
     13.11        Successor Agent.....................................................          44
     13.12        Agent and Arranger Fees.............................................          45

ARTICLE XIV           NOTICES.........................................................          45

     14.1         Giving Notice.......................................................          45
     14.2         Change of Address...................................................          45

ARTICLE XV            TERMINATION OF PRIOR AGREEMENT..................................          45
ARTICLE XVI           COUNTERPARTS....................................................          46
</TABLE>

                                      -iv-

<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
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SCHEDULES

PRICING SCHEDULE
COMMITMENT SCHEDULE
EXISTING FACILITY LC SCHEDULE

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>

                                      -V-

<PAGE>

                      AMENDED AND RESTATED CREDIT AGREEMENT

         This Agreement, dated as of September 19, 2003, 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
and as LC Issuer.

                              W I T N E S S E T H:

         WHEREAS, the Company has requested, and the Banks have agreed to enter
into, a credit facility in an aggregate amount of $400,000,000;

         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.

         "Administrative Questionnaire" means an administrative questionnaire,
substantially in the form supplied by the Agent, completed by a Lender and
furnished to the Agent in connection with this Agreement.

         "Advance" means a group of Loans made by the Banks hereunder of the
same Type, made, converted or continued on the same day and, in the case of
Eurodollar Rate Loans, having the same Interest Period.

         "Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another entity if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such entity, whether through the
ownership of voting securities, by contract or otherwise.

         "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.

         "Aggregate Commitment" means the aggregate amount of the Commitments of
all Banks.

         "Aggregate Outstanding Credit Exposure" means, at any time, the
aggregate of the Outstanding Credit Exposure of all the Banks.

<PAGE>

         "Agreement" means this Amended and Restated Credit 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, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.

         "Arranger" - see Section 13.12.

         "Article" means an article of this Agreement unless another document is
specifically referenced.

         "Assignment Agreement" - see Section 12.1(e).

         "Available Aggregate Commitment" means, at any time, the Available
Commitment then in effect minus the Aggregate Outstanding Credit Exposure at
such time.

         "Available Commitment" means, at any time, the lesser of (i) the
Aggregate Commitment and (ii) the face amount of the Bonds.

         "Banks" - see the preamble.

         "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 Advance 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 a series of interest-bearing First Mortgage Bonds created
under the 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 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, substantially in the form of Exhibit G.

                                      -2-

<PAGE>

         "Borrowing Date" means a date on which a Credit Extension is made
hereunder.

         "Borrowing Notice" - see Section 2.8.

         "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 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 Shortfall Amount" - see Section 9.2.

         "Commitment" means, for each Bank, the obligation of such Bank to make
Loans to, and participate in Facility LCs issued upon the application of, the
Company in an aggregate amount not exceeding the amount set forth on the
Commitment Schedule 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.

         "Commitment Fee" - see Section 2.5.

         "Commitment Fee Rate" means, at any time, the percentage rate per annum
at which Commitment Fees are accruing on the Unused Commitment as set forth in
the Pricing Schedule.

         "Commitment Schedule" means the Schedule identifying each Bank's
Commitment as of the date hereof attached hereto and identified as such.

         "Company" - see the preamble.

         "Consolidated EBIT" means, for any period, Consolidated Net Income for
such period plus (i) to the extent deducted from revenues in determining such
Consolidated Net Income (without duplication), (a) Consolidated Interest Expense
plus interest and dividends on Hybrid Preferred Securities and on securities of
the type described in clause (iv) of the definition of Total Consolidated Debt
(but only, in the case of securities of the type described in such clause (iv),
to the extent such securities have been deemed to be equity), (b) expense for
taxes paid or accrued, and (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 minus (ii) to the extent included in such

                                      -3-

<PAGE>

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 but excluding (a) interest and dividends paid on Hybrid Preferred
Securities and on securities of the type described in clause (iv) of the
definition of Total Consolidated Debt (but only, in the case of securities of
the type described in such clause (iv), to the extent such securities have been
deemed to be equity), all calculated for the Company and its Subsidiaries on a
consolidated basis in accordance with GAAP (except as otherwise provided above).

         "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.

         "Credit Documents" means this Agreement, the Facility LC Applications,
the Supplemental Indenture and the Bonds.

         "Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.

         "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 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.

         "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 Advance" means an Advance consisting of Eurodollar Rate
Loans.

         "Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, 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 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, the LC Issuer 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, the LC Issuer or the Agent is incorporated or organized
or (ii) the jurisdiction in which the Agent's, the LC Issuer's or such Bank's
principal executive office or such Bank's or the LC Issuer's applicable Lending
Installation is located.

         "Existing Facility LC" means each Facility LC issued under the Prior
Agreement that is listed on the Existing Facility LC Schedule attached hereto.

         "Facility LC" - see Section 3.1. The term "Facility LC" includes each
Existing Facility LC.

         "Facility LC Application" - see Section 3.3.

         "Facility LC Collateral Account" means a special, interest-bearing
account maintained (pursuant to arrangements satisfactory to the Agent) at the
Agent's office at the address specified pursuant to Article XII, which account
shall be in the name of the Company but under the sole dominium and control of
the Agent, for the benefit of the Banks.

         "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

                                      -5-

<PAGE>

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 Advance" means an Advance consisting of Floating Rate
Loans.

         "Floating Rate Loan" means a 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.

                                      -6-

<PAGE>

         "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.

         "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 September 19, 2003.

         "Interest Period" means, with respect to a Eurodollar Advance, 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,
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 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 scheduled
Termination 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 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.

         "LC Fee" - see Section 3.4.

         "LC Issuer" means Bank One (or any subsidiary or affiliate of Bank One
designated by Bank One) in its capacity as issuer of Facility LCs hereunder.

         "LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.

         "LC Payment Date" - see Section 3.5.

         "Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.

                                      -7-

<PAGE>

         "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" - see Section 2.1.

         "Majority Banks" means, as of any date of determination, Banks in the
aggregate having more than 50% of the Aggregate Commitment as of such date or,
if the Aggregate Commitment has been terminated, Banks in the aggregate holding
more than 50% of the aggregate unpaid principal amount of the Aggregate
Outstanding Credit Exposure as of such date.

         "Modify" and "Modification" - see Section 3.1.

         "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 Loans, all Reimbursement Obligations, all accrued and unpaid
commitment fees and all other obligations of the Company to the Banks or to any
Bank, the LC Issuer 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.

                                      -8-

<PAGE>

         "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).

         "Outstanding Credit Exposure" means, as to any Bank at any time, the
sum of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.

         "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.

         "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.

         "Pricing Schedule" means the Schedule attached hereto identified as
such.

         "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.

         "Prior Agreement" means the 364-Day Credit Agreement dated as of March
27, 2003 among the Company, various financial institutions and Bank One, as
Agent, as amended by the First Amendment dated as of August 29, 2003.

         "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 a Bank, a portion equal to a
fraction the numerator of which is such Bank's Commitment and the denominator of
which is the Aggregate Commitment.

         "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.

                                      -9-

<PAGE>

         "Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Company then outstanding under Article III to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.

         "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 specialized charges authorized by the utility
commission of the relevant state in connection with the recovery of (x) stranded
regulatory costs, (y) stranded clean air and pension costs and (z) other
"Qualified Costs" (as defined in M.C.L. Section 460.10h(g)) authorized to be
securitized by the Michigan Public Service Commission.

         "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 Date" means the earlier of (i) March 26, 2004, or such
later date to which the Termination Date may be extended pursuant to Section
2.2(b), or (ii) the date on which the Commitments are terminated.

                                      -10-

<PAGE>

         "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, without duplication, the sum of (a) Total Consolidated Debt plus
all amounts excluded from Total Consolidated Debt pursuant to clauses (ii),
(iii) and (iv) of the proviso to such term (but only, in the case of securities
of the type described in such clause (iv), to the extent such securities have
been deemed to be equity), (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 determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).

         "Type" - see Section 2.4.

         "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.

         "Unused Commitment" means, at any time, the Aggregate Commitment then
in effect minus the Aggregate Outstanding Credit Exposure at such time.

         1.2      Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.

                                      -11-

<PAGE>

         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, including, but not
limited to, the application of Financial Accounting Standards Board
Interpretation Nos. 45 and 46 and Financial Accounting Standards Board Statement
No. 150, 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.

                                   ARTICLE II
                                  THE ADVANCES

         2.1      Commitment. From and including the Initial Borrowing Date and
prior to the Termination Date, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, (a) to make loans to the Company from
time to time (the "Loans"), and (b) to participate in Facility LCs issued upon
the request of the Company from time to time, provided, that, after giving
effect to the making of each such Loan and the issuance of each such Facility
LC, such Bank's Outstanding Credit Exposure shall not exceed its Commitment. In
no event may the Aggregate Outstanding Credit Exposure exceed the Available
Commitment. Subject to the terms and conditions of this Agreement, the Company
may borrow, repay and reborrow at any time prior to the Termination Date. The
Commitments shall expire on the Termination Date.

         2.2      Required Payments; Termination; Extension of Termination Date.

         (a)      The Aggregate Outstanding Credit Exposure and all other unpaid
obligations of the Company hereunder shall be paid in full on the Termination
Date.

         (b)      Unless the Company gives notice to the Agent (which shall
promptly notify each Bank) not more than 30 nor less than 15 days prior to the
then-scheduled Termination Date that the Company does not want an extension of
the Termination Date pursuant to this Section 2.2, the scheduled Termination
Date shall be automatically extended to (i) in the case of an extension during
2004, March 25, 2005 and (ii) in the case of an extension during 2005, March 24,
2006. The scheduled Termination Date may not be extended past March 24, 2006
(pursuant to this Section 2.2 or any other provision of this Agreement) without
the prior written consent of all Banks.

                                      -12-

<PAGE>

         2.3      Ratable Loans. Each Advance shall consist of Loans made by the
several Banks ratably according to their Pro Rata Shares.

         2.4      Types of Advances. The Advances may be Floating Rate Advances
or Eurodollar Advances (each a "Type" of Advance), or a combination thereof, as
selected by the Company in accordance with Sections 2.8 and 2.9.

         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 Commitment Fee Rate on the daily Unused Commitment from the Initial
Borrowing Date to but not including the date on which this Agreement is
terminated in full and all of the Obligations hereunder have been paid in full.
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 Commitment in
whole, or in part ratably among the Banks in the minimum amount of $10,000,000
(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, provided that the Aggregate Commitment may not be reduced
below the Aggregate Outstanding Credit Exposure. All accrued Commitment Fees
shall be payable on the effective date of any termination of the obligation of
the Banks to make Credit Extensions hereunder. Upon any permanent reduction in
the Aggregate Commitment 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      Minimum Amount of Advances. Each Advance shall be in the
minimum amount of $10,000,000 (and in integral multiples of $1,000,000 if in
excess thereof), provided that any Floating Rate Advance may be in the amount of
the Available Aggregate Commitment (rounded down, if necessary, to an integral
multiple of $1,000,000).

         2.7      Optional Principal Payments. The Company may from time to time
prepay, without penalty or premium, all outstanding Floating Rate Advances or,
in a minimum aggregate amount of $10,000,000 or a higher integral multiple of
$1,000,000, any portion of the outstanding Floating Rate Advances upon one
Business Day's prior notice to the Agent. The Company may from time to time pay,
subject to the payment of any funding indemnification amounts required by
Section 4.4 but without penalty or premium, all outstanding Eurodollar Advances
or, in a minimum aggregate amount of $10,000,000 or a higher integral multiple
of $1,000,000, any portion of any outstanding Eurodollar Advance upon three
Business Days' prior notice to the Agent; provided that if after giving effect
to any such prepayment the principal amount of any Eurodollar Advance is less
than $10,000,000, such Eurodollar Advance shall automatically convert into a
Floating Rate Advance.

                                      -13-

<PAGE>

         2.8      Method of Selecting Types and Interest Periods for New
Advances. The Company shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Company shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 11:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and not later than 11:00 a.m. (Chicago time) three Business Days before
the Borrowing Date for each Eurodollar Advance, specifying:

         (i)          the Borrowing Date, which shall be a Business Day,

         (ii)         the aggregate amount of such Advance,

         (iii)        the Type of Advance selected, and

         (iv)         in the case of each Eurodollar Advance, the initial
                      Interest Period applicable thereto.

Promptly after receipt thereof, the Agent will notify each Bank of the contents
of each Borrowing Notice. Not later than noon (Chicago time) on each Borrowing
Date, each Bank shall make available its Loan in funds immediately available in
Chicago to the Agent at its address specified pursuant to Section 14. 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 Loan shall be affected by any other Bank's failure to make any Loan.

         2.9      Conversion and Continuation of Outstanding Advances. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.9 or are repaid in accordance with Section 2.2 or 2.7. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.2 or 2.7 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 Advance continue as a Eurodollar Advance for the same or another
Interest Period. Subject to the terms of Section 2.6, the Company may elect from
time to time to convert all or any part of a Floating Rate Advance into a
Eurodollar Advance. The Company shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance 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 Advance which is to
                      be converted or continued; and

         (iii)        the amount of the Advance which is to be converted into or
                      continued as a Eurodollar Advance and the duration of the
                      Interest Period applicable thereto.

                                      -14-

<PAGE>

provided that no Advance may be continued as, or converted into, a Eurodollar
Advance if (x) such continuation or conversion would violate any provision of
this Agreement or (y) a Default or Event of Default exists.

         2.10     Interest Rates, Interest Payment Dates. (a) Subject to Section
2.11, each Advance shall bear interest as follows:

                  (i)      at any time such Advance is a Floating Rate Advance,
         at a rate per annum equal to the Floating Rate from time to time in
         effect; and

                  (ii)     at any time such Advance is a Eurodollar Advance, 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 or any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Floating Rate.

         (b)      Interest accrued on each Floating Rate Advance shall be
payable on each Payment Date and at maturity. Interest accrued on each
Eurodollar Advance shall be payable on the last day of its applicable Interest
Period, on any date on which such Eurodollar Advance is prepaid and at maturity.
Interest accrued on each Eurodollar Advance 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 Eurodollar Advances, interest
on Floating Rate Advances based on the Federal Funds Effective Rate and the LC
Fee shall be calculated for actual days elapsed on the basis of a 360-day year.
Interest on Floating Rate Advances based on the Prime Rate shall be calculated
for actual days elapsed on the basis of a 365- or 366-day year, as appropriate.
Interest on each Advance shall accrue from and including the date such Advance
is made to but excluding the date payment thereof is received in accordance with
Section 2.12. 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 (unless, in the case of a Eurodollar Advance,
such next succeeding Business Day falls in a new calendar month, in which case
such payment shall be due on the immediately preceding 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.

         2.11     Rate after Maturity. Any Advance 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%.

         2.12     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
(except in the case of Reimbursement Obligations for which the LC Issuer has not
been fully indemnified by the Banks, or as otherwise specifically required
hereunder) 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

                                      -15-

<PAGE>

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 in its Administrative Questionnaire 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, Reimbursement Obligation and fees
as such payment becomes due hereunder. Each reference to the Agent in this
Section 2.12 shall also be deemed to refer, and shall apply equally, to the LC
Issuer, in the case of payments required to be made by the Company to the LC
Issuer pursuant to Section 3.6.

         2.13     Bonds; Record-keeping; 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 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 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, (iii) the original stated amount of each Facility LC and the amount
of LC Obligations outstanding at any time, and (iv) 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
Advances 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.

         2.14     Lending Installations. Subject to the provisions of Section
4.6, each Bank may book its Loans and its participation in any LC Obligations
and the LC Issuer may book the Facility LCs at any Lending Installation selected
by such Bank or the LC Issuer, as the case may be, and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Loans shall be deemed held by the applicable

                                      -16-

<PAGE>

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
Loans will be made by it or Facility LC's will be issued by it and for whose
account payments on the Loans or payments with respect to Facility LCs are to be
made.

         2.15     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 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 Loan.

                                   ARTICLE III
                            LETTER OF CREDIT FACILITY

         3.1      Issuance. The LC Issuer hereby agrees, on the terms and
conditions set forth in this Agreement, to issue standby and commercial letters
of credit denominated in U.S. dollars (each, a "Facility LC") and to renew,
extend, increase, decrease or otherwise modify each Facility LC ("Modify," and
each such action a "Modification"), from time to time from and including the
date hereof and prior to the Termination Date upon the request of the Company;
provided that immediately after each such Facility LC is issued or Modified, (i)
the aggregate amount of the outstanding LC Obligations shall not exceed
$100,000,000 and (ii) the Aggregate Outstanding Credit Exposure shall not exceed
the Available Commitment. No Facility LC shall (x) be issued later than 30 days
prior to the scheduled Termination Date, (y) have an expiry date later than the
fifth Business Day prior to the scheduled Termination Date or (z) provide for
time drafts.

         3.2      Participations. Upon the issuance or Modification by the LC
Issuer of a Facility LC in accordance with this Article III (or, in the case of
any Existing Facility LC, on the Initial Borrowing Date), the LC Issuer shall be
deemed, without further action by any party hereto, to have unconditionally and
irrevocably sold to each Bank, and each Bank shall be deemed, without further
action by any party hereto, to have unconditionally and irrevocably purchased
from the LC Issuer, a participation in such Facility LC (and each Modification
thereof) and the related LC Obligations in proportion to its Pro Rata Share.

         3.3      Notice. Subject to Section 3.1, the Company shall give the LC
Issuer notice prior to 11:00 a.m. (Chicago time) at least three Business Days
prior to the proposed date of issuance (other than an Existing Facility LC) or
Modification of each Facility LC, specifying the beneficiary, the proposed date
of issuance (or Modification) and the expiry date of such Facility

                                      -17-

<PAGE>

LC, and describing the proposed terms of such Facility LC and the nature of the
transactions proposed to be supported thereby. Upon receipt of such notice, the
LC Issuer shall promptly notify the Agent, and the Agent shall promptly notify
each Bank, of the contents thereof and of the amount of such Bank's
participation in such proposed Facility LC. The issuance or Modification by the
LC Issuer of any Facility LC shall, in addition to the conditions precedent set
forth in Article XI (the satisfaction of which the LC Issuer shall have no duty
to ascertain), be subject to the conditions precedent that such Facility LC
shall be satisfactory to the LC Issuer and that the Company shall have executed
and delivered such application agreement and/or such other instruments and
agreements relating to such Facility LC as the LC Issuer shall have reasonably
requested (each, a "Facility LC Application"). In the event of any conflict
between the terms of this Agreement and the terms of any Facility LC
Application, the terms of this Agreement shall control.

         3.4      LC Fees. The Company shall pay to the Agent, for the account
of the Banks ratably in accordance with their respective Pro Rata Shares, a
letter of credit fee (the "LC Fee") at a per annum rate equal to the Applicable
Margin for Eurodollar Rate Loans in effect from time to time on the average
daily undrawn stated amount of each Facility LC, such fee to be payable in
arrears on each Payment Date and the Termination Date (and, if applicable,
thereafter on demand). The Company shall also pay to the LC Issuer for its own
account (a) a fronting fee of 0.15% per annum on the average daily undrawn
stated amount of each Facility LC, such fee to be payable in arrears on each
Payment Date and the Termination Date (and, if applicable, thereafter on
demand), and (b) documentary and processing charges in connection with the
issuance or Modification of and draws under Facility LCs in accordance with the
LC Issuer's standard schedule for such charges as in effect from time to time.

         3.5      Administration; Reimbursement by Banks. Upon receipt from the
beneficiary of any Facility LC of any demand for payment under such Facility LC,
the LC Issuer shall notify the Agent and the Agent shall promptly notify the
Company and each other Bank as to the amount to be paid by the LC Issuer as a
result of such demand and the proposed payment date (the "LC Payment Date"). The
responsibility of the LC Issuer to the Company and each Bank shall be only to
determine that the documents (including each demand for payment) delivered under
each Facility LC in connection with such presentment shall be in conformity in
all material respects with such Facility LC. The LC Issuer shall endeavor to
exercise the same care in the issuance and administration of the Facility LCs as
it does with respect to letters of credit in which no participations are
granted, it being understood that in the absence of any gross negligence or
willful misconduct by the LC Issuer, each Bank shall be unconditionally and
irrevocably liable without regard to the occurrence of any Default or any
condition precedent whatsoever, to reimburse the LC Issuer on demand for (i)
such Bank's Pro Rata Share of the amount of each payment made by the LC Issuer
under each Facility LC to the extent such amount is not reimbursed by the
Company pursuant to Section 3.6 below, plus (ii) interest on the foregoing
amount to be reimbursed by such Bank, for each day from the date of the LC
Issuer's demand for such Reimbursement (or, if such demand is made after 11:00
a.m. (Chicago time) on such date, from the next succeeding Business Day) to the
date on which such Bank pays the amount to be reimbursed by it, at a rate of
interest per annum equal to the Federal Funds Effective Rate for the first three
days and, thereafter, at a rate of interest equal to the rate applicable to
Floating Rate Advances.

                                      -18-

<PAGE>

         3.6      Reimbursement by Company. The Company shall be irrevocably and
unconditionally obligated to reimburse the LC Issuer on the applicable LC
Payment Date for any amounts to be paid by the LC Issuer upon any drawing under
any Facility LC, without presentment, demand, protest or other formalities of
any kind; provided that neither the Company nor any Bank shall hereby be
precluded from asserting any claim for direct (but not consequential) damages
suffered by the Company or such Bank to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of the LC Issuer in
determining whether a request presented under any Facility LC issued by it
complied with the terms of such Facility LC or (ii) the LC Issuer's failure to
pay under any Facility LC issued by it after the presentation to it of a request
strictly complying with the terms and conditions of such Facility LC. All such
amounts paid by the LC Issuer and remaining unpaid by the Company shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to (x) the rate applicable to Floating Rate Advances for such day if such day
falls on or before the applicable LC Payment Date and (y) the sum of 1% plus the
rate applicable to Floating Rate Advances for such day if such day falls after
such LC Payment Date. The LC Issuer will pay to each Bank ratably in accordance
with its Pro Rata Share all amounts received by it from the Company for
application in payment, in whole or in part, of the Reimbursement Obligation in
respect of any Facility LC issued by the LC Issuer, but only to the extent such
Bank has made payment to the LC Issuer in respect of such Facility LC pursuant
to Section 3.5. Subject to the terms and conditions of this Agreement (including
without limitation the submission of a Borrowing Notice in compliance with
Section 2.8 and the satisfaction of the applicable conditions precedent set
forth in Article XI), the Company may request an Advance hereunder for the
purpose of satisfying any Reimbursement Obligation.

         3.7      Obligations Absolute. The Company's obligations under this
Article III shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Company may have or have had against the LC Issuer, any Bank or any beneficiary
of a Facility LC. The Company further agrees with the LC Issuer and the Banks
that the LC Issuer and the Banks shall not be responsible for, and the Company's
Reimbursement Obligation in respect of any Facility LC shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Company, any of its affiliates, the beneficiary of any Facility LC or any
financing institution or other party to whom any Facility LC may be transferred
or any claims or defenses whatsoever of the Company or of any of its affiliates
against the beneficiary of any Facility LC or any such transferee. The LC Issuer
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Facility LC. The Company agrees that any
action taken or omitted by the LC Issuer or any Bank under or in connection with
each Facility LC and the related drafts and documents, if done without gross
negligence or willful misconduct, shall be binding upon the Company and shall
not put the LC Issuer or any Bank under any liability to the Company. Nothing in
this Section 3.7 is intended to limit the right of the Company to make a claim
against the LC Issuer for damages as contemplated by the proviso to the first
sentence of Section 3.6.

                                      -19-

<PAGE>

         3.8      Actions of LC Issuer. The LC Issuer shall be entitled to rely,
and shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Notwithstanding any other provision of this
Article III, the LC Issuer shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and any future holders of a
participation in any Facility LC.

         3.9      Indemnification. The Company hereby agrees to indemnify and
hold harmless each Bank, the LC Issuer and the Agent, and their respective
directors, officers, agents and employees from and against any and all claims
and damages, losses, liabilities, reasonable costs or expenses which such Bank,
the LC Issuer or the Agent may incur (or which may be claimed against such Bank,
the LC Issuer or the Agent by any Person whatsoever) by reason of or in
connection with the issuance, execution and delivery or transfer of or payment
or failure to pay under any Facility LC or any actual or proposed use of any
Facility LC, including, without limitation, any claims, damages, losses,
liabilities, costs or expenses which the LC Issuer may incur by reason of or in
connection with (i) the failure of any other Bank to fulfill or comply with its
obligations to the LC Issuer hereunder (but nothing herein contained shall
affect any rights the Company may have against any defaulting Bank) or (ii) by
reason of or on account of the LC Issuer issuing any Facility LC which specifies
that the term "Beneficiary" included therein includes any successor by operation
of law of the named Beneficiary, but which Facility LC does not require that any
drawing by any such successor Beneficiary be accompanied by a copy of a legal
document, satisfactory to the LC Issuer, evidencing the appointment of such
successor Beneficiary; provided that the Company shall not be required to
indemnify any Bank, the LC Issuer or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
(x) the willful misconduct or gross negligence of the LC Issuer in determining
whether a request presented under any Facility LC complied with the terms of
such Facility LC or (y) the LC Issuer's failure to pay under any Facility LC
after the presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. Nothing in this Section 3.9 is intended to limit
the obligations of the Company under any other provision of this Agreement.

         3.10     Banks' Indemnification. Each Bank shall, ratably in accordance
with its Pro Rata Share, indemnify the LC Issuer, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Company) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct or the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying

                                      -20-

<PAGE>

with the terms and conditions of the Facility LC) that such indemnitees may
suffer or incur in connection with this Article III or any action taken or
omitted by such indemnitees hereunder.

         3.11     Rights as a Bank. In its capacity as a Bank, the LC Issuer
shall have the same rights and obligations as any other Bank.

                                   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 or the LC Issuer,

                  (i)      subjects any Bank or any applicable Lending
         Installation or the LC Issuer 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 or LC Issuer in respect of its Credit Extensions (including any
         participations in Facility LCs) 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, the LC Issuer 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, the LC Issuer or any applicable Lending
         Installation of making, funding or maintaining Credit Extensions
         (including any participations in Facility LCs), or reduces any amount
         receivable by any Bank, the LC Issuer or any applicable Lending
         Installation in connection with Credit Extensions (including any
         participations in Facility LCs) or requires any Bank, the LC Issuer or
         any applicable Lending Installation to make any payment calculated by
         reference to its Outstanding Credit Exposure or interest received by
         it, by an amount deemed material by such Bank or the LC Issuer, or

                  (iv)     affects the amount of capital required or expected to
         be maintained by any Bank, the LC Issuer or Lending Installation or any
         corporation controlling any Bank or LC Issuer and such Bank or the LC
         Issuer, as applicable, determines the amount of capital required is
         increased by or based upon the existence of this Agreement or its
         obligation to make Credit Extensions (including any participations in
         Facility LCs) hereunder or of commitments of this type,

then, upon presentation by such Bank or the LC Issuer to the Company of a
certificate (as referred to in the immediately succeeding sentence of this
Section 4.1) setting forth the basis for

                                      -21-

<PAGE>

such determination and the additional amounts reasonably determined by such Bank
or the LC Issuer 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 or the LC Issuer, as applicable, 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 or the LC Issuer, as
applicable, the specified amounts set forth on such certificate. The affected
Bank or the LC Issuer, as applicable, 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 or
the LC Issuer, as applicable, 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 and the LC Issuer may
make such reasonable estimates, assumptions, allocations and the like that such
Bank or the LC Issuer, as applicable, in good faith determines to be
appropriate, and such Bank's or the LC Issuer's selection thereof in accordance
with this Section 4.1 shall be conclusive and binding on the Company, absent
manifest error.

         (b)      Neither the LC Issuer nor any 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 or the LC Issuer, as applicable, first notified the Company of the
occurrence of the event entitling such Bank or the LC Issuer, as applicable, 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.

         (a)      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
Commitment and Outstanding Credit Exposure 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 Credit Exposure. It is understood
that such assignment shall be consummated on terms satisfactory to the assigning
Bank, provided that such Bank's consent to such an assignment shall not be
unreasonably withheld.

         (b)      If the Company shall elect to replace a Bank pursuant to
clause (a) above, the Company shall prepay the Outstanding Credit Exposure of
such Bank, and the bank or banks selected by the Company shall replace such Bank
as a Bank hereunder pursuant to an instrument satisfactory to the Company, the
Agent and the Bank being replaced by making Credit Extensions to the Company in
the amount of the Outstanding Credit Exposure of such assigning Bank and
assuming all the same rights and responsibilities hereunder as such assigning
Bank and having the same Commitment as such assigning Bank.

         4.3      Availability of Eurodollar Rate Loans. If

                                      -22-

<PAGE>

         (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.

         (a)      All payments by the Company to or for the account of any Bank,
the LC Issuer or the Agent hereunder or under any Bond or Facility LC
Application 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, the LC Issuer 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, the LC Issuer 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 Facility LC Application or from the execution or delivery of, or
otherwise with respect to, this Agreement or any Bond or Facility LC Application
("Other Taxes").

         (c)      The Company hereby agrees to indemnify the Agent, the LC
Issuer 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, the LC Issuer 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

                                      -23-

<PAGE>

30 days of the date the Agent, the LC Issuer 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 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

                                      -24-

<PAGE>

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 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 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 of the Indenture
securing the Bonds and any Lien in favor of the Agent on the Facility LC
Collateral Account or any funds therein).

                                      -25-

<PAGE>

         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, 2002, 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 restated balance sheet of the Company and its Consolidated
Subsidiaries as at June 30, 2003 (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, 2002, there has been no material
adverse change in such financial condition or results of operations of the
Company and its Consolidated Subsidiaries, taken as a whole, that would
materially adversely affect the Company's ability to perform its obligations
under any Credit Document.

         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, 2002 and
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, 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 referred to in the
foregoing clause (i) (all matters described in clauses (i) and (ii) above, the
"Disclosed Matters"), 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 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. As of the Initial Borrowing
Date, (a) there is no litigation challenging the validity or the enforceability
of any of the Credit Documents and (b) there have been no adverse developments
with respect to the Disclosed Matters that have had or could reasonably be
expected to result in a material adverse effect on 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.

         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

                                      -26-

<PAGE>

proceeds of any Credit Extension 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 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.

         5.14     Disclosure. The Company has not withheld any fact from the
Agent or the Lenders in regard to the occurrence of a material adverse change in
the condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole, that would materially adversely affect the
Company's ability to perform its obligations under any Credit Document.

                                   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

                                      -27-

<PAGE>

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.

         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

                                      -28-

<PAGE>

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 of 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 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;

                                      -29-

<PAGE>

         (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 or property 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 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
Credit Extensions for general corporate purposes, working capital and
refinancing the Debt under the Prior Agreement. The Company will not, nor will
it permit any Subsidiary to, use any of the proceeds of the Credit Extensions 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 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 face amount of all Bonds to at all times be equal to or greater
than the Aggregate Outstanding Credit Exposure.

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<PAGE>

                                   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 and any Lien in favor of the Agent on the Facility LC Collateral
Account or any funds therein;

         (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 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;

                                      -31-

<PAGE>

         (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 M.C.L. 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 natural gas, oil and mineral, or on stock in trade,
material 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 such Liens secure obligations not
exceeding $500,000,000 in aggregate principal amount;

         (o)      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 December 31,
2002, during the term of this Agreement.

         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

                                      -32-

<PAGE>

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 Purchase Agreement among the Company, Consumers Receivables Funding
II, LLC, Falcon Asset Securitization Corporation and Bank One, dated as of May
22, 2003, as amended, restated or otherwise modified from time to time and any
similar agreement entered into in replacement thereof, 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), as amended, restated or otherwise modified from time to time and
any similar agreement entered into in replacement thereof) in the aggregate in
excess of $250,000,000 at any time.

         7.8      Transactions with Affiliates. Enter into, or permit any
Subsidiary to enter into, any transaction with any of its Affiliates (other than
the Company or any Subsidiary) unless such transaction is on terms no less
favorable to the Company or such Subsidiary than if the transaction had been
negotiated in good faith on an arm's-length basis with a non-Affiliate; provided
that any transaction permitted under Section 7.6 shall be permitted hereunder.

                                  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.

                                   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 Advance
when due and payable, or (ii) any Reimbursement Obligation within one (1) day
after the same becomes due, or (iii) any interest on any Advance or any fee or
other Obligation payable hereunder within five (5) days after such interest or
fee or other Obligation becomes due and payable;

                                      -33-

<PAGE>

         (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, 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 the earlier of (i) a Designated Officer obtaining knowledge of such breach
and (ii) written 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 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)

                                      -34-
<PAGE>

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)); 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.

         (a)      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 and the obligation and power
of the LC Issuer to issue Facility LCs 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 Credit Exposure
and all other Obligations shall become and be forthwith due and payable, and/or
(iii) in addition to the continuing right to demand payment of all amounts
payable under this Agreement, make demand on the Company to pay, and the Company
will, forthwith upon such demand and without any further notice or act, pay to
the Agent the Collateral Shortfall Amount (as defined below), which funds shall
be deposited in the Facility LC Collateral Account, in each case 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 subsection 9.1(e) above, the Commitments shall
automatically terminate, the obligation and power of the LC Issuer to issue
Facility LCs 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, and the Company will be and become thereby
unconditionally obligated, without any further notice, act or demand, to pay to
the Agent an amount in immediately available funds, which funds shall be held in
the Facility LC Collateral Account, equal to the difference of (x) the amount of
LC Obligations at such time, less (y) the amount on deposit in the Facility LC
Collateral Account at such time which is free and clear of all rights and claims
of third parties and has not been applied against the Obligations (such
difference, the "Collateral Shortfall Amount").

         (b)      If at any time while any Event of Default is continuing, the
Agent determines that the Collateral Shortfall Amount at such time is greater
than zero, the Agent may make demand on the Company to pay, and the Company
will, forthwith upon such demand and without any further notice or act, pay to
the Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Facility LC Collateral Account.

                                      -35-

<PAGE>

         (c)      The Agent may, at any time or from time to time after funds
are deposited in the Facility LC Collateral Account, apply such funds to the
payment of the Obligations and any other amounts as shall from time to time have
become due and payable by the Company to the Banks or the LC Issuer under the
Credit Documents. The Company hereby pledges, assigns and grants to the Agent,
on behalf of and for the ratable benefit of the Banks and the LC Issuer, a
security interest in all of the Company's right, title and interest in and to
all funds which may from time to time be on deposit in the Facility LC
Collateral Account to secure the prompt and complete payment and performance of
the Obligations. The Agent will invest any funds on deposit from time to time in
the Facility LC Collateral Account in certificates of deposit of Bank One having
a maturity not exceeding 30 days.

         (d)      At any time while any Event of Default is continuing, neither
the Company nor any Person claiming on behalf of or through the Company shall
have any right to withdraw any of the funds held in the Facility LC Collateral
Account. After all of the Obligations have been indefeasibly paid in full and
the Aggregate Commitment has been terminated, any funds remaining in the
Facility LC Collateral Account shall be returned by the Agent to the Company or
paid to whomever may be legally entitled thereto at such time.

                                    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 Loan or reduce the
         principal amount thereof, or extend the expiry date of any Facility LC
         to a date after the Termination Date, or reduce the rate or extend the
         time of payment of interest thereon or fees thereon or Reimbursement
         Obligations related thereto.

                  (b)      Modify the percentage specified in the definition of
         Majority Banks.

                  (c)      Extend the Termination Date or increase the amount of
         the Commitment of any Bank hereunder or the commitment to issue
         Facility LCs, 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, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer.

                                      -36-

<PAGE>

         10.2     Preservation of Rights. No delay or omission of the Banks, the
LC Issuer 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 Credit Extension
notwithstanding the existence of a Default or Event of Default or the inability
of the Company to satisfy the conditions precedent to such Credit Extension
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, the LC Issuer and the Banks until the
Obligations have been paid in full.

                                   ARTICLE XI
                              CONDITIONS PRECEDENT

         11.1     Initial Credit Extension. The Banks shall not be required to
make the initial Credit Extension 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 the
Bonds in the form set forth in the Supplemental Indenture and in an aggregate
principal amount of $400,000,000 pursuant to the 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; (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

                                      -37-

<PAGE>

Agent may reasonably request; and (iii) Miller, Canfield, Paddock and Stone,
P.L.C., 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 Prior Agreement
shall have been or shall simultaneously on the Initial Borrowing Date be
terminated (except for those provisions that expressly survive the termination
thereof) and all loans outstanding and other amounts owed to the lenders or
agents thereunder shall have been, or shall simultaneously with the initial
Credit Extension hereunder be, paid in full.

         (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.

         (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 Credit
Extension 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 Arranger the fees required to be paid to them
pursuant to the fee letter described in Section 13.12.

         11.2     Each Credit Extension. The Banks shall not be required to make
any Credit Extension if on the applicable Borrowing Date, (i) any Default or
Event of Default exists, (ii) any representation or warranty contained in
Article V is not true and correct as of such Borrowing Date, (iii) after giving
effect to such Credit Extension the Aggregate Outstanding Credit Exposure would
exceed the face amount of all Bonds or (iv) all legal matters incident to the
making of such Credit Extension are not satisfactory to the Banks and their
counsel. Each Borrowing Notice and each request for issuance of a Facility LC
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 Advance shall not be considered the making of a Credit
Extension.

                                  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 Commitment and its Outstanding Credit Exposure), provided that
(i) such Bank's obligations under this Agreement (including, without limitation,
its

                                      -38-

<PAGE>

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 Outstanding
Credit Exposure 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 Loan or
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 Credit
Document. The Company agrees that each Participant shall be deemed to have the
right of setoff provided in Section 12.10 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 12.10 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 12.10, 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 12.10 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 (i) unless such assignment is to another Bank or an affiliate of
the assigning Bank, such Bank has received the Agent's and, so long as no Event
of Default exists, the Company'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 Loans to
the extent required in connection with the physical settlement of any Bank's
obligations pursuant thereto) shall be $5,000,000 (or such lesser amount
consented to by the Agent and, so long as no Event of Default shall be
continuing, the Company); provided, that after giving effect to such assignment
the assigning Bank shall have a Commitment of not less than $5,000,000 (unless
otherwise consented to by the Agent and, so long as no Event of Default shall be
continuing, the Company). 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

                                      -39-

<PAGE>

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 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 Loans
to the extent required in connection with the physical settlement of any Bank's
obligations pursuant thereto.

         12.2     Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Credit Extensions herein contemplated.

         12.3     Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, neither the LC Issuer nor any 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. 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

                                      -40-

<PAGE>

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 LC Issuer, the Agent and
the Banks and supersede all prior agreements and understandings between the
Company, the LC Issuer, 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 Arranger 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 Arranger 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
Arranger on its own behalf or on behalf of the LC Issuer or any Bank and, on or
after the date upon which an Event of Default specified in Sections 9.1(a) and
9.1(e) has occurred and is continuing, each Bank, in connection with the
collection and enforcement of the Credit Documents. The Company further agrees
to indemnify the Agent, the Arranger, the LC Issuer and each Bank and their
respective 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 Arranger, the LC Issuer 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 Credit Extension hereunder, provided that the Company shall not be liable to
any Person for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of such Person. The obligations of the Company
under this Section shall survive the termination of this Agreement.

         12.9     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.

                                      -41-

<PAGE>

         12.10    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.

         12.11    Ratable Payments. If any Bank, whether by setoff or otherwise,
has payment made to it upon its Outstanding Credit Exposure 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 Credit Exposure held
by the other Banks so that after such purchase each Bank will hold its Pro Rata
Share of the Aggregate Outstanding Credit Exposure. 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 Credit Exposure. In case any such payment is disturbed by
legal process, or otherwise, appropriate further adjustments shall be made.

         12.12    Nonliability of Bank. The relationship between the Company, on
the one hand, and the Banks, the LC Issuer and the Agent, on the other hand,
shall be solely that of borrower and lender. Neither the Agent, the Arranger,
the LC Issuer nor any Bank shall have any fiduciary responsibilities to the
Company. Neither the Agent, the Arranger, the LC Issuer 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, the LC Issuer 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 Arranger, the LC Issuer 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.

         12.13    Other Agents. The Banks identified on the signature pages of
this Agreement or otherwise herein, or in any amendment hereof or other document
related hereto, as being "Co-Documentation Agents" (the "Other Agents"), shall
have no rights, powers, obligations,

                                      -42-

<PAGE>

liabilities, responsibilities or duties under this Agreement other than those
applicable to all Banks as such. Without limiting the foregoing, the Other
Agents shall not have or be deemed to have any fiduciary relationship with any
Bank. Each Bank acknowledges that it has not relied, and will not rely, on the
Other Agents in deciding to enter into this Agreement or in taking or refraining
from taking any action hereunder or pursuant hereto.

                                  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 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,

                                      -43-

<PAGE>

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
Commitments (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 Lender. With respect to its Commitment and any
Credit Extension 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.

         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

                                      -44-

<PAGE>

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 Arranger Fees. The Company agrees to pay to the
Agent and Banc One Capital Markets, Inc. (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 August 21, 2003, or as otherwise agreed
from time to time.

                                   ARTICLE XIV
                                     NOTICES

         14.1     Giving Notice. Except as otherwise permitted by Section 2.8
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, the Agent or the LC Issuer, 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 in its
Administrative Questionnaire 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.

                                   ARTICLE XV
                         TERMINATION OF PRIOR AGREEMENT

         The Company and the Banks which are parties to the Prior Agreement
(which Banks constitute "Majority Banks" under Prior Agreement) agree that
notwithstanding any requirement for notice of termination of the Commitments
under Section 2.5(b) of the Prior Agreement), simultaneously with the initial
Credit Extension hereunder, the Prior Agreement shall terminate and be of no
further force or effect (except for any provision thereof which by its terms
survives

                                      -45-

<PAGE>

termination thereof); it being understood that concurrently with such
termination, each Existing Facility LC shall be deemed to be issued hereunder.

                                   ARTICLE XVI
                                  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, the LC Issuer and the Banks and each party has notified the Agent by
facsimile or telephone that it has taken such action.

                  [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

                                      -46-

<PAGE>

         IN WITNESS WHEREOF, the Company, the Banks, the LC Issuer 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

                                      ADDRESS:

                                      One Energy Plaza
                                      Jackson, MI 49201
                                      Attention: Beverly S. Burger
                                      Facsimile No.: (517) 788-0412
                                      Confirmation (Phone) No: (517) 788-2541
                                      E-Mail Address: bsburger@cmsenergy.com

<PAGE>

                                      BANK ONE, NA (MAIN OFFICE -
                                      CHICAGO), Individually and as Agent and
                                      as LC Issuer

                                      By: /s/ Madeleine N. Pember
                                          --------------------------------------
                                          Name: Madeleine N. Pember
                                          Title: Director

                                      ADDRESS:

                                      Bank One Plaza
                                      Mail Code IL 1-0367
                                      Chicago, Illinois 60670
                                      Attention: Jane A. Bek
                                      Facsimile No.: (312) 325-3020
                                      Confirmation (Phone) No: (312) 325-3026
                                      E-Mail Address: Jane_bek@bankone.com

<PAGE>

                                      BARCLAYS BANK PLC, Individually and as
                                      Syndication Agent

                                      By: /s/ Sydney G. Dennis
                                          --------------------------------------
                                          Name: Sydney G. Dennis
                                          Title: Director

                                      ADDRESS:
                                      200 Park Avenue - 4th Floor
                                      New York, NY 10166
                                      Attention: Sydney G. Dennis
                                      Facsimile No.: (212) 412-7511
                                      Confirmation (Phone) No: (212) 412-2470
                                      E-Mail Address: sydney.dennis@barcap.com

<PAGE>

                                      CITICORP NORTH AMERICA, INC.,
                                      Individually and as Co-Documentation Agent

                                      By: /s/ J. Nicholas Mckee
                                          --------------------------------------
                                          Name: J. NICHOLAS McKEE
                                          Title: Managing Director

<PAGE>

                                      JPMORGAN CHASE BANK, Individually and
                                      as Co-Documentation Agent

                                      By: /s/ Thomas Casey
                                          --------------------------------------
                                          Thomas Casey
                                          Vice President

<PAGE>

                                      UNION BANK OF CALIFORNIA, N.A.,
                                      Individually and as Co-Documentation Agent

                                      By: /s/ Dennis G. Blank
                                          --------------------------------------
                                          Name: Dennis G. Blank
                                          Title: Vice President

<PAGE>

                                      WACHOVIA BANK, NATIONAL ASSOCIATION

                                      By: /s/ D. Mitch Wilson
                                          --------------------------------------
                                          Name: D. Mitch Wilson
                                          Title: Vice President

<PAGE>

                                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                                      By: /s/ Marcus M. Tarkington
                                          --------------------------------------
                                          Name: Marcus M. Tarkington
                                          Title: Director

<PAGE>

                                      BNP PARIBAS

                                      By: /s/ Mark A. Renaud
                                          --------------------------------------
                                          Name: MARK A. RENAUD
                                          Title: Managing Director

                                      By: /s/ Timothy F. Vincent
                                          --------------------------------------
                                          Name: TIMOTHY F. VINCENT
                                          Title: Vice President

<PAGE>

                                      STANDARD FEDERAL BANK N.A.

                                      By: /s/ Richard C. Northrup, III
                                          --------------------------------------
                                          Name: Richard C. Northrup, III
                                          Title: First Vice President

<PAGE>

                                      HUNTINGTON NATIONAL BANK

                                      By: /s/ Gary Corsbie
                                          --------------------------------------
                                          Name: Gary Corsbie
                                          Title: Vice President

<PAGE>

                                      HSH NORDBANK AG,
                                      NEW YORK BRANCH

                                      By: /s/ Drew von Glain
                                          --------------------------------------
                                          Name: Drew von Glain
                                          Title: Senior Vice President

                                      By: /s/ Angela Bozorgmir
                                          --------------------------------------
                                          Name:  Angela Bozorgmir
                                          Title: Vice President

<PAGE>

                                      COMERICA BANK

                                      By: /s/ David C Bird
                                          --------------------------------------
                                          Name: David C Bird
                                          Title: Vice President

<PAGE>

                                      THE FIFTH THIRD BANK

                                      By: /s/ David A. Foote
                                          --------------------------------------
                                          David A. Foote
                                          Vice President and Group Manager

<PAGE>

                                    EXHIBIT A

                        [FORM OF SUPPLEMENTAL INDENTURE]

                       NINETY-THIRD SUPPLEMENTAL INDENTURE

                        PROVIDING AMONG OTHER THINGS FOR

                              FIRST MORTGAGE BONDS,

                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

                                 --------------

                         DATED AS OF SEPTEMBER __, 2003

                                 --------------

                            CONSUMERS ENERGY COMPANY

                                       TO

                              JPMORGAN CHASE BANK,

                                     TRUSTEE

                                                          Counterpart ____ of 80


<PAGE>

         THIS NINETY-THIRD SUPPLEMENTAL INDENTURE, dated as of September __,
2003 (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 One Energy Plaza, 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 4 New York Plaza, in the Borough of Manhattan, The
City of New York, New York 10004 (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

<PAGE>

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 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 Credit
Agreement dated as of September __, 2003 (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 has agreed to issue to the Agent, as evidence of
and security for the Obligations (as such term is defined in the Credit
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, 2003-1 Collateral Series (Interest
Bearing), each of which bonds shall also bear the descriptive title "First
Mortgage Bond" (hereinafter provided for and hereinafter sometimes referred to
as the "2003-1 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

                                      A-2

<PAGE>

annum specified herein and are to mature on the Termination Date (as such term
is defined in the Credit Agreement); and

         WHEREAS, each of the registered bonds without coupons of the 2003-1
Collateral Bonds and the Trustee's Authentication Certificate thereon are to be
substantially in the following form, to wit:

                                      A-3
<PAGE>

                            [FORM OF REGISTERED BOND

                         OF THE 2003-1 COLLATERAL BONDS]

                                     [FACE]

                            CONSUMERS ENERGY COMPANY
                               FIRST MORTGAGE BOND
                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

         No. 1                                              $400,000,000

         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
Credit Agreement dated as of September __, 2003 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 Four Hundred Million
Dollars ($400,000,000) or such lesser principal amount as shall be equal to 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 the Termination
Date (as defined in the Credit Agreement) (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 __, 2003. 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

                                      A-4
<PAGE>

mean each date on which Obligations constituting interest and/or fees are due
and payable from time to time pursuant to the Credit 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 Obligations constituting
interest and fees due under the Credit 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.

                                      A-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

                                      A-6
<PAGE>

                                    [REVERSE]

                            CONSUMERS ENERGY COMPANY

                               FIRST MORTGAGE BOND
                   2003-1 COLLATERAL SERIES (INTEREST BEARING)

         This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003-1 Collateral Series (Interest Bearing) (sometimes herein referred to
as the "2003-1 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 2003-1 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
2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
principal of 2003-1 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 Loans and/or the
Reimbursement Obligations 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 Loans and/or the Reimbursement Obligations means that
if any payment is made on the principal of the Loans and/or the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003-1 Collateral Bonds shall be deemed discharged in the same amount as the
payment with respect to the Loans and/or the Reimbursement Obligations
discharges the outstanding obligation with respect to such Loans and/or
Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003-1 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 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 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

                                      A-7
<PAGE>

corresponding payment obligation with respect to the interest on the 2003-1
Collateral Bonds shall be deemed discharged in the same amount as the payment
with respect to the Loans and/or the Reimbursement Obligations discharges the
outstanding obligation with respect to such Loans and/or 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 2003-1 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 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 2003-1
Collateral Bonds equal to the amount of such unpaid principal or Reimbursement
Obligations (but in no event in excess of the principal amount of the 2003-1
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 2003-1 Collateral 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 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 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

                                      A-8
<PAGE>

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 2003-1 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 2003-1 COLLATERAL BONDS]

                          - - - - - - - - - - - - - - -

                                      A-9
<PAGE>

         AND WHEREAS all acts and things necessary to make the 2003-1 Collateral
Bonds (the "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
$400,000,000 principal amount of the 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, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;

                                      A-10
<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 a series of bonds (the "2003-1
Collateral Bonds") designated as hereinabove provided, which shall also bear the
descriptive title "First Mortgage Bond", and the forms thereof shall be
substantially as hereinbefore set forth (collectively, the "Sample Bond"). The
2003-1 Collateral Bonds shall be issued in the aggregate principal amount of
$400,000,000, shall mature on the Termination Date (as such term is defined in
the Credit Agreement) 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 Bonds) 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 2003-1 Collateral 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 2003-1 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 Loans and/or the
Reimbursement Obligations 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 Loans and/or the Reimbursement Obligations means that
if any payment is made on the

                                      A-11
<PAGE>

principal of the Loans and/or the Reimbursement Obligations, a corresponding
payment obligation with respect to the principal of the 2003-1 Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
Loans and/or the Reimbursement Obligations discharges the outstanding obligation
with respect to such Loans and/or Reimbursement Obligations. No such payment of
principal shall reduce the principal amount of the 2003-1 Collateral Bonds.

         The obligation of the Company to make payments with respect to the
interest on 2003-1 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 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 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 2003-1 Collateral Bonds shall be
deemed discharged in the same amount as the payment with respect to the interest
and/or fees discharges the outstanding obligation with respect to such interest
and/or fees.

         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 2003-1 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.

         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 by the Agent to the Trustee,
the Collateral Bonds shall be redeemed at a redemption price equal to the
aggregate amount of the Obligations.

                                      A-12
<PAGE>

         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.

                  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

                                      A-13
<PAGE>

         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.

         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.

                                      A-14
<PAGE>

         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.

                           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

                                      A-15
<PAGE>

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.

        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

                                      A-16
<PAGE>

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, 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

                                      A-17
<PAGE>

         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.

                                       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

                                      A-18
<PAGE>

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 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,

                                      A-19
<PAGE>

         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.

                                      A-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
         degrees 21'E 250 feet, thence North along a line parallel with the said
         North and South quarter line of said section 200 feet, thence N89
         degrees 21'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:

                                      A-21
<PAGE>

                  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:

                  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-22
<PAGE>

                  A parcel of land in Section 1, T28N, R1W, described as:
         Commencing at NW corner said section; thence South 89 degrees 53'30"
         East along North section line 105.78 feet to point of beginning; thence
         South 89 degrees 53'30" 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.

                                  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
         degrees 42'56"W and 50 feet measured S88 degrees 14'04"W from the South
         quarter corner, Section 8, T5N, R5E; thence S88 degrees 14'04"W a
         distance of 550 feet; thence N01 degrees 42'56"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 degrees 14'04"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

                                      A-23
<PAGE>
         S01 degrees 42'56"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 degrees 19'15" E along the North line of
         said section and the center line of Clouss Road 225 feet, thence South
         400 feet, thence N 89 degrees 19'15" 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 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

                                      A-24
<PAGE>

         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 degrees 54'45" East along
         said centerline 2282.38 feet to the place of beginning of this
         description; thence continuing South 89 degrees 54'45" East along said
         centerline and said centerline extended 660.00 feet to the North-South
         1/4 line of said section; thence South 00 degrees 07'20" West 1461.71
         feet; thence North 89 degrees 34'58" West 660.00 feet; thence North 00
         degrees 07'20" 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

                                      A-25
<PAGE>

         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.

                                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

                                      A-26
<PAGE>

         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 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-27
<PAGE>

                  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.

                  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

                                      A-28
<PAGE>

         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.


                  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
                                      A-29
<PAGE>


         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

                                      A-30
<PAGE>

         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 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'

                                      A-31
<PAGE>

         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 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,

                                      A-32
<PAGE>

         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 degrees 15'47" E, 507.42 feet, along the East
         line of said Section 24 to the point of beginning; thence S 88
         degrees 15'36" W, 400.00 feet, parallel with the North 1/8 line of said
         Section 24; thence N 00 degrees 15'47" E, 800.00 feet, parallel with
         said East line of Section 24; thence N 88 degrees 15'36"E, 800.00 feet,
         along said North 1/8 line of Section 24 and said line extended; thence
         S 00 degrees 15'47" W, 800.00 feet, parallel with said East line of
         Section 24; thence S 88 degrees 15'36" 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.

                                      A-33
<PAGE>

                                 SAGINAW COUNTY

         Certains 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,

                                      A-34
<PAGE>

         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 degrees 22' 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:

                                      A-35
<PAGE>

                  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 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).

         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.

                                      A-36
<PAGE>

                                           CONSUMERS ENERGY COMPANY

(SEAL)                                     By __________________________________
                                                         Paul A. Stadnikia
Attest:                                                   Treasurer

______________________________
Joyce H. Norkey
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 _____________, 2003, by Paul A. Stadnikia, 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 _____________, 2003, 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                         When recorded, return to:
One Energy Plaza                           Consumers Energy Company
Jackson, MI  49201                         Business Services Real Estate Dept.
                                           Attn:  Nancy Fisher EP7-439
                                           One Energy Plaza
                                           Jackson, MI  49201

                                      S-2
<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 of the
          Indenture securing the Bonds and any Lien in favor of the Agent on the
          Facility LC Collateral Account or any funds therein.

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, 2002, and Quarterly Report on Form 10-Q for the quarter
     ended June 30, 2003, 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 referred to 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 Nos. ES02-37-000 and ES03-37-000 (hereinafter the
     "FERC Orders"). The FERC Orders are in full force and effect as of the date
     hereof.

                                     B-1-1
<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-1-2
<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).

         3.       "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 JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), as Trustee.

                                     B-2-1
<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.

                                     B-3-1
<PAGE>

                                    EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

         I, _________________, ______________ of Consumers Energy Company, a
Michigan corporation (the "Company"), DO HEREBY CERTIFY in connection with the
Amended and Restated Credit Agreement dated as of September __, 2003 (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

<TABLE>
<S>      <C>                                                                    <C>
         (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
</TABLE>

                                      C-1
<PAGE>

<TABLE>
<S>      <C>                                                                    <C>
                  from issuance of hybrid debt/equity
                  securities (other than Junior
                  Subordinated Debt and Hybrid Preferred Securities)

                                                   TOTAL                        $

B.       Total Consolidated Capitalization:

         (a)      Total Consolidated Debt                                       $

plus     (b)      The sum of Items A(i)
                  through A(k) above

plus     (c)      Equity of common stockholders

plus     (d)      Equity of preference stockholders                             ____________

plus     (e)      Equity of preferred stockholders                              ____________

                                                   TOTAL                        $
C.       Debt to Capital Ratio                                                        _____ to 1.00
         (total of A divided by total of B)
</TABLE>

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

<TABLE>
<S>      <C>                                                                    <C>
         (a)      Consolidated Net Income                                       $

plus     (b)      Consolidated Interest Expense                                 $

plus     (c)      Interest and dividends on Hybrid Preferred
                  Securities and on securities of the type described in Item
                  A(k) above (but only to the extent securities of the type
                  described in Item A(k) are deemed equity)

plus     (d)      Expense for taxes paid or accrued                             $
</TABLE>

                                      D-2
<PAGE>

<TABLE>
<S>      <C>                                                                    <C>
plus     (e)      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

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)
</TABLE>

         IN WITNESS WHEREOF, I have signed this Certificate this ___ day of
_________, ___.

                                      D-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 Amended and Restated 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 Credit Agreement dated as of September __, 2003
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
                            Commitment/
                         Outstanding Credit       Amount of Commitment/          Percentage Assigned of
                          Exposure for all     Outstanding Credit Exposure   Commitment/ Outstanding Credit
Facility Assigned              Banks*                  Assigned*                      Exposure(1)
- ------------------------------------------------------------------------------------------------------------
<S>                      <C>                   <C>                           <C>
____________               $                    $                                      __________%
- ------------------------------------------------------------------------------------------------------------
____________               $                    $                                      __________%
- ------------------------------------------------------------------------------------------------------------
____________               $                    $                                      __________%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

7.       Trade Date: _______________________________________________________(2)

Effective Date: ____________________, 20__ TO BE INSERTED BY AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT.]

- --------------------------------

* Amount to be adjusted by the counterparties to take into account any payments
or prepayments made between the Trade Date and the Effective Date.

(1)      Set forth, to at least 9 decimals, as a percentage of the
Commitment/Loans of all Banks thereunder.

(2)      Insert if satisfaction of minimum amounts is to be determined as of the
Trade Date.

                                      D-2
<PAGE>

         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](3) Accepted:

BANK ONE, NA, as Agent

By: __________________________________
Title:

[Consented to:](4)
[NAME OF RELEVANT PARTY]

By: __________________________________
Title:

- -------------------------------

(3)      To be added only if the consent of the Agent is required by the terms
of the Credit Agreement.

(4)      To be added only if the consent of the Company and/or other parties
(e.g. LC Issuer) is required by the terms of the Credit Agreement.

                                      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 Credit Extensions 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

                                     Annex 1

<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, Reimbursement
Obligations, 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 New York.

                                     Annex 1

<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)

<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)

<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

                                      E-1
<PAGE>

indebtedness or such renewal, extension or refunding thereof is not superior in
right of payment to the Subordinated Securities.

         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,

                                      E-2
<PAGE>

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 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

                                      E-3
<PAGE>

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) 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

                                      E-4
<PAGE>

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 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

                                      E-5
<PAGE>

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 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

                                      E-6
<PAGE>

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 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

                         FORM OF BOND DELIVERY AGREEMENT

                             BOND DELIVERY AGREEMENT

                            CONSUMERS ENERGY COMPANY

                                       TO

                             BANK ONE, NA, AS AGENT

                         Dated as of September __, 2003

                          ____________________________

                                   Relating to
                              First Mortgage Bonds,

                   2003-1 Collateral Series (Interest Bearing)

                          ____________________________

                                      G-1
<PAGE>

         THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of September
__, 2003, is between Consumers Energy Company (the "Company"), and Bank One, NA,
as agent (the "Agent") under the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") dated as of September __, 2003, 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 Credit Agreement.

         Whereas, the Company has entered into the Credit Agreement and may from
time to time make borrowings thereunder in accordance with the provisions
thereof;

         Whereas, the Company has established its First Mortgage Bonds, 2003-1
Collateral Series (Interest Bearing) in the aggregate principal amount of
$400,000,000 (the "Bonds"), to be issued under and in accordance with the
Ninety-Third Supplemental Indenture dated as of September __, 2003 (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 Credit 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 Credit Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $400,000,000, maturing on September
__, 2004 or such later date as may be fixed as the "Termination Date" under and
as defined in the Credit Agreement 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.

                                       G-2
<PAGE>
         The Agent hereby acknowledges receipt of the Bonds.

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 Credit 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 Credit 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 Aggregate Commitment
pursuant to the terms of the Credit 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 Aggregate Commitment.

                                   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

____________________________________________

Name:
Title:

BANK ONE, NA, as Agent

____________________________________________

Name:
Title:

                                      G-4
<PAGE>

                                PRICING SCHEDULE

         The Applicable Margin shall be determined pursuant to the table below
based on the lower of the S&P Rating and the Moody's Rating.

<TABLE>
<CAPTION>
                                                                                                           S&P Rating
                       S&P Rating of    S&P Rating of   S&P Rating of   S&P Rating of     S&P Rating of   lower than BB
                          BBB+ or          BBB or          BBB- or          BB+ or           BB or         or Moody's
                          Moody's          Moody's         Moody's          Moody's         Moody's       Rating lower
      Ratings         Rating of Baa1   Rating of Baa2   Rating of Baa3   Rating of Ba1    Rating of Ba2     than Ba2
- -----------------------------------------------------------------------------------------------------------------------
<S>                   <C>              <C>              <C>              <C>              <C>             <C>
Commitment Fee Rate        .20%            .25%             .30%             .35%             .50%            .50%
- -----------------------------------------------------------------------------------------------------------------------
Eurodollar Rate +        1.250%          1.500%           1.750%           2.125%           2.500%          3.000%
- -----------------------------------------------------------------------------------------------------------------------
Alternate Base Rate +     .250%           .500%            .750%           1.125%           1.500%          2.000%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

         For purposes of the forgoing table:

         "Moody's Rating" means, at any time, the rating issued by Moody's and
then in effect with respect to the Senior Debt.

         "S&P Rating" means, at any time, the rating issued by S&P and then in
effect with respect to the Senior Debt.

<PAGE>

                               COMMITMENT SCHEDULE

<TABLE>
<CAPTION>
                BANK                                  COMMITMENT
- ------------------------------------                 -------------
<S>                                                  <C>
Bank One, NA                                         $  42,000,000

Barclays Bank PLC                                    $  42,000,000

JPMorgan Chase Bank                                  $  39,000,000

Citicorp North America, Inc.                         $  39,000,000

Union Bank of California, N.A.                       $  39,000,000

Wachovia Bank, National Association                  $  39,000,000

Deutsche Bank Trust Company Americas                 $  30,000,000

BNP Paribas                                          $  30,000,000

Standard Federal Bank N.A.                           $  25,000,000

Huntington National Bank                             $  25,000,000

HSH Nordbank AG, New York Branch                     $  20,000,000

Comerica Bank                                        $  15,000,000

The Fifth Third Bank                                 $  15,000,000

AGGREGATE COMMITMENT                                 $ 400,000,000
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(A)
<SEQUENCE>10
<FILENAME>k80589exv10wxay.txt
<DESCRIPTION>PURCHASE AGREEMENT, DATED 04/23/03
<TEXT>
<PAGE>

                                                                  EXECUTION COPY

                                                                 Exhibit (10)(a)

                                  $625,000,000

                            CONSUMERS ENERGY COMPANY

           $250,000,000 4.25% First Mortgage Bonds due 2008, Series A
           $375,000,000 5.375% First Mortgage Bonds due 2013, Series B

                         -------------------------------

                               Purchase Agreement

                                             April 23, 2003

Banc One Capital Markets, Inc.
Barclays Capital Inc.
J.P. Morgan Securities Inc.
Comerica Securities, Inc.
Wachovia Securities, Inc.

c/o Banc One Capital Markets, Inc.
    1 Bank One Plaza, Suite IL 1-0595
    Chicago, Illinois 60670

c/o Barclays Capital Inc.
    200 Park Avenue
    New York, New York 10166

Ladies and Gentlemen:

                  Consumers Energy Company, a Michigan corporation (the
"Company"), proposes to issue and sell to Banc One Capital Markets, Inc.,
Barclays Capital Inc., J.P. Morgan Securities Inc., Comerica Securities, Inc.
and Wachovia Securities, Inc. (each, an "Initial Purchaser", and, collectively,
the "Initial Purchasers") an aggregate of $250,000,000 in principal amount of
its 4.25% First Mortgage Bonds due 2008, Series A (the "Series A Bonds") and an
aggregate of $375,000,000 in principal amount of its 5.375% First Mortgage Bonds
due 2013, Series B (the "Series B Bonds" and, together with the Series A Bonds,
the "Restricted Bonds"), subject to the terms and conditions set forth herein.
The Restricted Bonds are to be issued pursuant to the provisions of the
Indenture dated as of September 1, 1945 between the Company and JPMorgan Chase
Bank (ultimate successor to City Bank Farmers Trust Company), as trustee (the
"Trustee"), as supplemented and amended by various supplemental indentures and
as to be supplemented by the Ninetieth Supplemental Indenture, to be dated as of
April 30, 2003, establishing the terms of the Restricted Bonds (the
"Supplemental Indenture") (as so supplemented, the "Indenture"). Capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Indenture.
<PAGE>

                  Holders (including subsequent transferees) of the Restricted
Bonds will have the registration rights set forth in the registration rights
agreement in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), to be dated the Closing Date (as defined below), for so long as
such Restricted Bonds constitute Transfer Restricted Securities (as defined in
the Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Securities and Exchange
Commission (the "Commission"), under the circumstances set forth therein, (i) a
registration statement (the "Exchange Offer Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), relating to first mortgage
bonds, (A) in the principal amount of $250,000,000 4.25% First Mortgage Bonds
due 2008, Series C (the "Series C Exchange Bonds") to be offered in exchange for
the Series A Bonds and (B) in the principal amount of $375,000,000 5.375% First
Mortgage Bonds due 2013, Series D (the "Series D Exchange Bonds" and, together
with the Series C Exchange Bonds, the "Exchange Bonds") to be offered in
exchange for the Series B Bonds (such offer to exchange being referred to as the
"Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415
under the Act (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, the "Registration Statements") relating
to the resale by certain holders of the Restricted Bonds and to use its best
efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer. The Restricted Bonds and the
Exchange Bonds issuable in exchange therefor are collectively referred to herein
as the "Bonds". This Agreement, the Indenture, the Bonds and the Registration
Rights Agreement are hereinafter sometimes referred to collectively as the
"Operative Documents".

                  1.       Offering Memorandum: The Restricted Bonds will be
offered and sold to the Initial Purchasers pursuant to one or more exemptions
from the registration requirements under the Act. The Company has prepared a
confidential preliminary offering memorandum dated April 23, 2003 (the
"Preliminary Offering Memorandum") and a confidential offering memorandum dated
April 23, 2003 (the "Offering Memorandum") relating to the Restricted Bonds,
which incorporate by reference documents filed by the Company pursuant to
Section 13, 14 or 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As used herein, the term "Preliminary Offering Memorandum" and
"Offering Memorandum" shall include respectively the documents incorporated by
reference therein. Any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Preliminary Offering Memorandum and Offering
Memorandum shall be deemed to include amendments or supplements to the
Preliminary Offering Memorandum and Offering Memorandum, and documents
incorporated by reference after the time of execution of this Agreement and
prior to the termination of the offering of the Restricted Bonds by the Initial
Purchasers.

                  Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Restricted Bonds (and
all securities issued in exchange therefor or in substitution thereof) shall
bear the following legend:

         THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT
         BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
         PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL

                                       2
<PAGE>

         BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
         PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
         INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
         144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION COMPLYING
         WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3)
         PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
         PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE WITH
         ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
         ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
         WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.

                  2.       Agreement to Sell and Purchase: On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree to
purchase from the Company, severally, the principal amount of Series A Bonds and
the principal amount of Series B Bonds set forth opposite the names of such
Initial Purchasers on Schedule A hereto at a purchase price equal to 99.172% of
the principal amount thereof with respect to the Series A Bonds (the "Series A
Purchase Price") and 98.873% of the principal amount thereof with respect to the
Series B Bonds (the "Series B Purchase Price" and, together with the Series A
Purchase Price, the "Purchase Price").

                  The Company hereby agrees that, without the prior written
consent of the Initial Purchasers, it will not offer, sell, contract to sell or
otherwise issue debt securities substantially similar to the Restricted Bonds
for a period from the date of the execution of this Agreement until the Closing
Date.

                  3.       Terms of Offering: The Initial Purchasers have
advised the Company that the Initial Purchasers will make offers (the "Exempt
Resales") of the Restricted Bonds purchased hereunder on the terms set forth in
the Offering Memorandum solely to persons whom the Initial Purchasers reasonably
believe to be "qualified institutional buyers" as defined in Rule 144A under the
Act (such persons being referred to herein as the "Eligible Purchasers"). The
Initial Purchasers will offer the Restricted Bonds to Eligible Purchasers
initially at a price equal to 100% of the principal amount thereof. Such price
may be changed at any time without notice.

                  4.       Delivery and Payment:

                  (a)      Delivery of, and payment of the Purchase Price for,
the Restricted Bonds shall be made at the offices of Pillsbury Winthrop LLP, One
Battery Park Plaza, New York, NY 10004-1490, or such other location as may be
mutually acceptable. Payment for the Restricted Bonds shall be made to the
Company in federal or other funds immediately available in New York City against
delivery of such Restricted Bonds for the account of the Initial Purchasers at
10:00 a.m., New York City time, on April 30, 2003, or at such other time as
shall be agreed upon

                                       3
<PAGE>

by the Initial Purchasers and the Company. The time and date of such delivery
and the payment are herein called the "Closing Date".

                  (b)      Certificates for the Restricted Bonds shall be in
definitive form or global form, as specified by the Initial Purchasers, and
registered in such names and in such denominations as the Initial Purchasers
shall request in writing not later than one full business day prior to the
Closing Date. The certificates evidencing the Restricted Bonds shall be
delivered on the Closing Date for the account of the Initial Purchasers, with
any transfer taxes payable in connection with the transfer of the Restricted
Bonds to the Initial Purchasers duly paid, against payment of the Purchase Price
therefor plus accrued interest, if any, to the date of payment and delivery.
Certificates for the Restricted Bonds shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.

                  5.       Agreements of the Company: In further consideration
of the agreements of the Initial Purchasers herein contained, the Company
covenants as follows:

                  (a)      To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Restricted Bonds for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(d) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any
Restricted Bonds under any state securities or blue sky laws and, if at any time
any state securities commission or other federal or state regulatory authority
shall issue an order suspending the qualification or exemption of any Restricted
Bonds under any state securities or blue sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.

                  (b)      To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company as many copies of the
Offering Memorandum, and any amendments or supplements thereto, in such
quantities as the Initial Purchasers may reasonably request. Subject to the
Initial Purchasers' compliance with their representations and warranties and
agreements set forth in Section 7 hereof, the Company consents to the use of the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchasers in connection with Exempt Resales.

                  (c)      For such period of time as the Initial Purchasers are
required by law or customary practice to deliver an offering memorandum in
respect of the Restricted Bonds, if any event shall have occurred as a result of
which it is necessary to amend or supplement the Offering Memorandum in order to
make the statements therein, in light of the circumstances when the Offering
Memorandum is delivered to an Eligible Purchaser, not misleading, or if it
becomes necessary to amend or supplement the Offering Memorandum to comply with
law, to forthwith prepare an appropriate amendment or supplement to the Offering
Memorandum and deliver to the Initial Purchasers, without charge, such number of
copies thereof as may be reasonably requested.

                                       4
<PAGE>

                  (d)      To use its best efforts to qualify the Restricted
Bonds for offer and sale under the securities or blue sky laws of such
jurisdictions as the Initial Purchasers may designate and to pay (or cause to be
paid), or reimburse (or cause to be reimbursed) the Initial Purchasers and their
counsel for, reasonable filing fees and expenses in connection therewith
(including the reasonable fees and disbursements of counsel to the Initial
Purchasers and filing fees and expenses paid and incurred prior to the date
hereof), provided, however, that the Company shall not be required to qualify to
do business as a foreign corporation or as a securities dealer or to file a
general consent to service of process or to file annual reports or to comply
with any other requirements deemed by the Company to be unduly burdensome.

                  (e)      So long as the Bonds are outstanding, (i) to mail and
make generally available as soon as practicable after the end of each fiscal
year to the record holders of the Bonds a financial report of the Company on a
consolidated basis, all such financial reports to include a consolidated balance
sheet, a consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the end of and
for such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by the Company's independent public
accountants and (ii) to mail and make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly period of
each fiscal year) to such holders, a consolidated balance sheet, a consolidated
statement of operations and a consolidated statement of cash flows as of the end
of and for such period, and for the period from the beginning of such year to
the close of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.

                  (f)      So long as any of the Restricted Bonds remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any holder of Restricted
Bonds in connection with any sale thereof and any prospective purchaser of such
Restricted Bonds from such holder, the information required by Rule 144A(d)(4)
under the Act.

                  (g)      To pay all expenses, fees and taxes (other than
transfer taxes on sales by the Initial Purchasers) in connection with the
issuance and delivery of the Restricted Bonds, except that the Company shall be
required to pay the fees and disbursements (other than fees and disbursements
referred to in Section 5(d) hereof) of Pillsbury Winthrop LLP, counsel to the
Initial Purchasers, only in the events provided in Section 5(h) hereof, the
Initial Purchasers hereby agreeing to pay such fees and disbursements in any
other event, and that except as provided in such Section 5(h), the Company shall
not be responsible for any out-of-pocket expenses of the Initial Purchasers in
connection with their services hereunder.

                  (h)      If the Initial Purchasers shall not take up and pay
for the Restricted Bonds due to the failure of the Company to comply with any of
the conditions specified in Section 10 hereof, or, if this Agreement shall be
terminated in accordance with the provisions of Section 11(b) hereof prior to
the Closing Date, to pay the reasonable fees and disbursements of Pillsbury
Winthrop LLP, counsel to the Initial Purchasers and, if the Initial Purchasers
shall not take up and pay for the Restricted Bonds due to the failure of the
Company to comply with any of the conditions specified in Section 10 hereof, to
reimburse the Initial Purchasers for their reasonable

                                       5
<PAGE>

out-of-pocket expenses, in an aggregate amount not exceeding a total of $3,000,
incurred in connection with the financing contemplated by this Agreement.

                  (i)      During the period referred to in Section 5(c) hereof,
to not amend or supplement the Offering Memorandum unless the Company has
furnished the Initial Purchasers and counsel to the Initial Purchasers with a
copy for their review and comment a reasonable time prior to the making of such
amendment or supplement and has reasonably considered any comments of the
Initial Purchasers, and not to make any such amendment or supplement to which
such counsel shall reasonably object on legal grounds in writing after
consultation with the Initial Purchasers.

                  (j)      During the period referred to in Section 5(c) hereof,
to furnish the Initial Purchasers with copies of all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.

                  (k)      During the period referred to in Section 5(c) hereof,
to comply with all requirements under the Exchange Act relating to the filing
with the Commission of its reports pursuant to Section 13 or 15(d) of the
Exchange Act and of its proxy statements pursuant to Section 14 of the Exchange
Act.

                  (l)      To comply in all material respects with all of its
agreements set forth in the Registration Rights Agreement.

                  (m)      To obtain the approval of The Depository Trust
Company ("DTC") for "book-entry" transfer of the Bonds, and to comply in all
material respects with all of its agreements set forth in the representation
letter or letters of the Company to DTC relating to the approval of the Bonds by
DTC for "book-entry" transfer.

                  (n)      Not to (or permit any affiliate (as defined in Rule
144 under the Act) to) sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Restricted Bonds to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Restricted Bonds under the Act.

                  (o)      Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Bonds.

                  (p)      To cause the Exchange Offer to be made in the
appropriate form to permit Exchange Bonds registered pursuant to the Act to be
offered in exchange for the Restricted Bonds and to comply in all material
respects with all applicable federal and state securities laws in connection
with the Exchange Offer.

                  (q)      During the period of two years after the Closing
Date, not to, and not permit any of its affiliates (as defined in Rule 144 under
the Act) to, resell any of the Bonds which constitute "restricted securities"
under Rule 144 under the Act that have been reacquired by any of them.

                                       6
<PAGE>

                  (r)      To take all reasonable action necessary to enable
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch, Inc. ("Fitch")
to provide their respective credit ratings of the Restricted Bonds.

                  (s)      (1) Within 10 days after the Closing Date, to deliver
the Supplemental Indenture in recordable form to the appropriate real estate
recording office in all jurisdictions specified in the Supplemental Indenture
for recording and deliver to the office of the Secretary of State of the State
of Michigan a UCC-1 financing statement relating to the Supplemental Indenture
for filing in such office and (2) within 25 days after the Closing Date, to
deliver to counsel to the Initial Purchasers a certificate signed by an officer
of the Company certifying that the actions required by the foregoing clause (1)
have been taken. The Company shall further provide counsel to the Initial
Purchasers, as soon as it is available, a copy of the related opinion of counsel
contemplated by Section 7.11(i) of the Indenture. To the extent not covered in
the opinion described in the previous sentence, the Company shall also provide
counsel to the Initial Purchasers, concurrently with the furnishing of such
opinion, a list of the recording information for all such filings.

                  6.       Representations and Warranties of the Company: The
Company represents and warrants to, and agrees with, the Initial Purchasers
that:

                  (a)      Each of the Preliminary Offering Memorandum and the
Offering Memorandum does not, and any supplement or amendment to it will not,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this Section 6(a)
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum and the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchasers furnished to the
Company in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, has been issued.

                  (b)      The documents incorporated by reference in the
Preliminary Offering Memorandum and the Offering Memorandum, when they were
filed (or, if an amendment with respect to any such document was filed, when
such amendment was filed) with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and any further documents so filed and
incorporated by reference will, when they are filed with the Commission, conform
in all material respects to the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder; none of such
documents, when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be

                                       7
<PAGE>

stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.

                  (c)      The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Michigan and has all requisite authority to own or lease its properties and
conduct its business as described in the Preliminary Offering Memorandum and the
Offering Memorandum and to consummate the transactions contemplated hereby, and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business as described in the
Preliminary Offering Memorandum and the Offering Memorandum or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company.

                  (d)      This Agreement has been duly authorized, executed and
delivered by the Company.

                  (e)      The Bonds are in the form contemplated by the
Indenture and have been duly authorized by the Company. At the Closing Date, the
Restricted Bonds will have been duly executed and delivered by the Company and,
when authenticated by the Trustee in the manner provided for in the Indenture,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity), and will be entitled to the security afforded
by the Indenture equally and ratably with all securities outstanding thereunder.
The Bonds conform in all material respects to the descriptions thereof in the
Preliminary Offering Memorandum and the Offering Memorandum.

                  (f)      The Registration Rights Agreement has been duly
authorized by the Company. At the Closing Date, the Registration Rights
Agreement will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity). The Registration Rights Agreement conforms in
all material respects to the description thereof in the Preliminary Offering
Memorandum and the Offering Memorandum.

                  (g)      The Indenture has been duly authorized by the
Company. At the Closing Date, the Indenture will have been duly executed and
delivered by the Company and will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity); the
Indenture conforms in all material respects to the description thereof in the
Preliminary Offering Memorandum and the Offering

                                       8
<PAGE>

Memorandum; and the Indenture conforms to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA").

                  (h)      The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct business in the manner described in the Preliminary Offering Memorandum
and the Offering Memorandum, except to the extent that the failure to obtain or
file would not have a material adverse effect on the Company.

                  (i)      An appropriate order has been entered by the Federal
Energy Regulatory Commission under the Federal Power Act authorizing the
issuance and sale of the Bonds and such order is in full force and effect. No
other order, license, consent, authorization or approval of, or exemption by, or
the giving of notice to, or the registration with, any federal, state, local or
other governmental department, commission, board, bureau, agency or
instrumentality, and no filing, recording, publication or registration in any
public office or any other place, was or is now required to be obtained by the
Company to authorize its execution or delivery of, or the performance of its
obligations under, this Agreement or any of the other Operative Documents,
except such as have been obtained or may be required under state securities or
blue sky laws or as referred to in the Offering Memorandum.

                  (j)      None of the issuance and sale of the Bonds, or the
execution or delivery by the Company of, or the performance by the Company of
its obligations under, this Agreement or the other Operative Documents, did or
will conflict with, result in a breach of any of the terms or provisions of, or
constitute a default or require the consent of any party under, the Company's
Articles of Incorporation or by-laws, any material agreement or instrument to
which the Company is a party, any existing applicable law, rule or regulation or
any judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or assets, or, except as described in the Offering Memorandum, did or
will result in the creation or imposition of any lien on the Company's
properties or assets.

                  (k)      Except as disclosed in the Offering Memorandum, there
is no action, suit, proceeding, inquiry or investigation (at law or in equity or
otherwise) pending or, to the knowledge of the Company, threatened against the
Company by any governmental authority that (i) questions the validity,
enforceability or performance of this Agreement or any of the other Operative
Documents or (ii) if determined adversely, is likely to have a material adverse
effect on the business or financial condition of the Company, or have a material
adverse effect on the ability of the Company to perform its obligations
hereunder or the ability of the Company to consummate the transactions
contemplated by this Agreement.

                  (l)      There has not been any material and adverse change in
the business, properties or financial condition of the Company from that set
forth or incorporated by reference in the Offering Memorandum (other than
changes referred to in or contemplated by the Offering Memorandum).

                                       9
<PAGE>

                  (m)      Except as set forth in the Offering Memorandum, no
event or condition exists that constitutes, or with the giving of notice or
lapse of time or both would constitute, a default or any breach or failure to
perform by the Company in any material respect under any indenture, mortgage,
loan agreement, lease or other material agreement or instrument to which the
Company is a party or by which it may be bound.

                  (n)      The Offering Memorandum, as of its date, contained
all the information specified in, and met the requirements of, Rule 144A(d)(4)
under the Act.

                  (o)      When the Restricted Bonds are issued and delivered
pursuant to this Agreement, the Restricted Bonds will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of the Company
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system. No securities of the same class as the Restricted Bonds have
been issued and sold by the Company within the six-month period immediately
prior to the date hereof.

                  (p)      Neither the Company nor any affiliate (as defined in
Rule 144 under the Act) of the Company has directly, or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Act) which is or will be integrated
with the sale of the Restricted Bonds in a manner that would require the
registration under the Act of the Restricted Bonds or (ii) engaged in any form
of general solicitation or general advertising in connection with the offering
of the Restricted Bonds (as those terms are used in Regulation D under the Act),
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act, including, but not limited to, publication or release of articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.

                  (q)      Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.

                  (r)      None of the Company nor any of its affiliates (as
defined in Rule 144 under the Act) or any person acting on its or their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S under the Act with respect to the Restricted
Bonds.

                  (s)      No registration under the Act of the Restricted Bonds
is required for the sale of the Restricted Bonds to the Initial Purchasers as
contemplated hereby or for the Exempt Resales (assuming the accuracy of the
Initial Purchasers' representation and warranty and agreement set forth in
Section 7 hereof).

                  (t)      The Company, after giving effect to the offering and
sale of the Restricted Bonds, will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

                                       10
<PAGE>

                  (u)      The Company has good and marketable title to all its
important properties described in the Offering Memorandum and to substantially
all other real estate and property specifically described in the Indenture as
subject to the lien thereof except (a) that released or retired in accordance
with the provisions of the Indenture, (b) leased offices, garages and service
buildings, (c) leased nuclear fuel, (d) certain electric substations and gas
regulator stations and other facilities erected on sites under leases,
easements, permits or contractual arrangements, (e) certain pollution control
facilities, which are subject to security interests granted to various
municipalities and economic development corporations under installment sales
contracts, (f) as to electric and gas transmission and distribution lines, many
of such properties are constructed on rights-of-way by virtue of franchises or
pursuant to easements only, and (g) as to certain gas storage fields, the
Company's interest in certain of the gas rights and rights of storage and other
rights incidental thereto are in the nature of an easement or leasehold interest
only. The Indenture constitutes, as security for the Restricted Bonds, a valid
direct first mortgage lien on the real estate, property and franchises, subject
only to excepted encumbrances as defined therein and except as otherwise
expressly stated therein and subject to Michigan Compiled Laws Annotated Section
324.20138, which provides under certain circumstances for the creation of
priority liens on property of the Company in favor of the State of Michigan
covering reimbursement for any expense incurred in a response activity under the
Michigan Environmental Response Act. The Indenture is effective to create the
lien intended to be created thereby. Real estate, property or franchises in the
State of Michigan hereafter acquired by the Company will become subject to the
lien of the Indenture, at the time of acquisition, subject to liens existing
thereon at the time of acquisition, and subject to excepted encumbrances, and
subject to any necessary filing and recording before the intervention of any
lien not expressly excepted thereby, and subject to the qualification above with
respect to the enforceability of the Indenture.

                  The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 10 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.

                  7.       Initial Purchasers' Representations and Warranties:
Upon the authorization by the Initial Purchasers of the release of the
Restricted Bonds, the Initial Purchasers propose to offer the Restricted Bonds
for sale upon the terms and conditions set forth in this Agreement and the
Offering Memorandum and the Initial Purchasers hereby represent and warrant to,
and agree with, the Company that:

                  (a)      they each will offer and sell the Restricted Bonds
only to Eligible Purchasers;

                  (b)      they each are Accredited Investors (as defined in
Regulation D under the Act); and

                  (c)      they each will not offer or sell the Restricted Bonds
by any form of general solicitation or general advertising, including, but not
limited to, the methods described in Rule 502(c) under the Act.

                                       11
<PAGE>

                  8.       Indemnification:

                  (a)      The Company agrees, to the extent permitted by law,
to indemnify and hold harmless each of the Initial Purchasers and each person,
if any, who controls any such Initial Purchaser within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act or otherwise, and to reimburse the Initial
Purchasers and such controlling person or persons, if any, for any legal or
other expenses incurred by them in connection with defending any action, suit or
proceeding (including governmental investigations) as provided in Section 8(c)
hereof, insofar as such losses, claims, damages, liabilities or actions, suits
or proceedings (including governmental investigations) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Memorandum or Offering Memorandum, or, if
the Preliminary Offering Memorandum or Offering Memorandum shall be amended or
supplemented, in the Preliminary Offering Memorandum or Offering Memorandum as
so amended or supplemented or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission which was made in the Preliminary Offering Memorandum or
Offering Memorandum or in the Preliminary Offering Memorandum or Offering
Memorandum as so amended or supplemented, in reliance upon and in conformity
with information furnished in writing to the Company by, or on behalf of, any
Initial Purchaser expressly for use therein and except that this indemnity shall
not inure to the benefit of any Initial Purchaser (or any person controlling
such Initial Purchaser) on account of any losses, claims, damages, liabilities
or actions, suits or proceedings arising from the sale of the Restricted Bonds
to any person if a copy of the Offering Memorandum, as the same may then be
supplemented or amended (excluding, however, any document then incorporated or
deemed incorporated therein by reference), was not sent or given by or on behalf
of such Initial Purchaser to such person (i) with or prior to the written
confirmation of sale involved or (ii) as soon as available after such written
confirmation, relating to an event occurring prior to the payment for and
delivery to such person of the Restricted Bonds involved in such sale, and the
omission or alleged omission or untrue statement or alleged untrue statement was
corrected in the Offering Memorandum as supplemented or amended at such time.

                  The Company's indemnity agreement contained in this Section
8(a), and the covenants, representations and warranties of the Company contained
in this Agreement, shall remain in full force and effect regardless of any
investigation made by or on behalf of any person, and shall survive the delivery
of and payment for the Restricted Bonds hereunder, and the indemnity agreement
contained in this Section 8 shall survive any termination of this Agreement. The
liabilities of the Company in this Section 8(a) are in addition to any other
liabilities of the Company under this Agreement or otherwise.

                  (b)      Each Initial Purchaser agrees severally and jointly,
to the extent permitted by law, to indemnify, hold harmless and reimburse the
Company, each other Initial Purchaser, and each person, if any, who controls the
Company or such other Initial Purchaser within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but

                                       12
<PAGE>

only with respect to alleged untrue statements or omissions made in the
Preliminary Offering Memorandum or Offering Memorandum or in the Preliminary
Offering Memorandum or Offering Memorandum, as amended or supplemented (if
applicable), in reliance upon and in conformity with information furnished in
writing to the Company by such Initial Purchaser expressly for use therein.

                  The indemnity agreement on the part of each Initial Purchaser
contained in this Section 8(b) and the representations and warranties of such
Initial Purchaser contained in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any other person, and shall survive the delivery of and payment for the
Restricted Bonds hereunder, and the indemnity agreement contained in this
Section 8(b) shall survive any termination of this Agreement. The liabilities of
each Initial Purchaser in this Section 8(b) are in addition to any other
liabilities of each Initial Purchaser under this Agreement or otherwise.

                  (c)      If a claim is made or an action, suit or proceeding
(including governmental investigations) is commenced or threatened against any
person as to which indemnity may be sought under Section 8(a) or 8(b) hereof,
such person (the "Indemnified Person") shall notify the person against whom such
indemnity may be sought (the "Indemnifying Person") promptly after any assertion
of such claim threatening to institute an action, suit or proceeding or if such
an action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by any Initial
Purchaser in the case of parties indemnified pursuant to Section 8(b) hereof and
by the Company in the case of parties indemnified pursuant to Section 8(a)
hereof. Any Indemnified Person shall have the right to participate in such
litigation or proceeding and to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include (x) the
Indemnifying Person and (y) the Indemnified Person and, in the written opinion
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or likely conflicts of
interest between them, in either of which cases the reasonable fees and expenses
of counsel (including disbursements) for such Indemnified Person shall be
reimbursed by the Indemnifying Person to the Indemnified Person. If there is a
conflict as described in clause (ii) above, and the Indemnified Persons have
participated in the litigation or proceeding utilizing separate counsel whose
fees and expenses have been reimbursed by the Indemnifying Person and the
Indemnified Persons, or any of them, are found to be solely liable, such
Indemnified Person shall repay to the Indemnifying Person such fees and expenses
of such separate counsel as the Indemnifying Person shall have reimbursed. It is
understood that the Indemnifying Person shall not, in connection with any
litigation or proceeding or related litigation or proceedings in the same
jurisdiction as to which

                                       13
<PAGE>

the Indemnified Persons are entitled to such separate representation, be liable
under this Agreement for the reasonable fees and out-of-pocket expenses of more
than one separate firm (together with not more than one appropriate local
counsel) for all such Indemnified Persons. Subject to the next paragraph, all
such fees and expenses shall be reimbursed by payment to the Indemnified Persons
of such reasonable fees and expenses of counsel promptly after payment thereof
by the Indemnified Persons.

                  In furtherance of the requirement above that fees and expenses
of any separate counsel for the Indemnified Persons shall be reasonable, the
Initial Purchasers and the Company agree that the Indemnifying Person's
obligations to pay such fees and expenses shall be conditioned upon the
following:

                                    (i)      in case separate counsel is
         proposed to be retained by the Indemnified Persons pursuant to clause
         (ii) of the preceding paragraph, the Indemnified Persons shall in good
         faith fully consult with the Indemnifying Person in advance as to the
         selection of such counsel;

                                    (ii)     reimbursable fees and expenses of
         such separate counsel shall be detailed and supported in a manner
         reasonably acceptable to the Indemnifying Person (but nothing herein
         shall be deemed to require the furnishing to the Indemnifying Person of
         any information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                                    (iii)    the Company and the Initial
         Purchasers shall cooperate in monitoring and controlling the fees and
         expenses of separate counsel for Indemnified Persons for which the
         Indemnifying Person is liable hereunder, and the Indemnified Person
         shall use every reasonable effort to cause such separate counsel to
         minimize the duplication of activities as between themselves and
         counsel to the Indemnifying Person.

                  The Indemnifying Person shall not be liable for any settlement
of any litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees, subject to the
provisions of this Section 8, to indemnify the Indemnified Person from and
against any loss, damage, liability or expenses by reason of such settlement or
judgment. The Indemnifying Person shall not, without the prior written consent
of the Indemnified Persons, effect any settlement of any pending or threatened
litigation, proceeding or claim in respect of which indemnity has been properly
sought by the Indemnified Persons hereunder, unless such settlement includes an
unconditional release by the claimant of all Indemnified Persons from all
liability with respect to claims which are the subject matter of such
litigation, proceeding or claim.

                  (d)      If the indemnification provided for in Section 8
above is unavailable to or insufficient to hold harmless an Indemnified Person
under this Section 8 in respect of any losses, claims, damages or liabilities
(or actions, suits or proceedings (including governmental

                                       14
<PAGE>

investigations) in respect thereof) referred to therein, then each Indemnifying
Person under this Section 8 above shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Indemnifying Person on the one
hand and the Indemnified Person on the other from the offering of the Restricted
Bonds. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each Indemnifying Person shall
contribute to such amount paid or payable by such Indemnified Person in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of each Indemnifying Person, if any, on the one hand and the
Indemnified Person on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions, suits
or proceedings (including governmental investigations) in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the total
discounts or commissions received by the Initial Purchasers, in each case as set
forth in the Offering Memorandum, bear to the aggregate offering price of the
Restricted Bonds. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Initial Purchasers on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an Indemnified Person as a result of the losses, claims, damages
or liabilities (or actions, suits or proceedings (including governmental
proceedings) in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Person in connection with investigating or defending any such
actions, suits or proceedings (including governmental proceedings) or claims,
provided that the provisions of this Section 8 above have been complied with (in
all material respects) in respect of any separate counsel for such Indemnified
Person. Notwithstanding the provisions of this Section 8(d), no Initial
Purchaser shall be required to contribute any amount greater than the excess of
(i) the total price at which the Restricted Bonds sold and distributed by it to
the public were offered to the public over (ii) the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.

                  The agreement with respect to contribution contained in this
Section 8(d) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or the Initial Purchasers, and
shall survive delivery of and payment for the Restricted Bonds hereunder and any
termination of this Agreement.

                                       15
<PAGE>

                  9.       Survival: The respective indemnities, agreements,
representations, warranties and other statements of the Company and the Initial
Purchasers as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of the Initial Purchasers or any controlling person of the
Initial Purchasers, the Company, or any officer, director or controlling person
of the Company, and shall survive delivery of and payment for the Bonds.

                  10.      Conditions of Initial Purchasers' Obligations: The
several obligations of the Initial Purchasers shall be subject to the condition
that all representations and warranties and other statements of the Company
herein are, at and as of the Closing Date, true and correct, the condition that
the Company shall have performed all of its obligations hereunder theretofore to
be performed, and the following additional conditions:

                  (a)      That all legal proceedings to be taken in connection
with the issue and sale of the Restricted Bonds shall be reasonably satisfactory
in form and substance to Pillsbury Winthrop LLP, counsel to the Initial
Purchasers.

                  (b)      That, at the Closing Date, the Initial Purchasers
shall be furnished with the following opinions, dated the Closing Date:

                                    (i)      opinions of Skadden, Arps, Slate,
         Meagher & Flom LLP, counsel to the Company, substantially to the effect
         set forth in Exhibit B-1 and Exhibit B-2 to this Agreement;

                                    (ii)     opinion of Pillsbury Winthrop LLP,
         counsel to the Initial Purchasers, as to such matters as the Initial
         Purchasers shall reasonably request; and

                                    (iii)    opinion of Michael D. Van Hemert,
         Deputy General Counsel of CMS Energy Corporation, the parent of the
         Company, substantially to the effect set forth in Exhibit C to this
         Agreement.

                  (c)      (i) That on the date of the Offering Memorandum and
on the Closing Date, the Initial Purchasers shall have received a letter from
Ernst & Young LLP in form and substance satisfactory to the Initial Purchasers,
dated as of such respective dates, (A) confirming that they are independent
public accountants with respect to the Company within the meaning of the Act and
the applicable rules and regulations adopted by the Commission thereunder, (B)
stating that in their opinion the financial statements examined by them and
included or incorporated by reference in the Preliminary Offering Memorandum or
Offering Memorandum, as the case may be, complied as to form in all material
respects with the applicable accounting requirements of the Commission,
including the applicable rules and regulations adopted by the Commission, and
(C) covering, as of a date not more than three business days prior to the date
of such letter, such other matters as the Initial Purchasers reasonably request.

                           (ii) That on the date of the Offering Memorandum, the
Initial Purchasers shall have received a letter from PricewaterhouseCoopers LLP
in form and substance satisfactory

                                       16
<PAGE>

to the Initial Purchasers, dated as of such date, (A) confirming that they are
independent public accountants with respect to the Company and the Midland
Cogeneration Venture Limited Partnership within the meaning of the Act and the
applicable rules and regulations adopted by the Commission thereunder, (B)
stating that in their opinion the financial statements examined by them and
referred to in the letter of Ernst &Young LLP complied as to form in all
material respects with the applicable accounting requirements of the Commission,
including the applicable rules and regulations adopted by the Commission, and
(C) covering, as of a date not more than three business days prior to the date
of such letter, such other matters as the Initial Purchasers reasonably request.

                  (d)      That, between the date of the execution of this
Agreement and the Closing Date, no material adverse change shall have occurred
in the business, properties or financial condition of the Company, taken as a
whole, which, in the reasonable judgment of the Initial Purchasers, impairs the
marketability of the Restricted Bonds (other than changes referred to in or
contemplated by the Offering Memorandum).

                  (e)      That, at the Closing Date, the Company shall have
delivered to the Initial Purchasers a certificate of an executive officer of the
Company to the effect that, to the best of his or her knowledge, information and
belief, there shall have been no material adverse change in the business,
properties or financial condition of the Company from that set forth in the
Offering Memorandum (other than changes referred to in or contemplated by the
Offering Memorandum).

                  (f)      That the Company shall have executed and delivered
the Registration Rights Agreement and shall have furnished the Initial
Purchasers signed counterparts of the Supplemental Indenture.

                  (g)      That the Company shall have performed such of its
obligations under this Agreement as are to be performed at or before the Closing
Date by the terms hereof.

                  (h)      That the Company shall have complied with the
provisions of Section 5(c) hereof with respect to the furnishing of the Offering
Memorandum.

                  (i)      That, at the Closing Date, the Restricted Bonds shall
be rated at least BBB- by S&P, Baa3 by Moody's and BB+ by Fitch, and the Company
shall have delivered to the Initial Purchasers a letter, dated the Closing Date,
from each such rating agency, or other evidence reasonably satisfactory to the
Initial Purchasers, confirming that the Restricted Bonds have been assigned such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading or withdrawal in the rating assigned to the Restricted Bonds or any
of the Company's other securities by any nationally recognized statistical
rating agency, and no such rating agency shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of the Restricted Bonds or any of the Company's other securities.

                  (j)      That any additional documents or agreements
reasonably requested by the Initial Purchasers or their counsel to permit the
Initial Purchasers to perform their obligations or permit their counsel to
deliver opinions hereunder shall have been provided to them.

                                       17
<PAGE>

                  11.      Effectiveness and Termination of Agreement; Initial
Purchasers Default:

                  (a)      This Agreement shall become effective upon the
execution and delivery of this Agreement by the parties hereto.

                  (b)      This Agreement may be terminated at any time prior to
the Closing Date by the Initial Purchasers if, prior to such time, any of the
following events shall have occurred: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange; (ii) a
suspension or material limitation in trading in the Company's securities on any
exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities or a material disruption in
commercial banking or securities settlement or clearance services in the United
States; (iv) any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the Initial Purchasers' judgment, impracticable
to market such Restricted Bonds; or (v) a downgrading or withdrawal in the
rating assigned to the Restricted Bonds or any of the Company's other securities
by any nationally recognized statistical rating agency, or a public announcement
by any such rating agency that it has under surveillance or review, with
possible negative implications, its rating of the Restricted Bonds or any of the
Company's other securities.

                  If any of the Initial Purchasers elect to terminate this
Agreement, as provided in this Section 11, they will promptly notify the Company
by telephone or telecopy, confirmed by letter. If this Agreement shall not be
carried out by the Initial Purchasers for any reason permitted hereunder, or if
the sale of the Restricted Bonds to the Initial Purchasers as herein
contemplated shall not be carried out because the Company is not able to comply
with the terms hereof, the Company shall not be under any obligation under this
Agreement and shall not be liable to the Initial Purchasers for the loss of
anticipated profits from the transactions contemplated by this Agreement and the
Initial Purchasers shall be under no liability to the Company.

                  (c)      If on the Closing Date any one or more of the Initial
Purchasers shall fail or refuse (otherwise than for some reason sufficient to
justify in accordance with the terms hereof, the termination of its obligations
hereunder) to purchase Restricted Bonds which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of the Restricted
Bonds which such defaulting Initial Purchaser or Initial Purchasers, as the case
may be, agreed but failed or refused to purchase is not more than one-tenth of
the aggregate principal amount of the Restricted Bonds to be purchased on such
date by all Initial Purchasers, each non defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the
Restricted Bonds set forth opposite its name in Schedule A bears to the
aggregate principal amount of the Restricted Bonds which all the non-defaulting
Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed
or refused to purchase on such date; provided that in no event shall the
aggregate principal amount of the Restricted Bonds which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 11(c) by an amount in excess of one-ninth of such principal amount
of the Restricted Bonds which such Initial Purchaser agreed to purchase without
the written consent of such Initial Purchaser. If on the Closing Date any
Initial Purchaser or Initial Purchasers shall fail or refuse to purchase
Restricted Bonds and the aggregate principal amount of the Restricted Bonds with

                                       18
<PAGE>

respect to which such default occurs is more than one-tenth of the aggregate
principal amount of the Restricted Bonds to be purchased by all Initial
Purchasers and arrangements satisfactory to the Initial Purchasers and the
Company for purchase of such Restricted Bonds are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser and the Company. In any such case which does
not result in the termination of this Agreement, either the Initial Purchasers
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Offering Memorandum or any other documents or arrangements may be effected.
Any action taken under this Section 11(c) shall not relieve any defaulting
Initial Purchaser from liability in respect of any default of any such Initial
Purchaser under this Agreement.

                  (d)      Notwithstanding the foregoing, the provisions of
Sections 5(e), 5(i), 8 and 9 shall survive any termination of this Agreement.

                  12.      Miscellaneous: Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to Consumers Energy Company, One Energy Plaza, Jackson, Michigan 49201,
Attention: Executive Vice President and Chief Financial Officer (Telecopy
517-788-2186), and (ii) if to the Initial Purchasers, to (A) Banc One Capital
Markets, Inc., 1 Bank One Plaza, Suite IL 1-0595, Chicago, Illinois 60670,
Attention: Structuring & Execution (Telecopy 312-732-4773) and (B) Barclays
Capital Inc., 200 Park Avenue, New York, New York 10166, Attention: Syndicate
Department (Telecopy 212-412-7305), or in any case to such other address as the
person to be notified may have requested in writing.

                  Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the
Restricted Bonds from an Initial Purchaser merely because of such purchase.

                  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

                  This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.

                                       19
<PAGE>

                  Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.

                                       Very truly yours,

                                       CONSUMERS ENERGY COMPANY

                                       By: /s/ Thomas J. Webb
                                             -----------------------------------
                                          Name: Thomas J. Webb
                                          Title: Executive Vice President and
                                                 Chief Financial Officer

Accepted:

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
COMERICA SECURITIES, INC.
WACHOVIA SECURITIES, INC.

By: Banc One Capital Markets, Inc.

By: /s/ Ted Pfiffner
   -------------------------------
   Name: Ted Pfiffner
   Title: Director

<PAGE>


                                   SCHEDULE A

<TABLE>
<CAPTION>
                                  Principal Amount of Series A   Principal Amount of Series B
     Initial Purchasers              Bonds to be Purchased          Bonds to be Purchased
     ------------------              ---------------------          ---------------------
<S>                               <C>                            <C>
Banc One Capital Markets, Inc.            $100,000,000                   $150,000,000

Barclays Capital Inc.                     $100,000,000                   $150,000,000

J.P. Morgan Securities Inc.               $ 25,000,000                   $ 37,500,000

Comerica Securities, Inc.                 $ 12,500,000                   $ 18,750,000

Wachovia Securities, Inc.                 $ 12,500,000                   $ 18,750,000
                                          ------------                   ------------

                                          $250,000,000                   $375,000,000
                                          ============                   ============
</TABLE>

                                      A-1
<PAGE>

                                    EXHIBIT A

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 30, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc., J.P. Morgan Securities Inc., Comerica Securities, Inc. and
Wachovia Securities, Inc. (each an "Initial Purchaser" and, collectively, the
"Initial Purchasers"), which have agreed to purchase the Company's $250,000,000
4.25% First Mortgage Bonds due 2008, Series A (the "Series A Bonds") and
$375,000,000 5.375% First Mortgage Bonds due 2013, Series B (the "Series B
Bonds" and together with the Series A Bonds, the "Restricted Bonds") pursuant to
the Purchase Agreement (as defined below).

         This Agreement is made pursuant to the Purchase Agreement, dated April
23, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 10(f) of the Purchase
Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

         Closing Date: The date hereof.

                                      A-1
<PAGE>

         Commission: The Securities and Exchange Commission.

         Company: As defined in the first paragraph hereof.

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Series C Bonds in the same aggregate
principal amount as the aggregate principal amount of the Series A Bonds
tendered by Holders thereof and the delivery by the Company to the Registrar of
the Series D Bonds in the same aggregate principal amount as the aggregate
principal amount of the Series B Bonds tendered by holders thereof, in each
case, pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Series C Bonds and the Series D Bonds.

         Exchange Offer: The Series A Exchange Offer and/or the Series B
Exchange Offer, as the case may be.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

         Initial Purchaser: As defined in the first paragraph hereof.

                                      A-2
<PAGE>

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         Series A Bonds: As defined in the first paragraph hereof.

         Series A Exchange Offer: The registration by the Company under the Act
of the Series C Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series A Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
A Bonds for Series C Bonds in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities relating to
Series A Bonds tendered in such exchange offer by such Holders.

         Series B Bonds: As defined in the first paragraph hereof.

                                      A-3
<PAGE>

         Series B Exchange Offer: The registration by the Company under the Act
of the Series D Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series B Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
B Bonds for Series D Bonds in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities relating to
Series B Bonds tendered in such exchange offer by such Holders.

         Series C Bonds: The Company's 4.25% First Mortgage Bonds due 2008,
Series C, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Series A Bonds covered by a Shelf
Registration Statement, in exchange for such Series A Bonds.

         Series D Bonds: The Company's 5.375% First Mortgage Bonds due 2013,
Series D, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any holder of Series B Bonds covered by a Shelf
Registration Statement, in exchange for such Series B Bonds.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

         Transfer Restricted Securities: Each Bond, until the earliest to occur
of (a) the date on which such Restricted Bond is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Restricted Bond has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Restricted Bond is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Restricted Bond is distributed
to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no

                                      A-4
<PAGE>

event later than 240 days after the Closing Date, the Exchange Offer
Registration Statement, (ii) use its reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 330 days after the Closing Date, (iii)
in connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause such
Exchange Offer Registration Statement to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Exchange Bonds to be made under the blue sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Exchange Bonds to be offered in exchange for
the Restricted Bonds that are Transfer Restricted Securities and to permit sales
of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as
contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Bond received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Bonds held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c)

                                      A-5
<PAGE>

hereof to the extent necessary to ensure that it is available for sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, and
to ensure that such Registration Statement conforms with the requirements of
this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer is Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, the Company shall, if, and when, the Company is eligible to use Act Form
S-3, (x) cause to be filed on or prior to 180 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 180 days after the date
on which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 270 days after the
date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) hereof, the Company
is required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company shall use its reasonable
best efforts to keep the Shelf Registration Statement discussed in this Section
4(a) continuously effective, supplemented and amended as required by and subject
to the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i) hereof)
following the date on which such Shelf Registration Statement first becomes
effective under the Act.

                                      A-6
<PAGE>

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded within 15 Business Days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective within five Business Days (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company agrees to pay
liquidated damages in the form of additional interest on the Transfer Restricted
Securities to each Holder of Transfer Restricted Securities, from and including
the date on which any Registration Default shall occur to, but excluding, the
date on which such Registration Default has been cured, at a rate of 0.50% per
annum. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause (ii) above,
(3) upon Consummation of the Exchange Offer, in the case of clause (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable, in the case of clause (iv) above,
the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable,
shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

                                      A-7
<PAGE>

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the Commission staff
         an analysis prepared by counsel to the Company setting forth the legal
         bases, if any, upon which such counsel has concluded that such an
         Exchange Offer should be permitted and (C) diligently pursuing a
         resolution (which need not be favorable) by the Commission staff of
         such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the Exchange Offer, a written
         representation to the Company (which may be contained in the letter of
         transmittal contemplated by the Exchange Offer Registration Statement)
         to the effect that (A) it is not an affiliate of the Company, (B) it is
         not engaged in, and does not intend to engage in, and has no
         arrangement or understanding with any Person to participate in, a
         distribution of the Exchange Bonds to be issued in the Exchange Offer
         and (C) it is acquiring the Exchange Bonds in its ordinary course of
         business. Each Holder hereby acknowledges and agrees that any
         Broker-Dealer and any such Holder using the Exchange Offer to
         participate in a distribution of the securities to be acquired in the
         Exchange Offer (1) could not under Commission policy as in effect on
         the date of this Agreement rely on the position of the Commission
         enunciated in Morgan Stanley and Co. Inc. (available June 5, 1991) and
         Exxon Capital Holdings Corp. (available May 13, 1988), as interpreted
         in the Commission's letter to Shearman & Sterling (available July 2,
         1993), and similar no-action letters (including, if applicable, any
         no-action letter obtained pursuant to clause (i) above), and (2) must
         comply with the registration and prospectus delivery requirements of
         the Act in connection with a secondary resale transaction and that such
         a secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of

                                      A-8
<PAGE>

         Regulation S-K if the resales are of Exchange Bonds obtained by such
         Holder in exchange for Restricted Bonds acquired by such Holder
         directly from the Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective

                                      A-9
<PAGE>

         and such Registration Statement and the related Prospectus to become
         usable for their intended purpose(s) as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective amendment has been filed, and, with respect to any
         Registration Statement or any post-effective amendment thereto, when
         the same has become effective, (B) of any request by the Commission for
         amendments to the Registration Statement or amendments or supplements
         to the Prospectus or for additional information relating thereto, (C)
         of the issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement under the Act or of the
         suspension by any state securities commission of the qualification of
         the Transfer Restricted Securities for offering or sale in any
         jurisdiction, or the initiation of any proceeding for any of the
         preceding purposes, (D) of the existence of any fact or the happening
         of any event that makes any statement of a material fact made in the
         Registration Statement, the Prospectus, any amendment or supplement
         thereto or any document incorporated by reference therein untrue, or
         that requires the making of any additions to or changes in the
         Registration Statement in order to make the statements therein not
         misleading, or that requires the making of any additions to or changes
         in the Prospectus in order to make the statements therein, in the light
         of the circumstances under which they were made, not misleading. If at
         any time the Commission shall issue any stop order suspending the
         effectiveness of the Registration Statement, or any state securities
         commission or other regulatory authority shall issue an order
         suspending the qualification or exemption from qualification of the
         Transfer Restricted Securities under state securities or blue sky laws,
         the Company shall use its best efforts to obtain the withdrawal or
         lifting of such order at the earliest possible time;

                  (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all

                                      A-10
<PAGE>

         documents incorporated by reference after the initial filing of such
         Registration Statement), which documents will be subject to the review
         and comment of such Holders and underwriter(s) in connection with such
         sale, if any, for a period of at least five Business Days, and the
         Company will not file any such Registration Statement or Prospectus or
         any amendment or supplement to any such Registration Statement or
         Prospectus (including all such documents incorporated by reference) to
         which the selling Holders of the Transfer Restricted Securities covered
         by such Registration Statement or the underwriter(s) in connection with
         such sale, if any, shall reasonably object within five Business Days
         after the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such Registration Statement and any attorney or
         accountant retained by such selling Holders or any of such
         underwriter(s), all financial and other records, material corporate
         documents and properties of the Company and cause the Company's
         officers, directors and employees to supply all information reasonably
         requested by any such Holder, underwriter, attorney or accountant in
         connection with such Registration Statement or any post-effective
         amendment thereto subsequent to the filing thereof and prior to its
         effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation, information
         relating to the "Plan of Distribution" of the Transfer Restricted
         Securities, information with respect to the principal amount of
         Transfer Restricted Securities being sold to such underwriter(s), the
         purchase price being paid therefor and any other terms of the offering
         of the Transfer Restricted Securities to be sold in such offering; and
         make all required filings of such Prospectus supplement or
         post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by

                                      A-11
<PAGE>

         reference therein and all exhibits (including exhibits incorporated
         therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in such connection, whether or not an underwriting or
         similar agreement is entered into and whether or not the registration
         is an Underwritten Registration, the Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the date thereof, the
                           matters set forth in Sections 10(d) and 10(e) of the
                           Purchase Agreement and such other similar matters as
                           the Holders, underwriter(s) and/or Restricted
                           Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such

                                      A-12
<PAGE>

                           counsel has participated in conferences with officers
                           and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           required to be stated therein or necessary to make
                           the statements therein not misleading, or that the
                           Prospectus contained in such Registration Statement
                           as of its date and, in the case of the opinion dated
                           the date of Consummation of the Exchange Offer, as of
                           the date of Consummation, contained an untrue
                           statement of a material fact or omitted to state a
                           material fact necessary in order to make the
                           statements therein, in the light of the circumstances
                           under which they were made, not misleading. Without
                           limiting the foregoing, such counsel may state
                           further that such counsel assumes no responsibility
                           for, and has not independently verified, the
                           accuracy, completeness or fairness of the financial
                           statements, Bonds and schedules and other financial
                           data included in any Registration Statement
                           contemplated by this Agreement or the related
                           Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                                      A-13
<PAGE>

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                  (xii)    (A) issue, upon the request of any Holder of Series A
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series C Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series A Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series C Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Series A Bonds held by such Holder shall be surrendered
         to the Company for cancellation;

                           (B) issue, upon the request of any Holder of Series B
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Series D Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Series B Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Series D Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such

                                      A-14
<PAGE>

         Bonds, as the case may be; in return, the Series B Bonds held by such
         Holder shall be surrendered to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the Transfer Restricted
         Securities which are in a form eligible for deposit with The Depository
         Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule

                                      A-15
<PAGE>

         158 under the Act (which need not be audited) covering a twelve-month
         period beginning after the effective date of the Registration Statement
         (as such term is defined in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the Trustee to execute all documents that may be
         required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing

                                      A-16
<PAGE>

fees, if any, in connection with listing the Bonds on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, or, if any Registration Statement shall be amended or supplemented,
in the Registration Statement as so amended or supplemented, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission which was made in the
Registration Statement or in the Registration Statement as so amended or
supplemented, in reliance upon and in conformity with information furnished in
writing to the Company by any Holder expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the

                                      A-17
<PAGE>

Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent and upon the same terms as the indemnity
agreement of the Company set forth in Section 8(a) hereof, but only with respect
to alleged untrue statements or omissions made in the Registration Statement or
in the Registration Statement, as amended or supplemented (if applicable), in
reliance upon and in conformity with information furnished in writing to the
Company by such Holder expressly for use therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include (x) the
Indemnifying Person and (y) the Indemnified Person and, in the written opinion
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or likely conflicts of
interest between them, in either of which cases the reasonable fees and expenses
of counsel (including disbursements) for such Indemnified Person shall be
reimbursed by the Indemnifying Person to the Indemnified Person. If there is a
conflict as described in clause (ii) above, and the Indemnified Persons have
participated in the litigation or proceeding utilizing separate counsel whose
fees and expenses have been reimbursed by the Indemnifying Person, and the
Indemnified Persons, or any of them, are found to be solely liable, such
Indemnified Person shall repay to the Indemnifying Parties such fees and
expenses of such separate counsel as the Indemnifying Person shall have
reimbursed. It is understood that the Indemnifying Person shall not, in
connection with any litigation or proceeding or related litigation or
proceedings in the same jurisdiction as to which the Indemnified Persons are
entitled to such separate representation, be liable under this Agreement for the
reasonable fees and out-of-pocket expenses of more than one separate firm
(together with not more than one appropriate local counsel) for all such

                                      A-18
<PAGE>

Indemnified Persons. Subject to the next paragraph, all such fees and expenses
shall be reimbursed by payment to the Indemnified Persons of such reasonable
fees and expenses of counsel promptly after payment thereof by the Indemnified
Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person from
and against any loss, damage, liability or expenses by reason of such settlement
or judgment. The Indemnifying Person shall not, without the prior written
consent of the Indemnified Persons, effect any settlement of any pending or
threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities.

                                      A-19
<PAGE>

If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each Indemnifying Person shall contribute
to such amount paid or payable by such Indemnified Person in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of each Indemnifying Person, if any, on the one hand and the Indemnified
Person on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions, suits or
proceedings (including governmental investigations) in respect thereof), as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Holders on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 8. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages or liabilities (or
actions, suits or proceedings (including governmental proceedings) in respect
thereof) referred to in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 have been complied with (in all material respects) in respect of any
separate counsel for such Indemnified Person. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute any amount greater
than the excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations in this Section 8 to
contribute are several in proportion to their respective obligations and not
joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.

                                      A-20
<PAGE>

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by the Company of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained

                                      A-21
<PAGE>

the written consent of Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186,
                           Attention: Chief Financial Officer

                  With a copy at the same address to:

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                                      A-22
<PAGE>

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

                                      A-23
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                          CONSUMERS ENERGY COMPANY

                                          By:___________________________________
                                             Name: Thomas J. Webb
                                             Title: Executive Vice President and
                                                    Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
COMERICA SECURITIES, INC.
WACHOVIA SECURITIES, INC.

By: Banc One Capital Markets, Inc.

By:________________________________
   Name:
   Title:

                                      A-24
<PAGE>

                                   EXHIBIT B-1

1.       The offer, sale and delivery of the Restricted Bonds to the Initial
Purchasers in the manner contemplated by the Purchase Agreement and the Offering
Memorandum and the initial resale of the Restricted Bonds by the Initial
Purchasers in the manner contemplated in the Offering Memorandum and the
Purchase Agreement, do not require registration under the Act and the
Supplemental Indenture does not require qualification under the TIA, it being
understood that we do not express any opinion as to any subsequent reoffer or
resale of any of the Restricted Bonds.

2.       The Registration Rights Agreement is a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.

                                      B-1-1
<PAGE>

                                   EXHIBIT B-2

No facts have come to our attention that have caused us to believe that the
Offering Memorandum, as of its date and as of the date hereof, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (except that in each
case we do not express any view as to the financial statements, schedules and
other financial data and financial projections included therein or excluded
therefrom). For purposes of the foregoing, we note that the Offering Memorandum
has been prepared in the context of a Rule 144A transaction and not as part of a
registration statement under the Act and does not contain all the information
that would be required in a registration statement under the Act.

                                      B-2-1
<PAGE>

                                    EXHIBIT C

1.       The Company is a duly organized, validly existing corporation in good
standing under the laws of the State of Michigan.

2.       All legally required corporate proceedings in connection with the
authorization, issuance and validity of the Restricted Bonds and the sale of the
Restricted Bonds by the Company in accordance with the Purchase Agreement have
been taken and an appropriate order has been entered by the Federal Energy
Regulatory Commission under the Federal Power Act authority for the issuance and
sale of the Restricted Bonds and such order is in full force and effect; and no
approval, authorization, consent or other order of any governmental regulatory
body is required with respect to the issuance and sale of the Restricted Bonds
(other than in connection with or in compliance with the provisions of the
securities or blue sky laws of any state, as to which I express no opinion).

3.       I do not know of any legal or governmental proceedings that would be
required to be described in the Offering Memorandum if it were a registration
statement filed by the Company under the Act that are not described as required,
nor of any contracts or documents of a character so required to be described in
the Offering Memorandum that are not described as required.

4.       The statements made in the Offering Memorandum under the caption
"Description of the Bonds" constitute summaries of legal matters or documents
referred to therein and are accurate in all material respects; and the
Restricted Bonds conform as to legal matters to the descriptions thereof and to
the statements in regard thereto contained in such section of the Offering
Memorandum.

5.       Each document incorporated in the Offering Memorandum as such document
was originally filed pursuant to the Exchange Act (except for (i) the operating
statistics, financial statements and schedules contained or incorporated by
reference therein (including the notes thereto and the auditors' reports
thereon), (ii) the other financial or statistical information contained or
incorporated by reference therein and (iii) the exhibits thereto, as to which I
express no opinion) complied as to form when so filed in all material respects
with the Exchange Act and the applicable rules and regulations of the Commission
thereunder.

6.       The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

7.       The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization, execution and
delivery thereof by the Initial Purchasers, is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).

8.       The Indenture has been duly authorized, executed and delivered by the
Company and, assuming due authorization, execution and delivery of the Indenture
by the Trustee, will be a

                                      C-1
<PAGE>

valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).

9.       The Indenture complies as to form in all material respects with the
requirements of the TIA and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder. It is not necessary in
connection with the offer, sale and delivery of the Restricted Bonds to the
Initial Purchasers in the manner contemplated by the Purchase Agreement or in
connection with the Exempt Resales to qualify the Indenture under the TIA.

10.      The Restricted Bonds are in the form contemplated by the Indenture,
have been duly authorized, executed and delivered by the Company and, assuming
the due authentication thereof by the Trustee and upon payment and delivery in
accordance with the Purchase Agreement, will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity); the Restricted Bonds are entitled to the security afforded by the
Indenture equally and ratably with all securities presently outstanding
thereunder, and no stamp taxes in respect of the original issue thereof are
payable.

11.      The Company has good and marketable title to all its important
properties described in the Offering Memorandum and to substantially all other
real estate and property specifically described in the Indenture as subject to
the lien thereof except (a) that released or retired in accordance with the
provisions of the Indenture, (b) leased offices, garages and service buildings,
(c) leased nuclear fuel, (d) certain electric substations and gas regulator
stations and other facilities erected on sites under leases, easements, permits
or contractual arrangements, (e) certain pollution control facilities, which are
subject to security interests granted to various municipalities and economic
development corporations under installment sales contracts, (f) as to electric
and gas transmission and distribution lines, many of such properties are
constructed on rights-of-way by virtue of franchises or pursuant to easements
only, and (g) as to certain gas storage fields, the Company's interest in
certain of the gas rights and rights of storage and other rights incidental
thereto are in the nature of an easement or leasehold interest only; the
Indenture constitutes, as security for the Restricted Bonds, a valid direct
first mortgage lien on the real estate, property and franchises, subject only to
excepted encumbrances as defined therein and except as otherwise expressly
stated therein and subject to Michigan Compiled Laws Annotated Section
324.20138, which provides under certain circumstances for the creation of
priority liens on property of the Company in favor of the State of Michigan
covering reimbursement for any expense incurred in a response activity under the
Michigan Environmental Response Act; the Indenture is effective to create the
lien intended to be created thereby; and real estate, property or franchises in
the State of Michigan, hereafter acquired by the Company, will become subject to
the lien of the Indenture, at the time of acquisition, subject to liens existing
thereon at the time of acquisition, and subject to excepted encumbrances, and
subject to any necessary filing and recording before the intervention of any
lien not expressly excepted thereby, and subject to the qualification above with
respect to the enforceability of the Indenture.

                                      C-2
<PAGE>

12.      The Exchange Bonds are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming the due delivery and execution
thereof by the Company and the due authentication thereof by the Trustee in
accordance with the Registration Rights Agreement, will constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).

13.      The issuance and sale of the Restricted Bonds in accordance with the
terms of the Indenture and the Purchase Agreement do not violate the provisions
of the Restated Articles of Incorporation or the Bylaws of the Company, and will
not result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party.

14.      The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

15.      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, and (ii) is currently exempt from all
provisions of the Public Utility Holding Company Act of 1935, as amended, except
Section 9(a)(2) thereof.

16.      No registration under the Act of the Restricted Bonds is required for
the sale of the Restricted Bonds to the Initial Purchasers as contemplated by
the Purchase Agreement or for the Exempt Resales assuming (i) that each of the
Initial Purchasers is an Eligible Purchaser or an Accredited Investor (as
defined in Regulation D under the Act), (ii) the accuracy of, and compliance
with, the Initial Purchasers' representations and agreements contained in
Section 7 of the Purchase Agreement, and (iii) the accuracy of the
representations of the Company set forth in Sections 5(e), 5(n), 6(n), 6(p),
6(q), and 6(r)of the Purchase Agreement.

17.      Nothing has come to my attention that would lead me to believe that the
Offering Memorandum (other than (i) the operating statistics, financial
statements and schedules contained or incorporated by reference therein
(including the notes thereto and the auditors' reports thereon), (ii) the other
financial or statistical information contained or incorporated by reference
therein and (iii) the exhibits thereto, as to which I express no opinion), as of
its date or at the date hereof contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

                                      C-3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(B)
<SEQUENCE>11
<FILENAME>k80589exv10wxby.txt
<DESCRIPTION>PURCHASE AGREEMENT, DATED 05/20/03
<TEXT>
<PAGE>

                                                                 Exhibit (10)(b)

                                  $250,000,000

                            CONSUMERS ENERGY COMPANY

           $250,000,000 4.00% First Mortgage Bonds due 2010, Series E

                         -------------------------------

                               Purchase Agreement

                                              May 20, 2003

Banc One Capital Markets, Inc.
1 Bank One Plaza, Suite IL 1-0595
Chicago, Illinois 60670

Barclays Capital Inc.
200 Park Avenue
New York, New York 10166

J.P. Morgan Securities Inc.
270 Park Avenue
New York, New York 10017

Ladies and Gentlemen:

                  Consumers Energy Company, a Michigan corporation (the
"Company"), proposes to issue and sell to Banc One Capital Markets, Inc.,
Barclays Capital Inc. and J.P. Morgan Securities Inc. (each, an "Initial
Purchaser", and, collectively, the "Initial Purchasers") an aggregate of
$250,000,000 in principal amount of its 4.00% First Mortgage Bonds due 2010,
Series E (the "Restricted Bonds"), subject to the terms and conditions set forth
herein. The Restricted Bonds are to be issued pursuant to the provisions of the
Indenture dated as of September 1, 1945 between the Company and JPMorgan Chase
Bank (ultimate successor to City Bank Farmers Trust Company), as trustee (the
"Trustee"), as supplemented and amended by various supplemental indentures and
as to be supplemented by the Ninety-First Supplemental Indenture, to be dated as
of May 23, 2003, establishing the terms of the Restricted Bonds (the
"Supplemental Indenture") (as so supplemented, the "Indenture"). Capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Indenture.

                  Holders (including subsequent transferees) of the Restricted
Bonds will have the registration rights set forth in the registration rights
agreement in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), to be dated the Closing Date (as defined below), for so long as
such Restricted Bonds constitute Transfer Restricted Securities (as defined in
the Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Securities and Exchange
Commission (the "Commission"),

<PAGE>

under the circumstances set forth therein, (i) a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), relating to first mortgage bonds, in the principal amount
of $250,000,000 4.00% First Mortgage Bonds due 2010, Series F (the "Exchange
Bonds") to be offered in exchange for the Restricted Bonds (such offer to
exchange being referred to as the "Exchange Offer") and (ii) a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement" and, together with the Exchange Offer Registration
Statement, the "Registration Statements") relating to the resale by certain
holders of the Restricted Bonds and to use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. The Restricted Bonds and the Exchange Bonds issuable in exchange
therefor are collectively referred to herein as the "Bonds". This Agreement, the
Indenture, the Bonds and the Registration Rights Agreement are hereinafter
sometimes referred to collectively as the "Operative Documents".

                  1.       Offering Memorandum: The Restricted Bonds will be
offered and sold to the Initial Purchasers pursuant to one or more exemptions
from the registration requirements under the Act. The Company has prepared a
confidential offering memorandum dated May 20, 2003 (the "Offering Memorandum")
relating to the Restricted Bonds, which incorporate by reference documents filed
by the Company pursuant to Section 13, 14 or 15 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As used herein, the term "Offering
Memorandum" shall include the documents incorporated by reference therein. Any
reference herein to the terms "amend", "amendment" or "supplement" with respect
to the Offering Memorandum shall be deemed to include amendments or supplements
to the Offering Memorandum, and documents incorporated by reference after the
time of execution of this Agreement and prior to the termination of the offering
of the Restricted Bonds by the Initial Purchasers.

                  Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Restricted Bonds (and
all securities issued in exchange therefor or in substitution thereof) shall
bear the following legend:

         THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT
         BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
         PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
         BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
         PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
         INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
         144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION COMPLYING
         WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3)
         PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
         PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE WITH
         ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
         ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6)

                                       2

<PAGE>

         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
         ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
         STATES OF THE UNITED STATES.

                  2.       Agreement to Sell and Purchase: On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree to
purchase from the Company, severally, the principal amount of Restricted Bonds
set forth opposite the names of such Initial Purchasers on Schedule A hereto at
a purchase price equal to 98.876% of the principal amount thereof with respect
to the Restricted Bonds (the "Purchase Price").

                  The Company hereby agrees that, without the prior written
consent of the Initial Purchasers, it will not offer, sell, contract to sell or
otherwise issue debt securities substantially similar to the Restricted Bonds
for a period from the date of the execution of this Agreement until the Closing
Date.

                  3.       Terms of Offering: The Initial Purchasers have
advised the Company that the Initial Purchasers will make offers (the "Exempt
Resales") of the Restricted Bonds purchased hereunder on the terms set forth in
the Offering Memorandum solely to persons whom the Initial Purchasers reasonably
believe to be "qualified institutional buyers" as defined in Rule 144A under the
Act or, at the time any buy order for the Bonds was or is originated, were or
are outside the United States and were or are not "U.S. persons" within the
meaning of Regulation S under the Act (such persons being referred to herein as
the "Eligible Purchasers"). The Initial Purchasers will offer the Restricted
Bonds to Eligible Purchasers initially at a price equal to 100% of the principal
amount thereof. Such price may be changed at any time without notice.

                  4.       Delivery and Payment:

                  (a)      Delivery of, and payment of the Purchase Price for,
the Restricted Bonds shall be made at the offices of Pillsbury Winthrop LLP, One
Battery Park Plaza, New York, NY 10004-1490, or such other location as may be
mutually acceptable. Payment for the Restricted Bonds shall be made to the
Company in federal or other funds immediately available in New York City against
delivery of such Restricted Bonds for the account of the Initial Purchasers at
10:00 a.m., New York City time, on May 23, 2003, or at such other time as shall
be agreed upon by the Initial Purchasers and the Company. The time and date of
such delivery and the payment are herein called the "Closing Date".

                  (b)      Certificates for the Restricted Bonds shall be in
definitive form or global form, as specified by the Initial Purchasers, and
registered in such names and in such denominations as the Initial Purchasers
shall request in writing not later than one full business day prior to the
Closing Date. The certificates evidencing the Restricted Bonds shall be
delivered on the Closing Date for the account of the Initial Purchasers, with
any transfer taxes payable in connection with the transfer of the Restricted
Bonds to the Initial Purchasers duly paid, against payment of the Purchase Price
therefor plus accrued interest, if any, to the date of payment and delivery.
Certificates for the Restricted Bonds shall be made available to the Initial

                                       3

<PAGE>

Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.

                  5.       Agreements of the Company: In further consideration
of the agreements of the Initial Purchasers herein contained, the Company
covenants as follows:

                  (a)      To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Restricted Bonds for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(d) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any
Restricted Bonds under any state securities or blue sky laws and, if at any time
any state securities commission or other federal or state regulatory authority
shall issue an order suspending the qualification or exemption of any Restricted
Bonds under any state securities or blue sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.

                  (b)      To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company as many copies of the
Offering Memorandum, and any amendments or supplements thereto, in such
quantities as the Initial Purchasers may reasonably request. Subject to the
Initial Purchasers' compliance with their representations and warranties and
agreements set forth in Section 7 hereof, the Company consents to the use of the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchasers in connection with Exempt Resales.

                  (c)      For such period of time as the Initial Purchasers are
required by law or customary practice to deliver an offering memorandum in
respect of the Restricted Bonds, if any event shall have occurred as a result of
which it is necessary to amend or supplement the Offering Memorandum in order to
make the statements therein, in light of the circumstances when the Offering
Memorandum is delivered to an Eligible Purchaser, not misleading, or if it
becomes necessary to amend or supplement the Offering Memorandum to comply with
law, to forthwith prepare an appropriate amendment or supplement to the Offering
Memorandum and deliver to the Initial Purchasers, without charge, such number of
copies thereof as may be reasonably requested.

                  (d)      To use its best efforts to qualify the Restricted
Bonds for offer and sale under the securities or blue sky laws of such
jurisdictions as the Initial Purchasers may designate and to pay (or cause to be
paid), or reimburse (or cause to be reimbursed) the Initial Purchasers and their
counsel for, reasonable filing fees and expenses in connection therewith
(including the reasonable fees and disbursements of counsel to the Initial
Purchasers and filing fees and expenses paid and incurred prior to the date
hereof), provided, however, that the Company shall not be required to qualify to
do business as a foreign corporation or as a securities dealer or to file a
general consent to service of process or to file annual reports or to comply
with any other requirements deemed by the Company to be unduly burdensome.

                                       4

<PAGE>

                  (e)      So long as the Bonds are outstanding, (i) to mail and
make generally available as soon as practicable after the end of each fiscal
year to the record holders of the Bonds a financial report of the Company on a
consolidated basis, all such financial reports to include a consolidated balance
sheet, a consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the end of and
for such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by the Company's independent public
accountants and (ii) to mail and make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly period of
each fiscal year) to such holders, a consolidated balance sheet, a consolidated
statement of operations and a consolidated statement of cash flows as of the end
of and for such period, and for the period from the beginning of such year to
the close of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.

                  (f)      So long as any of the Restricted Bonds remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any holder of Restricted
Bonds in connection with any sale thereof and any prospective purchaser of such
Restricted Bonds from such holder, the information required by Rule 144A(d)(4)
under the Act.

                  (g)      To pay all expenses, fees and taxes (other than
transfer taxes on sales by the Initial Purchasers) in connection with the
issuance and delivery of the Restricted Bonds, except that the Company shall be
required to pay the fees and disbursements (other than fees and disbursements
referred to in Section 5(d) hereof) of Pillsbury Winthrop LLP, counsel to the
Initial Purchasers, only in the events provided in Section 5(h) hereof, the
Initial Purchasers hereby agreeing to pay such fees and disbursements in any
other event, and that except as provided in such Section 5(h), the Company shall
not be responsible for any out-of-pocket expenses of the Initial Purchasers in
connection with their services hereunder.

                  (h)      If the Initial Purchasers shall not take up and pay
for the Restricted Bonds due to the failure of the Company to comply with any of
the conditions specified in Section 10 hereof, or, if this Agreement shall be
terminated in accordance with the provisions of Section 11(b) hereof prior to
the Closing Date, to pay the reasonable fees and disbursements of Pillsbury
Winthrop LLP, counsel to the Initial Purchasers and, if the Initial Purchasers
shall not take up and pay for the Restricted Bonds due to the failure of the
Company to comply with any of the conditions specified in Section 10 hereof, to
reimburse the Initial Purchasers for their reasonable out-of-pocket expenses, in
an aggregate amount not exceeding a total of $3,000, incurred in connection with
the financing contemplated by this Agreement.

                  (i)      During the period referred to in Section 5(c) hereof,
to not amend or supplement the Offering Memorandum unless the Company has
furnished the Initial Purchasers and counsel to the Initial Purchasers with a
copy for their review and comment a reasonable time prior to the making of such
amendment or supplement and has reasonably considered any comments of the
Initial Purchasers, and not to make any such amendment or supplement to which
such counsel shall reasonably object on legal grounds in writing after
consultation with the Initial Purchasers.

                                       5

<PAGE>

                  (j)      During the period referred to in Section 5(c) hereof,
to furnish the Initial Purchasers with copies of all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.

                  (k)      During the period referred to in Section 5(c) hereof,
to comply with all requirements under the Exchange Act relating to the filing
with the Commission of its reports pursuant to Section 13 or 15(d) of the
Exchange Act and of its proxy statements pursuant to Section 14 of the Exchange
Act.

                  (l)      To comply in all material respects with all of its
agreements set forth in the Registration Rights Agreement.

                  (m)      To obtain the approval of The Depository Trust
Company ("DTC") for "book-entry" transfer of the Bonds, and to comply in all
material respects with all of its agreements set forth in the representation
letter or letters of the Company to DTC relating to the approval of the Bonds by
DTC for "book-entry" transfer.

                  (n)      Not to (or permit any affiliate (as defined in Rule
144 under the Act) to) sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Restricted Bonds to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Restricted Bonds under the Act.

                  (o)      Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Bonds.

                  (p)      To cause the Exchange Offer to be made in the
appropriate form to permit Exchange Bonds registered pursuant to the Act to be
offered in exchange for the Restricted Bonds and to comply in all material
respects with all applicable federal and state securities laws in connection
with the Exchange Offer.

                  (q)      During the period of two years after the Closing
Date, not to, and not permit any of its affiliates (as defined in Rule 144 under
the Act) to, resell any of the Bonds which constitute "restricted securities"
under Rule 144 under the Act that have been reacquired by any of them.

                  (r)      To take all reasonable action necessary to enable
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch, Inc. ("Fitch")
to provide their respective credit ratings of the Restricted Bonds.

                  (s)      (1) Within 10 days after the Closing Date, to deliver
the Supplemental Indenture in recordable form to the appropriate real estate
recording office in all jurisdictions specified in the Supplemental Indenture
for recording and deliver to the office of the Secretary of State of the State
of Michigan a UCC-1 financing statement relating to the Supplemental Indenture
for filing in such office and (2) within 25 days after the Closing Date, to
deliver to counsel to the Initial Purchasers a certificate signed by an officer
of the Company certifying that

                                       6

<PAGE>

the actions required by the foregoing clause (1) have been taken. The Company
shall further provide counsel to the Initial Purchasers, as soon as it is
available, a copy of the related opinion of counsel contemplated by Section
7.11(i) of the Indenture. To the extent not covered in the opinion described in
the previous sentence, the Company shall also provide counsel to the Initial
Purchasers, concurrently with the furnishing of such opinion, a list of the
recording information for all such filings.

                  6.       Representations and Warranties of the Company: The
Company represents and warrants to, and agrees with, the Initial Purchasers
that:

                  (a)      The Offering Memorandum does not, and any supplement
or amendment to it will not, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
contained in this Section 6(a) shall not apply to statements in or omissions
from the Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. No stop order
preventing the use of the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act, has been
issued.

                  (b)      The documents incorporated by reference in the
Offering Memorandum, when they were filed (or, if an amendment with respect to
any such document was filed, when such amendment was filed) with the Commission,
conformed in all material respects to the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and any
further documents so filed and incorporated by reference will, when they are
filed with the Commission, conform in all material respects to the requirements
of the Exchange Act and the rules and regulations of the Commission promulgated
thereunder; none of such documents, when it was filed (or, if an amendment with
respect to any such document was filed, when such amendment was filed),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and no
such further document, when it is filed, will contain an untrue statement of a
material fact or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.

                  (c)      The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Michigan and has all requisite authority to own or lease its properties and
conduct its business as described in the Offering Memorandum and to consummate
the transactions contemplated hereby, and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business as described in the Offering Memorandum or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company.

                                       7

<PAGE>

                  (d)      This Agreement has been duly authorized, executed and
delivered by the Company.

                  (e)      The Bonds are in the form contemplated by the
Indenture and have been duly authorized by the Company. At the Closing Date, the
Restricted Bonds will have been duly executed and delivered by the Company and,
when authenticated by the Trustee in the manner provided for in the Indenture,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity), and will be entitled to the security afforded
by the Indenture equally and ratably with all securities outstanding thereunder.
The Bonds conform in all material respects to the descriptions thereof in the
Offering Memorandum.

                  (f)      The Registration Rights Agreement has been duly
authorized by the Company. At the Closing Date, the Registration Rights
Agreement will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity). The Registration Rights Agreement conforms in
all material respects to the description thereof in the Offering Memorandum.

                  (g)      The Indenture has been duly authorized by the
Company. At the Closing Date, the Indenture will have been duly executed and
delivered by the Company and will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity); the
Indenture conforms in all material respects to the description thereof in the
Offering Memorandum; and the Indenture conforms to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA").

                  (h)      The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct business in the manner described in the Offering Memorandum, except to
the extent that the failure to obtain or file would not have a material adverse
effect on the Company.

                  (i)      An appropriate order has been entered by the Federal
Energy Regulatory Commission under the Federal Power Act authorizing the
issuance and sale of the Bonds and such order is in full force and effect. No
other order, license, consent, authorization or approval of, or exemption by, or
the giving of notice to, or the registration with, any federal, state, local or
other governmental department, commission, board, bureau, agency or
instrumentality, and no

                                       8

<PAGE>

filing, recording, publication or registration in any public office or any other
place, was or is now required to be obtained by the Company to authorize its
execution or delivery of, or the performance of its obligations under, this
Agreement or any of the other Operative Documents, except such as have been
obtained or may be required under state securities or blue sky laws or as
referred to in the Offering Memorandum.

                  (j)      None of the issuance and sale of the Bonds, or the
execution or delivery by the Company of, or the performance by the Company of
its obligations under, this Agreement or the other Operative Documents, did or
will conflict with, result in a breach of any of the terms or provisions of, or
constitute a default or require the consent of any party under, the Company's
Articles of Incorporation or by-laws, any material agreement or instrument to
which the Company is a party, any existing applicable law, rule or regulation or
any judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or assets, or, except as described in the Offering Memorandum, did or
will result in the creation or imposition of any lien on the Company's
properties or assets.

                  (k)      Except as disclosed in the Offering Memorandum, there
is no action, suit, proceeding, inquiry or investigation (at law or in equity or
otherwise) pending or, to the knowledge of the Company, threatened against the
Company by any governmental authority that (i) questions the validity,
enforceability or performance of this Agreement or any of the other Operative
Documents or (ii) if determined adversely, is likely to have a material adverse
effect on the business or financial condition of the Company, or have a material
adverse effect on the ability of the Company to perform its obligations
hereunder or the ability of the Company to consummate the transactions
contemplated by this Agreement.

                  (l)      There has not been any material and adverse change in
the business, properties or financial condition of the Company from that set
forth or incorporated by reference in the Offering Memorandum (other than
changes referred to in or contemplated by the Offering Memorandum).

                  (m)      Except as set forth in the Offering Memorandum, no
event or condition exists that constitutes, or with the giving of notice or
lapse of time or both would constitute, a default or any breach or failure to
perform by the Company in any material respect under any indenture, mortgage,
loan agreement, lease or other material agreement or instrument to which the
Company is a party or by which it may be bound.

                  (n)      The Offering Memorandum, as of its date, contained
all the information specified in, and met the requirements of, Rule 144A(d)(4)
under the Act.

                  (o)      When the Restricted Bonds are issued and delivered
pursuant to this Agreement, the Restricted Bonds will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of the Company
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system. Except for the $250,000,000 aggregate principal amount of the
Company's 4.25% First Mortgage Bonds due 2008, Series A and the $375,000,000
aggregate principal amount of the Company's 5.375% First Mortgage Bonds due
2013, Series B, each

                                       9

<PAGE>

issued on April 30, 2003 pursuant to an exemption from the Act, no securities of
the same class as the Restricted Bonds have been issued and sold by the Company
within the six-month period immediately prior to the date hereof.

                  (p)      Neither the Company nor any affiliate (as defined in
Rule 144 under the Act) of the Company has directly, or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Act) which is or will be integrated
with the sale of the Restricted Bonds in a manner that would require the
registration under the Act of the Restricted Bonds or (ii) engaged in any form
of general solicitation or general advertising in connection with the offering
of the Restricted Bonds (as those terms are used in Regulation D under the Act),
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act, including, but not limited to, publication or release of articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.

                  (q)      Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.

                  (r)      None of the Company nor any of its affiliates (as
defined in Rule 144 under the Act) or any person acting on its or their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S under the Act with respect to the Restricted
Bonds.

                  (s)      No registration under the Act of the Restricted Bonds
is required for the sale of the Restricted Bonds to the Initial Purchasers as
contemplated hereby or for the Exempt Resales (assuming the accuracy of the
Initial Purchasers' representation and warranty and agreement set forth in
Section 7 hereof).

                  (t)      The Company, after giving effect to the offering and
sale of the Restricted Bonds, will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

                  (u)      The Company has good and marketable title to all its
important properties described in the Offering Memorandum and to substantially
all other real estate and property specifically described in the Indenture as
subject to the lien thereof except (a) that released or retired in accordance
with the provisions of the Indenture, (b) leased offices, garages and service
buildings, (c) leased nuclear fuel, (d) certain electric substations and gas
regulator stations and other facilities erected on sites under leases,
easements, permits or contractual arrangements, (e) certain pollution control
facilities, which are subject to security interests granted to various
municipalities and economic development corporations under installment sales
contracts, (f) as to electric and gas transmission and distribution lines, many
of such properties are constructed on rights-of-way by virtue of franchises or
pursuant to easements only, and (g) as to certain gas storage fields, the
Company's interest in certain of the gas rights and rights of storage and other
rights incidental thereto are in the nature of an easement or leasehold interest
only. The Indenture constitutes, as security for the Restricted Bonds, a valid
direct first mortgage lien on the real estate, property and franchises, subject
only to excepted encumbrances as defined therein

                                       10

<PAGE>

and except as otherwise expressly stated therein and subject to Michigan
Compiled Laws Annotated Section 324.20138, which provides under certain
circumstances for the creation of priority liens on property of the Company in
favor of the State of Michigan covering reimbursement for any expense incurred
in a response activity under the Michigan Environmental Response Act. The
Indenture is effective to create the lien intended to be created thereby. Real
estate, property or franchises in the State of Michigan hereafter acquired by
the Company will become subject to the lien of the Indenture, at the time of
acquisition, subject to liens existing thereon at the time of acquisition, and
subject to excepted encumbrances, and subject to any necessary filing and
recording before the intervention of any lien not expressly excepted thereby,
and subject to the qualification above with respect to the enforceability of the
Indenture.

                  The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 10 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.

                  7.       Initial Purchasers' Representations and Warranties:
Upon the authorization by the Initial Purchasers of the release of the
Restricted Bonds, the Initial Purchasers propose to offer the Restricted Bonds
for sale upon the terms and conditions set forth in this Agreement and the
Offering Memorandum and the Initial Purchasers hereby represent and warrant to,
and agree with, the Company that:

                  (a)      they each will offer and sell the Restricted Bonds
only to Eligible Purchasers;

                  (b)      they each are Accredited Investors (as defined in
Regulation D under the Act); and

                  (c)      they each will not offer or sell the Restricted Bonds
by any form of general solicitation or general advertising, including, but not
limited to, the methods described in Rule 502(c) under the Act.

                  8.       Indemnification:

                  (a)      The Company agrees, to the extent permitted by law,
to indemnify and hold harmless each of the Initial Purchasers and each person,
if any, who controls any such Initial Purchaser within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act or otherwise, and to reimburse the Initial
Purchasers and such controlling person or persons, if any, for any legal or
other expenses incurred by them in connection with defending any action, suit or
proceeding (including governmental investigations) as provided in Section 8(c)
hereof, insofar as such losses, claims, damages, liabilities or actions, suits
or proceedings (including governmental investigations) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary offering memorandum or the Offering Memorandum, or,
if any preliminary offering memorandum or the Offering Memorandum shall be
amended or supplemented, in such

                                       11

<PAGE>

preliminary offering memorandum or the Offering Memorandum as so amended or
supplemented or arise out of or are based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
which was made in such preliminary offering memorandum or the Offering
Memorandum or in such preliminary offering memorandum or the Offering Memorandum
as so amended or supplemented, in reliance upon and in conformity with
information furnished in writing to the Company by, or on behalf of, any Initial
Purchaser expressly for use therein and except that this indemnity shall not
inure to the benefit of any Initial Purchaser (or any person controlling such
Initial Purchaser) on account of any losses, claims, damages, liabilities or
actions, suits or proceedings arising from the sale of the Restricted Bonds to
any person if a copy of the Offering Memorandum, as the same may then be
supplemented or amended (excluding, however, any document then incorporated or
deemed incorporated therein by reference), was not sent or given by or on behalf
of such Initial Purchaser to such person (i) with or prior to the written
confirmation of sale involved or (ii) as soon as available after such written
confirmation, relating to an event occurring prior to the payment for and
delivery to such person of the Restricted Bonds involved in such sale, and the
omission or alleged omission or untrue statement or alleged untrue statement was
corrected in the Offering Memorandum as supplemented or amended at such time.

                  The Company's indemnity agreement contained in this Section
8(a), and the covenants, representations and warranties of the Company contained
in this Agreement, shall remain in full force and effect regardless of any
investigation made by or on behalf of any person, and shall survive the delivery
of and payment for the Restricted Bonds hereunder, and the indemnity agreement
contained in this Section 8 shall survive any termination of this Agreement. The
liabilities of the Company in this Section 8(a) are in addition to any other
liabilities of the Company under this Agreement or otherwise.

                  (b)      Each Initial Purchaser agrees severally and jointly,
to the extent permitted by law, to indemnify, hold harmless and reimburse the
Company, each other Initial Purchaser, and each person, if any, who controls the
Company or such other Initial Purchaser within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
any preliminary offering memorandum or the Offering Memorandum or in any
preliminary offering memorandum or the Offering Memorandum, as amended or
supplemented (if applicable), in reliance upon and in conformity with
information furnished in writing to the Company by such Initial Purchaser
expressly for use therein.

                  The indemnity agreement on the part of each Initial Purchaser
contained in this Section 8(b) and the representations and warranties of such
Initial Purchaser contained in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any other person, and shall survive the delivery of and payment for the
Restricted Bonds hereunder, and the indemnity agreement contained in this
Section 8(b) shall survive any termination of this Agreement. The liabilities of
each Initial Purchaser in this

                                       12

<PAGE>

Section 8(b) are in addition to any other liabilities of each Initial Purchaser
under this Agreement or otherwise.

                  (c)      If a claim is made or an action, suit or proceeding
(including governmental investigations) is commenced or threatened against any
person as to which indemnity may be sought under Section 8(a) or 8(b) hereof,
such person (the "Indemnified Person") shall notify the person against whom such
indemnity may be sought (the "Indemnifying Person") promptly after any assertion
of such claim threatening to institute an action, suit or proceeding or if such
an action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by any Initial
Purchaser in the case of parties indemnified pursuant to Section 8(b) hereof and
by the Company in the case of parties indemnified pursuant to Section 8(a)
hereof. Any Indemnified Person shall have the right to participate in such
litigation or proceeding and to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include (x) the
Indemnifying Person and (y) the Indemnified Person and, in the written opinion
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or likely conflicts of
interest between them, in either of which cases the reasonable fees and expenses
of counsel (including disbursements) for such Indemnified Person shall be
reimbursed by the Indemnifying Person to the Indemnified Person. If there is a
conflict as described in clause (ii) above, and the Indemnified Persons have
participated in the litigation or proceeding utilizing separate counsel whose
fees and expenses have been reimbursed by the Indemnifying Person and the
Indemnified Persons, or any of them, are found to be solely liable, such
Indemnified Person shall repay to the Indemnifying Person such fees and expenses
of such separate counsel as the Indemnifying Person shall have reimbursed. It is
understood that the Indemnifying Person shall not, in connection with any
litigation or proceeding or related litigation or proceedings in the same
jurisdiction as to which the Indemnified Persons are entitled to such separate
representation, be liable under this Agreement for the reasonable fees and
out-of-pocket expenses of more than one separate firm (together with not more
than one appropriate local counsel) for all such Indemnified Persons. Subject to
the next paragraph, all such fees and expenses shall be reimbursed by payment to
the Indemnified Persons of such reasonable fees and expenses of counsel promptly
after payment thereof by the Indemnified Persons.

                  In furtherance of the requirement above that fees and expenses
of any separate counsel for the Indemnified Persons shall be reasonable, the
Initial Purchasers and the Company agree that the Indemnifying Person's
obligations to pay such fees and expenses shall be conditioned upon the
following:

                                       13

<PAGE>

                                    (i)      in case separate counsel is
         proposed to be retained by the Indemnified Persons pursuant to clause
         (ii) of the preceding paragraph, the Indemnified Persons shall in good
         faith fully consult with the Indemnifying Person in advance as to the
         selection of such counsel;

                                    (ii)     reimbursable fees and expenses of
         such separate counsel shall be detailed and supported in a manner
         reasonably acceptable to the Indemnifying Person (but nothing herein
         shall be deemed to require the furnishing to the Indemnifying Person of
         any information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                                    (iii)    the Company and the Initial
         Purchasers shall cooperate in monitoring and controlling the fees and
         expenses of separate counsel for Indemnified Persons for which the
         Indemnifying Person is liable hereunder, and the Indemnified Person
         shall use every reasonable effort to cause such separate counsel to
         minimize the duplication of activities as between themselves and
         counsel to the Indemnifying Person.

                  The Indemnifying Person shall not be liable for any settlement
of any litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees, subject to the
provisions of this Section 8, to indemnify the Indemnified Person from and
against any loss, damage, liability or expenses by reason of such settlement or
judgment. The Indemnifying Person shall not, without the prior written consent
of the Indemnified Persons, effect any settlement of any pending or threatened
litigation, proceeding or claim in respect of which indemnity has been properly
sought by the Indemnified Persons hereunder, unless such settlement includes an
unconditional release by the claimant of all Indemnified Persons from all
liability with respect to claims which are the subject matter of such
litigation, proceeding or claim.

                  (d)      If the indemnification provided for in Section 8
above is unavailable to or insufficient to hold harmless an Indemnified Person
under this Section 8 in respect of any losses, claims, damages or liabilities
(or actions, suits or proceedings (including governmental investigations) in
respect thereof) referred to therein, then each Indemnifying Person under this
Section 8 above shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Indemnifying Person on the one hand and
the Indemnified Person on the other from the offering of the Restricted Bonds.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each Indemnifying Person shall contribute
to such amount paid or payable by such Indemnified Person in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of each Indemnifying Person, if any, on the one hand and the Indemnified
Person on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions, suits or
proceedings (including governmental investigations) in respect thereof), as well
as any other relevant

                                       14

<PAGE>

equitable considerations. The relative benefits received by the Company on the
one hand and the Initial Purchasers on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the total discounts or commissions
received by the Initial Purchasers, in each case as set forth in the Offering
Memorandum, bear to the aggregate offering price of the Restricted Bonds. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Initial Purchasers on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(d). The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages or liabilities (or actions, suits or
proceedings (including governmental proceedings) in respect thereof) referred to
above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 above have been complied with (in all material respects) in respect of
any separate counsel for such Indemnified Person. Notwithstanding the provisions
of this Section 8(d), no Initial Purchaser shall be required to contribute any
amount greater than the excess of (i) the total price at which the Restricted
Bonds sold and distributed by it to the public were offered to the public over
(ii) the amount of any damages which such Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

                  The agreement with respect to contribution contained in this
Section 8(d) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or the Initial Purchasers, and
shall survive delivery of and payment for the Restricted Bonds hereunder and any
termination of this Agreement.

                  9.       Survival: The respective indemnities, agreements,
representations, warranties and other statements of the Company and the Initial
Purchasers as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of the Initial Purchasers or any controlling person of the
Initial Purchasers, the Company, or any officer, director or controlling person
of the Company, and shall survive delivery of and payment for the Bonds.

                  10.      Conditions of Initial Purchasers' Obligations: The
several obligations of the Initial Purchasers shall be subject to the condition
that all representations and warranties and other statements of the Company
herein are, at and as of the Closing Date, true and correct, the condition that
the Company shall have performed all of its obligations hereunder theretofore to
be performed, and the following additional conditions:

                                       15

<PAGE>

                  (a)      That all legal proceedings to be taken in connection
with the issue and sale of the Restricted Bonds shall be reasonably satisfactory
in form and substance to Pillsbury Winthrop LLP, counsel to the Initial
Purchasers.

                  (b)      That, at the Closing Date, the Initial Purchasers
shall be furnished with the following opinions, dated the Closing Date:

                                    (i)      opinions of Skadden, Arps, Slate,
         Meagher & Flom LLP, counsel to the Company, substantially to the effect
         set forth in Exhibit B-1 and Exhibit B-2 to this Agreement;

                                    (ii)     opinion of Pillsbury Winthrop LLP,
         counsel to the Initial Purchasers, as to such matters as the Initial
         Purchasers shall reasonably request; and

                                    (iii)    opinion of Michael D. Van Hemert,
         Deputy General Counsel of CMS Energy Corporation, the parent of the
         Company, substantially to the effect set forth in Exhibit C to this
         Agreement.

                  (c)      (i)      That on the date of the Offering Memorandum
and on the Closing Date, the Initial Purchasers shall have received a letter
from Ernst & Young LLP in form and substance satisfactory to the Initial
Purchasers, dated as of such respective dates, (A) confirming that they are
independent public accountants with respect to the Company within the meaning of
the Act and the applicable rules and regulations adopted by the Commission
thereunder, (B) stating that in their opinion the financial statements examined
by them and included or incorporated by reference in the Offering Memorandum, as
the case may be, complied as to form in all material respects with the
applicable accounting requirements of the Commission, including the applicable
rules and regulations adopted by the Commission, and (C) covering, as of a date
not more than three business days prior to the date of such letter, such other
matters as the Initial Purchasers reasonably request.

                           (ii)     That on the date of the Offering Memorandum,
the Initial Purchasers shall have received a letter from PricewaterhouseCoopers
LLP in form and substance satisfactory to the Initial Purchasers, dated as of
such date, (A) confirming that they are independent public accountants with
respect to the Company and the Midland Cogeneration Venture Limited Partnership
within the meaning of the Act and the applicable rules and regulations adopted
by the Commission thereunder, (B) stating that in their opinion the financial
statements examined by them and referred to in the letter of Ernst &Young LLP
complied as to form in all material respects with the applicable accounting
requirements of the Commission, including the applicable rules and regulations
adopted by the Commission, and (C) covering, as of a date not more than three
business days prior to the date of such letter, such other matters as the
Initial Purchasers reasonably request.

                  (d)      That, between the date of the execution of this
Agreement and the Closing Date, no material adverse change shall have occurred
in the business, properties or financial condition of the Company, taken as a
whole, which, in the reasonable judgment of the Initial

                                       16

<PAGE>

Purchasers, impairs the marketability of the Restricted Bonds (other than
changes referred to in or contemplated by the Offering Memorandum).

                  (e)      That, at the Closing Date, the Company shall have
delivered to the Initial Purchasers a certificate of an executive officer of the
Company to the effect that, to the best of his or her knowledge, information and
belief, there shall have been no material adverse change in the business,
properties or financial condition of the Company from that set forth in the
Offering Memorandum (other than changes referred to in or contemplated by the
Offering Memorandum).

                  (f)      That the Company shall have executed and delivered
the Registration Rights Agreement and shall have furnished the Initial
Purchasers signed counterparts of the Supplemental Indenture.

                  (g)      That the Company shall have performed such of its
obligations under this Agreement as are to be performed at or before the Closing
Date by the terms hereof.

                  (h)      That the Company shall have complied with the
provisions of Section 5(c) hereof with respect to the furnishing of the Offering
Memorandum.

                  (i)      That, at the Closing Date, the Restricted Bonds shall
be rated at least BBB- by S&P, Baa3 by Moody's and BB+ by Fitch, and the Company
shall have delivered to the Initial Purchasers a letter, dated the Closing Date,
from each such rating agency, or other evidence reasonably satisfactory to the
Initial Purchasers, confirming that the Restricted Bonds have been assigned such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading or withdrawal in the rating assigned to the Restricted Bonds or any
of the Company's other securities by any nationally recognized statistical
rating agency, and no such rating agency shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of the Restricted Bonds or any of the Company's other securities.

                  (j)      That any additional documents or agreements
reasonably requested by the Initial Purchasers or their counsel to permit the
Initial Purchasers to perform their obligations or permit their counsel to
deliver opinions hereunder shall have been provided to them.

                  11.      Effectiveness and Termination of Agreement; Initial
Purchasers Default:

                  (a)      This Agreement shall become effective upon the
execution and delivery of this Agreement by the parties hereto.

                  (b)      This Agreement may be terminated at any time prior to
the Closing Date by the Initial Purchasers if, prior to such time, any of the
following events shall have occurred: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange; (ii) a
suspension or material limitation in trading in the Company's securities on any
exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities or a material disruption in
commercial banking or securities settlement or clearance services in the United
States; (iv) any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United

                                       17

<PAGE>

States is such as to make it, in the Initial Purchasers' judgment, impracticable
to market such Restricted Bonds; or (v) a downgrading or withdrawal in the
rating assigned to the Restricted Bonds or any of the Company's other securities
by any nationally recognized statistical rating agency, or a public announcement
by any such rating agency that it has under surveillance or review, with
possible negative implications, its rating of the Restricted Bonds or any of the
Company's other securities.

                  If any of the Initial Purchasers elect to terminate this
Agreement, as provided in this Section 11, they will promptly notify the Company
by telephone or telecopy, confirmed by letter. If this Agreement shall not be
carried out by the Initial Purchasers for any reason permitted hereunder, or if
the sale of the Restricted Bonds to the Initial Purchasers as herein
contemplated shall not be carried out because the Company is not able to comply
with the terms hereof, the Company shall not be under any obligation under this
Agreement and shall not be liable to the Initial Purchasers for the loss of
anticipated profits from the transactions contemplated by this Agreement and the
Initial Purchasers shall be under no liability to the Company.

                  (c)      If on the Closing Date any one or more of the Initial
Purchasers shall fail or refuse (otherwise than for some reason sufficient to
justify in accordance with the terms hereof, the termination of its obligations
hereunder) to purchase Restricted Bonds which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of the Restricted
Bonds which such defaulting Initial Purchaser or Initial Purchasers, as the case
may be, agreed but failed or refused to purchase is not more than one-tenth of
the aggregate principal amount of the Restricted Bonds to be purchased on such
date by all Initial Purchasers, each non defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the
Restricted Bonds set forth opposite its name in Schedule A bears to the
aggregate principal amount of the Restricted Bonds which all the non-defaulting
Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed
or refused to purchase on such date; provided that in no event shall the
aggregate principal amount of the Restricted Bonds which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 11(c) by an amount in excess of one-ninth of such principal amount
of the Restricted Bonds which such Initial Purchaser agreed to purchase without
the written consent of such Initial Purchaser. If on the Closing Date any
Initial Purchaser or Initial Purchasers shall fail or refuse to purchase
Restricted Bonds and the aggregate principal amount of the Restricted Bonds with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of the Restricted Bonds to be purchased by all Initial
Purchasers and arrangements satisfactory to the Initial Purchasers and the
Company for purchase of such Restricted Bonds are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser and the Company. In any such case which does
not result in the termination of this Agreement, either the Initial Purchasers
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Offering Memorandum or any other documents or arrangements may be effected.
Any action taken under this Section 11(c) shall not relieve any defaulting
Initial Purchaser from liability in respect of any default of any such Initial
Purchaser under this Agreement.

                                       18

<PAGE>

                  (d)      Notwithstanding the foregoing, the provisions of
Sections 5(e), 5(i), 8 and 9 shall survive any termination of this Agreement.

                  12.      Miscellaneous: Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to Consumers Energy Company, One Energy Plaza, Jackson, Michigan 49201,
Attention: Executive Vice President and Chief Financial Officer (Telecopy
517-788-2186), and (ii) if to the Initial Purchasers, to (A) Banc One Capital
Markets, Inc., 1 Bank One Plaza, Suite IL 1-0595, Chicago, Illinois 60670,
Attention: Structuring & Execution (Telecopy 312-732-4773), (B) Barclays Capital
Inc., 200 Park Avenue, New York, New York 10166, Attention: Syndicate Department
(Telecopy 212-412-7305) and (C) J.P. Morgan Securities Inc., 270 Park Avenue,
New York, New York 10017, Attention: Fixed Income Syndicate Desk - 8th Floor
(Telecopy 212-834-6081), or in any case to such other address as the person to
be notified may have requested in writing.

                  Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the
Restricted Bonds from an Initial Purchaser merely because of such purchase.

                  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

                  This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.

                                       19

<PAGE>

                  Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.

                                       Very truly yours,

                                       CONSUMERS ENERGY COMPANY

                                       By:/s/ Thomas J. Webb
                                          --------------------------------------
                                            Name: Thomas J. Webb
                                            Title: Executive Vice President and
                                                   Chief Financial Officer

Accepted:

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.

By: Banc One Capital Markets, Inc.

By:/s/ C. Victor Manny
  --------------------------------
   Name: C. Victor Manny
   Title: Managing Director

<PAGE>

                                   SCHEDULE A

<TABLE>
<CAPTION>
                                                  Principal Amount of Restricted
     Initial Purchasers                                 Bonds to be Purchased
     ------------------                                 ---------------------
<S>                                               <C>
Banc One Capital Markets, Inc.                               $ 83,333,334

Barclays Capital Inc.                                        $ 83,333,333

J.P. Morgan Securities Inc.                                  $ 83,333,333

                                                             ------------

                                                             $250,000,000
                                                             ============
</TABLE>

                                      A-1

<PAGE>

                                    EXHIBIT A

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 23, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc. and J.P. Morgan Securities Inc. (each an "Initial Purchaser" and,
collectively, the "Initial Purchasers"), which have agreed to purchase the
Company's $250,000,000 4.00% First Mortgage Bonds due 2010, Series E (the
"Restricted Bonds") pursuant to the Purchase Agreement (as defined below).

         This Agreement is made pursuant to the Purchase Agreement, dated May
20, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 10(f) of the Purchase
Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

         Closing Date: The date hereof.

         Commission: The Securities and Exchange Commission.

                                      A-1

<PAGE>

         Company: As defined in the first paragraph hereof.

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Exchange Bonds in the same aggregate
principal amount as the aggregate principal amount of the Restricted Bonds
tendered by Holders thereof pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Company's 4.00% First Mortgage Bonds due 2010,
Series F, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Restricted Bonds covered by a Shelf
Registration Statement, in exchange for such Restricted Bonds.

         Exchange Offer: The registration by the Company under the Act of the
Exchange Bonds pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities relating to Restricted Bonds the opportunity to exchange all such
outstanding Transfer Restricted Securities relating to Restricted Bonds for
Exchange Bonds in an aggregate principal amount equal to the aggregate principal
amount of the Transfer Restricted Securities relating to Restricted Bonds
tendered in such exchange offer by such Holders.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act, or to persons who
are not "U.S. persons", as such term is defined in Regulation S under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

                                      A-2

<PAGE>

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

         Initial Purchaser: As defined in the first paragraph hereof.

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         S-3 Ineligibility Date: As defined in Section 12(l) hereof.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

                                      A-3

<PAGE>

         Transfer Restricted Securities: Each Bond, until the earliest to occur
of (a) the date on which such Restricted Bond is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Restricted Bond has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Restricted Bond is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Restricted Bond is distributed
to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 217 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 307
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Bonds to be made under the blue sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Bonds to be offered in
exchange for the Restricted Bonds that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds

                                      A-4

<PAGE>

shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Bond received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Bonds held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such

                                      A-5

<PAGE>

Holder, the Company shall, if, and when, the Company is eligible to use Act Form
S-3, (x) cause to be filed on or prior to 180 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 180 days after the date
on which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 270 days after the
date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) hereof, the Company
is required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company shall use its reasonable
best efforts to keep the Shelf Registration Statement discussed in this Section
4(a) continuously effective, supplemented and amended as required by and subject
to the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i) hereof)
following the date on which such Shelf Registration Statement first becomes
effective under the Act.

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be

                                      A-6

<PAGE>

usable for its intended purpose without being succeeded within 15 Business Days
by a post-effective amendment to such Registration Statement that cures such
failure and that is itself declared effective within five Business Days (each
such event referred to in clauses (i) through (iv), a "Registration Default"),
then the Company agrees to pay liquidated damages in the form of additional
interest on the Transfer Restricted Securities to each Holder of Transfer
Restricted Securities, from and including the date on which any Registration
Default shall occur to, but excluding, the date on which such Registration
Default has been cured, at a rate of 0.50% per annum. Notwithstanding anything
to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of clause (i) above, (2) upon the effectiveness of the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of clause (ii) above, (3) upon Consummation
of the Exchange Offer, in the case of clause (iii) above, or (4) upon the filing
of a post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable, in the case of clause (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the Commission staff
         an analysis prepared by counsel to the Company setting forth

                                      A-7

<PAGE>

         the legal bases, if any, upon which such counsel has concluded that
         such an Exchange Offer should be permitted and (C) diligently pursuing
         a resolution (which need not be favorable) by the Commission staff of
         such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the Exchange Offer, a written
         representation to the Company (which may be contained in the letter of
         transmittal contemplated by the Exchange Offer Registration Statement)
         to the effect that (A) it is not an affiliate of the Company, (B) it is
         not engaged in, and does not intend to engage in, and has no
         arrangement or understanding with any Person to participate in, a
         distribution of the Exchange Bonds to be issued in the Exchange Offer
         and (C) it is acquiring the Exchange Bonds in its ordinary course of
         business. Each Holder hereby acknowledges and agrees that any
         Broker-Dealer and any such Holder using the Exchange Offer to
         participate in a distribution of the securities to be acquired in the
         Exchange Offer (1) could not under Commission policy as in effect on
         the date of this Agreement rely on the position of the Commission
         enunciated in Morgan Stanley and Co. Inc. (available June 5, 1991) and
         Exxon Capital Holdings Corp. (available May 13, 1988), as interpreted
         in the Commission's letter to Shearman & Sterling (available July 2,
         1993), and similar no-action letters (including, if applicable, any
         no-action letter obtained pursuant to clause (i) above), and (2) must
         comply with the registration and prospectus delivery requirements of
         the Act in connection with a secondary resale transaction and that such
         a secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of Regulation
         S-K if the resales are of Exchange Bonds obtained by such Holder in
         exchange for Restricted Bonds acquired by such Holder directly from the
         Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

                                      A-8

<PAGE>

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective and such Registration Statement and
         the related Prospectus to become usable for their intended purpose(s)
         as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective

                                      A-9

<PAGE>

         amendment has been filed, and, with respect to any Registration
         Statement or any post-effective amendment thereto, when the same has
         become effective, (B) of any request by the Commission for amendments
         to the Registration Statement or amendments or supplements to the
         Prospectus or for additional information relating thereto, (C) of the
         issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement under the Act or of the
         suspension by any state securities commission of the qualification of
         the Transfer Restricted Securities for offering or sale in any
         jurisdiction, or the initiation of any proceeding for any of the
         preceding purposes, (D) of the existence of any fact or the happening
         of any event that makes any statement of a material fact made in the
         Registration Statement, the Prospectus, any amendment or supplement
         thereto or any document incorporated by reference therein untrue, or
         that requires the making of any additions to or changes in the
         Registration Statement in order to make the statements therein not
         misleading, or that requires the making of any additions to or changes
         in the Prospectus in order to make the statements therein, in the light
         of the circumstances under which they were made, not misleading. If at
         any time the Commission shall issue any stop order suspending the
         effectiveness of the Registration Statement, or any state securities
         commission or other regulatory authority shall issue an order
         suspending the qualification or exemption from qualification of the
         Transfer Restricted Securities under state securities or blue sky laws,
         the Company shall use its best efforts to obtain the withdrawal or
         lifting of such order at the earliest possible time;

                  (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders and underwriter(s) in connection with such sale, if
         any, for a period of at least five Business Days, and the Company will
         not file any such Registration Statement or Prospectus or any amendment
         or supplement to any such Registration Statement or Prospectus
         (including all such documents incorporated by reference) to which the
         selling Holders of the Transfer Restricted Securities covered by such
         Registration Statement or the underwriter(s) in connection with such
         sale, if any, shall reasonably object within five Business Days after
         the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                                      A-10

<PAGE>

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such Registration Statement and any attorney or
         accountant retained by such selling Holders or any of such
         underwriter(s), all financial and other records, material corporate
         documents and properties of the Company and cause the Company's
         officers, directors and employees to supply all information reasonably
         requested by any such Holder, underwriter, attorney or accountant in
         connection with such Registration Statement or any post-effective
         amendment thereto subsequent to the filing thereof and prior to its
         effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation, information
         relating to the "Plan of Distribution" of the Transfer Restricted
         Securities, information with respect to the principal amount of
         Transfer Restricted Securities being sold to such underwriter(s), the
         purchase price being paid therefor and any other terms of the offering
         of the Transfer Restricted Securities to be sold in such offering; and
         make all required filings of such Prospectus supplement or
         post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in

                                      A-11

<PAGE>

         such connection, whether or not an underwriting or similar agreement is
         entered into and whether or not the registration is an Underwritten
         Registration, the Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the date thereof, the
                           matters set forth in Sections 10(d) and 10(e) of the
                           Purchase Agreement and such other similar matters as
                           the Holders, underwriter(s) and/or Restricted
                           Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           required to be stated therein or necessary to make
                           the

                                      A-12

<PAGE>

                           statements therein not misleading, or that the
                           Prospectus contained in such Registration Statement
                           as of its date and, in the case of the opinion dated
                           the date of Consummation of the Exchange Offer, as of
                           the date of Consummation, contained an untrue
                           statement of a material fact or omitted to state a
                           material fact necessary in order to make the
                           statements therein, in the light of the circumstances
                           under which they were made, not misleading. Without
                           limiting the foregoing, such counsel may state
                           further that such counsel assumes no responsibility
                           for, and has not independently verified, the
                           accuracy, completeness or fairness of the financial
                           statements, Bonds and schedules and other financial
                           data included in any Registration Statement
                           contemplated by this Agreement or the related
                           Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                                      A-13

<PAGE>

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                  (xii)    issue, upon the request of any Holder of Restricted
         Bonds covered by any Shelf Registration Statement contemplated by this
         Agreement, Exchange Bonds having an aggregate principal amount equal to
         the aggregate principal amount of Restricted Bonds surrendered to the
         Company by such Holder in exchange therefor or being sold by such
         Holder; such Exchange Bonds to be registered in the name of such Holder
         or in the name of the purchaser(s) of such Bonds, as the case may be;
         in return, the Restricted Bonds held by such Holder shall be
         surrendered to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                                      A-14

<PAGE>

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the Transfer Restricted
         Securities which are in a form eligible for deposit with The Depository
         Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule 158 under the Act (which
         need not be audited) covering a twelve-month period beginning after the
         effective date of the Registration Statement (as such term is defined
         in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the Trustee to execute all documents that may be
         required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent

                                      A-15

<PAGE>

file copies then in such Holder's possession, of the Prospectus covering such
Transfer Restricted Securities that was current at the time of receipt of either
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of such Registration Statement set forth in
Section 3 or 4 hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the
date when each selling Holder covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof or shall have received the Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing fees, if any,
in connection with listing the Bonds on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue

                                      A-16

<PAGE>

statement or alleged untrue statement of a material fact contained in any
Registration Statement, or, if any Registration Statement shall be amended or
supplemented, in the Registration Statement as so amended or supplemented, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any such untrue
statement or alleged untrue statement or omission or alleged omission which was
made in the Registration Statement or in the Registration Statement as so
amended or supplemented, in reliance upon and in conformity with information
furnished in writing to the Company by any Holder expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
the Registration Statement or in the Registration Statement, as amended or
supplemented (if applicable), in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified

                                      A-17

<PAGE>

Person shall have the right to participate in such litigation or proceeding and
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Indemnifying Person and
the Indemnified Person shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include (x) the Indemnifying Person and (y) the Indemnified
Person and, in the written opinion of counsel to such Indemnified Person,
representation of both parties by the same counsel would be inappropriate due to
actual or likely conflicts of interest between them, in either of which cases
the reasonable fees and expenses of counsel (including disbursements) for such
Indemnified Person shall be reimbursed by the Indemnifying Person to the
Indemnified Person. If there is a conflict as described in clause (ii) above,
and the Indemnified Persons have participated in the litigation or proceeding
utilizing separate counsel whose fees and expenses have been reimbursed by the
Indemnifying Person, and the Indemnified Persons, or any of them, are found to
be solely liable, such Indemnified Person shall repay to the Indemnifying
Parties such fees and expenses of such separate counsel as the Indemnifying
Person shall have reimbursed. It is understood that the Indemnifying Person
shall not, in connection with any litigation or proceeding or related litigation
or proceedings in the same jurisdiction as to which the Indemnified Persons are
entitled to such separate representation, be liable under this Agreement for the
reasonable fees and out-of-pocket expenses of more than one separate firm
(together with not more than one appropriate local counsel) for all such
Indemnified Persons. Subject to the next paragraph, all such fees and expenses
shall be reimbursed by payment to the Indemnified Persons of such reasonable
fees and expenses of counsel promptly after payment thereof by the Indemnified
Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

                                      A-18

<PAGE>

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person from
and against any loss, damage, liability or expenses by reason of such settlement
or judgment. The Indemnifying Person shall not, without the prior written
consent of the Indemnified Persons, effect any settlement of any pending or
threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each Indemnifying Person shall contribute to such amount
paid or payable by such Indemnified Person in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of each
Indemnifying Person, if any, on the one hand and the Indemnified Person on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, suits or proceedings
(including governmental investigations) in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Holders on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 8. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages or liabilities (or
actions, suits or proceedings (including governmental proceedings) in respect
thereof) referred to in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 have been complied with (in all material respects) in respect of any
separate counsel for such Indemnified Person. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute any amount greater
than the excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted

                                      A-19

<PAGE>

Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations in this Section 8 to contribute are
several in proportion to their respective obligations and not joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights

                                      A-20

<PAGE>

under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by the Company
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.

         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186, Attention: Chief
                           Financial Officer

                  With a copy at the same address to:

                                      A-21

<PAGE>

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

         (l)      S-3 Ineligibility. If the Company is not eligible to use Act
Form S-3 by the 270th day after the date on which it determines that it is not
required to file the Exchange Offer Registration Statement pursuant to Section
4(a)(i) hereof or the 270th day after the date on which it receives the notice
specified in Section 4(a)(ii) hereof (either, the "S-3 Ineligibility Date"), the

                                      A-22

<PAGE>

Company shall (A) cause to be filed as soon as practicable after the S-3
Ineligibility Date a registration statement containing a resale prospectus on
whatever Act form the Company is then eligible to use relating to all Transfer
Restricted Securities the Holders of which shall have provided the information
required pursuant to Section 4(b) hereof and (B) use its best efforts to cause
such shelf registration statement to become effective as soon as practicable.

                                      A-23

<PAGE>


         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                         CONSUMERS ENERGY COMPANY

                                         By:/s/ ________________________________
                                            Name: Thomas J. Webb
                                            Title: Executive Vice President and
                                                   Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.

By: Banc One Capital Markets, Inc.

By:________________________________
   Name:
   Title:

                                      A-24

<PAGE>

                                   EXHIBIT B-1

1.       The offer, sale and delivery of the Restricted Bonds to the Initial
Purchasers in the manner contemplated by the Purchase Agreement and the Offering
Memorandum and the initial resale of the Restricted Bonds by the Initial
Purchasers in the manner contemplated in the Offering Memorandum and the
Purchase Agreement, do not require registration under the Act and the
Supplemental Indenture does not require qualification under the TIA, it being
understood that we do not express any opinion as to any subsequent reoffer or
resale of any of the Restricted Bonds.

2.       The Registration Rights Agreement is a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.

                                     B-1-1

<PAGE>

                                   EXHIBIT B-2

No facts have come to our attention that have caused us to believe that the
Offering Memorandum, as of its date and as of the date hereof, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (except that in each
case we do not express any view as to the financial statements, schedules and
other financial data and financial projections included therein or excluded
therefrom). For purposes of the foregoing, we note that the Offering Memorandum
has been prepared in the context of a Rule 144A transaction and not as part of a
registration statement under the Act and does not contain all the information
that would be required in a registration statement under the Act.

                                     B-2-1

<PAGE>

                                    EXHIBIT C

1.       The Company is a duly organized, validly existing corporation in good
standing under the laws of the State of Michigan.

2.       All legally required corporate proceedings in connection with the
authorization, issuance and validity of the Restricted Bonds and the sale of the
Restricted Bonds by the Company in accordance with the Purchase Agreement have
been taken and an appropriate order has been entered by the Federal Energy
Regulatory Commission under the Federal Power Act authority for the issuance and
sale of the Restricted Bonds and such order is in full force and effect; and no
approval, authorization, consent or other order of any governmental regulatory
body is required with respect to the issuance and sale of the Restricted Bonds
(other than in connection with or in compliance with the provisions of the
securities or blue sky laws of any state, as to which I express no opinion).

3.       I do not know of any legal or governmental proceedings that would be
required to be described in the Offering Memorandum if it were a registration
statement filed by the Company under the Act that are not described as required,
nor of any contracts or documents of a character so required to be described in
the Offering Memorandum that are not described as required.

4.       The statements made in the Offering Memorandum under the caption
"Description of the Bonds" constitute summaries of legal matters or documents
referred to therein and are accurate in all material respects; and the
Restricted Bonds conform as to legal matters to the descriptions thereof and to
the statements in regard thereto contained in such section of the Offering
Memorandum.

5.       Each document incorporated in the Offering Memorandum as such document
was originally filed pursuant to the Exchange Act (except for (i) the operating
statistics, financial statements and schedules contained or incorporated by
reference therein (including the notes thereto and the auditors' reports
thereon), (ii) the other financial or statistical information contained or
incorporated by reference therein and (iii) the exhibits thereto, as to which I
express no opinion) complied as to form when so filed in all material respects
with the Exchange Act and the applicable rules and regulations of the Commission
thereunder.

6.       The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

7.       The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization, execution and
delivery thereof by the Initial Purchasers, is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).

8.       The Indenture has been duly authorized, executed and delivered by the
Company and, assuming due authorization, execution and delivery of the Indenture
by the Trustee, will be a

                                      C-1

<PAGE>

valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).

9.       The Indenture complies as to form in all material respects with the
requirements of the TIA and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder. It is not necessary in
connection with the offer, sale and delivery of the Restricted Bonds to the
Initial Purchasers in the manner contemplated by the Purchase Agreement or in
connection with the Exempt Resales to qualify the Indenture under the TIA.

10. The Restricted Bonds are in the form contemplated by the Indenture, have
been duly authorized, executed and delivered by the Company and, assuming the
due authentication thereof by the Trustee and upon payment and delivery in
accordance with the Purchase Agreement, will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity); the Restricted Bonds are entitled to the security afforded by the
Indenture equally and ratably with all securities presently outstanding
thereunder, and no stamp taxes in respect of the original issue thereof are
payable.

11.      The Company has good and marketable title to all its important
properties described in the Offering Memorandum and to substantially all other
real estate and property specifically described in the Indenture as subject to
the lien thereof except (a) that released or retired in accordance with the
provisions of the Indenture, (b) leased offices, garages and service buildings,
(c) leased nuclear fuel, (d) certain electric substations and gas regulator
stations and other facilities erected on sites under leases, easements, permits
or contractual arrangements, (e) certain pollution control facilities, which are
subject to security interests granted to various municipalities and economic
development corporations under installment sales contracts, (f) as to electric
and gas transmission and distribution lines, many of such properties are
constructed on rights-of-way by virtue of franchises or pursuant to easements
only, and (g) as to certain gas storage fields, the Company's interest in
certain of the gas rights and rights of storage and other rights incidental
thereto are in the nature of an easement or leasehold interest only; the
Indenture constitutes, as security for the Restricted Bonds, a valid direct
first mortgage lien on the real estate, property and franchises, subject only to
excepted encumbrances as defined therein and except as otherwise expressly
stated therein and subject to Michigan Compiled Laws Annotated Section
324.20138, which provides under certain circumstances for the creation of
priority liens on property of the Company in favor of the State of Michigan
covering reimbursement for any expense incurred in a response activity under the
Michigan Environmental Response Act; the Indenture is effective to create the
lien intended to be created thereby; and real estate, property or franchises in
the State of Michigan, hereafter acquired by the Company, will become subject to
the lien of the Indenture, at the time of acquisition, subject to liens existing
thereon at the time of acquisition, and subject to excepted encumbrances, and
subject to any necessary filing and recording before the intervention of any
lien not expressly excepted thereby, and subject to the qualification above with
respect to the enforceability of the Indenture.

                                      C-2

<PAGE>

12.      The Exchange Bonds are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming the due delivery and execution
thereof by the Company and the due authentication thereof by the Trustee in
accordance with the Registration Rights Agreement, will constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).

13.      The issuance and sale of the Restricted Bonds in accordance with the
terms of the Indenture and the Purchase Agreement do not violate the provisions
of the Restated Articles of Incorporation or the Bylaws of the Company, and will
not result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party.

14.      The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

15.      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, and (ii) is currently exempt from all
provisions of the Public Utility Holding Company Act of 1935, as amended, except
Section 9(a)(2) thereof.

16.      No registration under the Act of the Restricted Bonds is required for
the sale of the Restricted Bonds to the Initial Purchasers as contemplated by
the Purchase Agreement or for the Exempt Resales assuming (i) that each of the
Initial Purchasers is an Eligible Purchaser or an Accredited Investor (as
defined in Regulation D under the Act), (ii) the accuracy of, and compliance
with, the Initial Purchasers' representations and agreements contained in
Section 7 of the Purchase Agreement, and (iii) the accuracy of the
representations of the Company set forth in Sections 5(e), 5(n), 6(n), 6(p),
6(q), and 6(r) of the Purchase Agreement.

17.      Nothing has come to my attention that would lead me to believe that the
Offering Memorandum (other than (i) the operating statistics, financial
statements and schedules contained or incorporated by reference therein
(including the notes thereto and the auditors' reports thereon), (ii) the other
financial or statistical information contained or incorporated by reference
therein and (iii) the exhibits thereto, as to which I express no opinion), as of
its date or at the date hereof contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

                                      C-3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(C)
<SEQUENCE>12
<FILENAME>k80589exv10wxcy.txt
<DESCRIPTION>PURCHASE AGREEMENT, DATED 08/19/03
<TEXT>
<PAGE>

                                                                Exhibit (10)(c)

                                  $400,000,000

                            CONSUMERS ENERGY COMPANY

           $200,000,000 4.80% First Mortgage Bonds due 2009, Series G
           $200,000,000 6.00% First Mortgage Bonds due 2014, Series I

                         -------------------------------

                               Purchase Agreement

                                                   August 19, 2003

Banc One Capital Markets, Inc.
Barclays Capital Inc.
J.P. Morgan Securities Inc.
ABN AMRO Incorporated
Huntington Capital Corp.
Tokyo-Mitsubishi International plc
Wachovia Securities, LLC
Comerica Securities, Inc.
Fifth Third Securities, Inc.

c/o Banc One Capital Markets, Inc.
1 Bank One Plaza, Suite IL 1-0595
Chicago, Illinois 60670

Ladies and Gentlemen:

Consumers Energy Company, a Michigan corporation (the "Company"), proposes to
issue and sell to Banc One Capital Markets, Inc., Barclays Capital Inc., J.P.
Morgan Securities Inc., ABN AMRO Incorporated, Huntington Capital Corp.,
Tokyo-Mitsubishi International plc, Wachovia Securities, LLC, Comerica
Securities, Inc. and Fifth Third Securities, Inc.. (each, an "Initial
Purchaser", and, collectively, the "Initial Purchasers") an aggregate of
$200,000,000 in principal amount of its 4.80% First Mortgage Bonds due 2009,
Series G (the "Series G Bonds") and an aggregate of $200,000,000 in principal
amount of its 6.00% First Mortgage Bonds due 2014, Series I (the "Series I
Bonds" and, together with the Series G Bonds, the "Restricted Bonds"), subject
to the terms and conditions set forth herein. The Restricted Bonds are to be
issued pursuant to the provisions of the Indenture dated as of September 1, 1945
between the Company and JPMorgan Chase Bank (ultimate successor to City Bank
Farmers Trust Company), as trustee (the "Trustee"), as supplemented and amended
by various supplemental indentures and as to be supplemented by the
Ninety-Second Supplemental Indenture, to be dated as of August 26, 2003,
establishing the terms of the Restricted Bonds (the "Supplemental Indenture")
(as so supplemented, the "Indenture"). Capitalized terms used but not defined
herein shall have the meanings given to such terms in the Indenture.

         Holders (including subsequent transferees) of the Restricted Bonds will
have the registration rights set forth in the registration rights agreement in
the form attached hereto as

<PAGE>

Exhibit A (the "Registration Rights Agreement"), to be dated the Closing Date
(as defined below), for so long as such Restricted Bonds constitute Transfer
Restricted Securities (as defined in the Registration Rights Agreement).
Pursuant to the Registration Rights Agreement, the Company will agree to file
with the Securities and Exchange Commission (the "Commission"), under the
circumstances set forth therein, (i) a registration statement (the "Exchange
Offer Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), relating to first mortgage bonds, (A) in the principal amount of
$200,000,000 4.80% First Mortgage Bonds due 2009, Series H (the "Series H
Exchange Bonds") to be offered in exchange for the Series G Bonds and (B) in the
principal amount of $200,000,000 6.00% First Mortgage Bonds due 2014, Series J
(the "Series J Exchange Bonds" and, together with the Series H Exchange Bonds,
the "Exchange Bonds") to be offered in exchange for the Series I Bonds (such
offer to exchange being referred to as the "Exchange Offer") and (ii) a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement" and, together with the Exchange Offer Registration
Statement, the "Registration Statements") relating to the resale by certain
holders of the Restricted Bonds and to use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. The Restricted Bonds and the Exchange Bonds issuable in exchange
therefor are collectively referred to herein as the "Bonds". This Agreement, the
Indenture, the Bonds and the Registration Rights Agreement are hereinafter
sometimes referred to collectively as the "Operative Documents".

                  1.       Offering Memorandum: The Restricted Bonds will be
offered and sold to the Initial Purchasers pursuant to one or more exemptions
from the registration requirements under the Act. The Company has prepared a
confidential preliminary offering memorandum dated August 19, 2003 (the
"Preliminary Offering Memorandum") and a confidential offering memorandum dated
August 19, 2003 (the "Offering Memorandum") relating to the Restricted Bonds,
which incorporate by reference documents filed by the Company pursuant to
Section 13, 14 or 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As used herein, the term "Preliminary Offering Memorandum" and
"Offering Memorandum" shall include respectively the documents incorporated by
reference therein. Any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Preliminary Offering Memorandum and Offering
Memorandum shall be deemed to include amendments or supplements to the
Preliminary Offering Memorandum and Offering Memorandum, and documents
incorporated by reference after the time of execution of this Agreement and
prior to the termination of the offering of the Restricted Bonds by the Initial
Purchasers.

                  Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Restricted Bonds (and
all securities issued in exchange therefor or in substitution thereof) shall
bear the following legend:

    THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
    SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT
    BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
    PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
    BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
    PURCHASING FOR ITS OWN ACCOUNT OR FOR THE

                                       2

<PAGE>

    ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
    REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
    TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER
    THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
    THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4)
    IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
    OF THE SECURITIES ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO
    AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN
    ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
    STATES.

                  2.       Agreement to Sell and Purchase: On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree to
purchase from the Company, severally, the principal amount of Series G Bonds and
the principal amount of Series I Bonds set forth opposite the names of such
Initial Purchasers on Schedule A hereto at a purchase price equal to 99.191% of
the principal amount thereof with respect to the Series G Bonds (the "Series G
Purchase Price") and 99.841% of the principal amount thereof with respect to the
Series I Bonds (the "Series I Purchase Price" and, together with the Series G
Purchase Price, the "Purchase Price").

                  The Company hereby agrees that, without the prior written
consent of the Initial Purchasers, it will not offer, sell, contract to sell or
otherwise issue debt securities substantially similar to the Restricted Bonds
for a period from the date of the execution of this Agreement until the Closing
Date.

                  3.       Terms of Offering: The Initial Purchasers have
advised the Company that the Initial Purchasers will make offers (the "Exempt
Resales") of the Restricted Bonds purchased hereunder on the terms set forth in
the Offering Memorandum solely to persons whom the Initial Purchasers reasonably
believe to be "qualified institutional buyers" as defined in Rule 144A under the
Act or, at the time any buy order for the Bonds was or is originated, were or
are outside the United States and were or are not "U.S. persons" within the
meaning of Regulation S under the Act (such persons being referred to herein as
the "Eligible Purchasers"). The Initial Purchasers will offer the Series G Bonds
to Eligible Purchasers initially at a price equal to 99.173% of the principal
amount thereof and will offer the Series I Bonds to Eligible Purchasers
initially at a price equal to 99.191% of the principal amount thereof. Such
prices may be changed at any time without notice.

                  4.       Delivery and Payment:

                  (a)      Delivery of, and payment of the Purchase Price for,
the Restricted Bonds shall be made at the offices of Pillsbury Winthrop LLP, One
Battery Park Plaza, New York, NY 10004-1490, or such other location as may be
mutually acceptable. Payment for the Restricted Bonds shall be made to the
Company in federal or other funds immediately available in New

                                       3

<PAGE>

York City against delivery of such Restricted Bonds for the account of the
Initial Purchasers at 10:00 a.m., New York City time, on August 26, 2003, or at
such other time as shall be agreed upon by the Initial Purchasers and the
Company. The time and date of such delivery and the payment are herein called
the "Closing Date".

                  (b)      Certificates for the Restricted Bonds shall be in
definitive form or global form, as specified by the Initial Purchasers, and
registered in such names and in such denominations as the Initial Purchasers
shall request in writing not later than one full business day prior to the
Closing Date. The certificates evidencing the Restricted Bonds shall be
delivered on the Closing Date for the account of the Initial Purchasers, with
any transfer taxes payable in connection with the transfer of the Restricted
Bonds to the Initial Purchasers duly paid, against payment of the Purchase Price
therefor plus accrued interest, if any, to the date of payment and delivery.
Certificates for the Restricted Bonds shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.

                  5.       Agreements of the Company: In further consideration
of the agreements of the Initial Purchasers herein contained, the Company
covenants as follows:

                  (a)      To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Restricted Bonds for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(d) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any
Restricted Bonds under any state securities or blue sky laws and, if at any time
any state securities commission or other federal or state regulatory authority
shall issue an order suspending the qualification or exemption of any Restricted
Bonds under any state securities or blue sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.

                  (b)      To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company as many copies of the
Offering Memorandum, and any amendments or supplements thereto, in such
quantities as the Initial Purchasers may reasonably request. Subject to the
Initial Purchasers' compliance with their representations and warranties and
agreements set forth in Section 7 hereof, the Company consents to the use of the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchasers in connection with Exempt Resales.

                  (c)      For such period of time as the Initial Purchasers are
required by law or customary practice to deliver an offering memorandum in
respect of the Restricted Bonds, if any event shall have occurred as a result of
which it is necessary to amend or supplement the Offering Memorandum in order to
make the statements therein, in light of the circumstances when the Offering
Memorandum is delivered to an Eligible Purchaser, not misleading, or if it
becomes necessary to amend or supplement the Offering Memorandum to comply with
law, to forthwith prepare an appropriate amendment or supplement to the Offering
Memorandum and

                                       4

<PAGE>

deliver to the Initial Purchasers, without charge, such number of copies thereof
as may be reasonably requested.

                  (d)      To use its best efforts to qualify the Restricted
Bonds for offer and sale under the securities or blue sky laws of such
jurisdictions as the Initial Purchasers may designate and to pay (or cause to be
paid), or reimburse (or cause to be reimbursed) the Initial Purchasers and their
counsel for, reasonable filing fees and expenses in connection therewith
(including the reasonable fees and disbursements of counsel to the Initial
Purchasers and filing fees and expenses paid and incurred prior to the date
hereof), provided, however, that the Company shall not be required to qualify to
do business as a foreign corporation or as a securities dealer or to file a
general consent to service of process or to file annual reports or to comply
with any other requirements deemed by the Company to be unduly burdensome.

                  (e)      So long as the Bonds are outstanding, (i) to mail and
make generally available as soon as practicable after the end of each fiscal
year to the record holders of the Bonds a financial report of the Company on a
consolidated basis, all such financial reports to include a consolidated balance
sheet, a consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the end of and
for such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by the Company's independent public
accountants and (ii) to mail and make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly period of
each fiscal year) to such holders, a consolidated balance sheet, a consolidated
statement of operations and a consolidated statement of cash flows as of the end
of and for such period, and for the period from the beginning of such year to
the close of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.

                  (f)      So long as any of the Restricted Bonds remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any holder of Restricted
Bonds in connection with any sale thereof and any prospective purchaser of such
Restricted Bonds from such holder, the information required by Rule 144A(d)(4)
under the Act.

                  (g)      To pay all expenses, fees and taxes (other than
transfer taxes on sales by the Initial Purchasers) in connection with the
issuance and delivery of the Restricted Bonds, except that the Company shall be
required to pay the fees and disbursements (other than fees and disbursements
referred to in Section 5(d) hereof) of Pillsbury Winthrop LLP, counsel to the
Initial Purchasers, only in the events provided in Section 5(h) hereof, the
Initial Purchasers hereby agreeing to pay such fees and disbursements in any
other event, and that except as provided in such Section 5(h), the Company shall
not be responsible for any out-of-pocket expenses of the Initial Purchasers in
connection with their services hereunder.

                  (h)      If the Initial Purchasers shall not take up and pay
for the Restricted Bonds due to the failure of the Company to comply with any of
the conditions specified in Section 10 hereof, or, if this Agreement shall be
terminated in accordance with the provisions of Section 11(b) hereof prior to
the Closing Date, to pay the reasonable fees and disbursements of Pillsbury
Winthrop LLP, counsel to the Initial Purchasers and, if the Initial Purchasers
shall not take up

                                       5

<PAGE>

and pay for the Restricted Bonds due to the failure of the Company to comply
with any of the conditions specified in Section 10 hereof, to reimburse the
Initial Purchasers for their reasonable out-of-pocket expenses, in an aggregate
amount not exceeding a total of $3,000, incurred in connection with the
financing contemplated by this Agreement.

                  (i)      During the period referred to in Section 5(c) hereof,
to not amend or supplement the Offering Memorandum unless the Company has
furnished the Initial Purchasers and counsel to the Initial Purchasers with a
copy for their review and comment a reasonable time prior to the making of such
amendment or supplement and has reasonably considered any comments of the
Initial Purchasers, and not to make any such amendment or supplement to which
such counsel shall reasonably object on legal grounds in writing after
consultation with the Initial Purchasers.

                  (j)      During the period referred to in Section 5(c) hereof,
to furnish the Initial Purchasers with copies of all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.

                  (k)      During the period referred to in Section 5(c) hereof,
to comply with all requirements under the Exchange Act relating to the filing
with the Commission of its reports pursuant to Section 13 or 15(d) of the
Exchange Act and of its proxy statements pursuant to Section 14 of the Exchange
Act.

                  (l)      To comply in all material respects with all of its
agreements set forth in the Registration Rights Agreement.

                  (m)      To obtain the approval of The Depository Trust
Company ("DTC") for "book-entry" transfer of the Bonds, and to comply in all
material respects with all of its agreements set forth in the representation
letter or letters of the Company to DTC relating to the approval of the Bonds by
DTC for "book-entry" transfer.

                  (n)      Not to (or permit any affiliate (as defined in Rule
144 under the Act) to) sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Restricted Bonds to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Restricted Bonds under the Act.

                  (o)      Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Bonds.

                  (p)      To cause the Exchange Offer to be made in the
appropriate form to permit Exchange Bonds registered pursuant to the Act to be
offered in exchange for the Restricted Bonds and to comply in all material
respects with all applicable federal and state securities laws in connection
with the Exchange Offer.

                  (q)      During the period of two years after the Closing
Date, not to, and not permit any of its affiliates (as defined in Rule 144 under
the Act) to, resell any of the Bonds which

                                       6

<PAGE>

constitute "restricted securities" under Rule 144 under the Act that have been
reacquired by any of them.

                  (r)      To take all reasonable action necessary to enable
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch, Inc. ("Fitch")
to provide their respective credit ratings of the Restricted Bonds.

                  (s)      (1) Within 10 days after the Closing Date, to deliver
the Supplemental Indenture in recordable form to the appropriate real estate
recording office in all jurisdictions specified in the Supplemental Indenture
for recording and deliver to the office of the Secretary of State of the State
of Michigan a UCC-1 financing statement relating to the Supplemental Indenture
for filing in such office and (2) within 25 days after the Closing Date, to
deliver to counsel to the Initial Purchasers a certificate signed by an officer
of the Company certifying that the actions required by the foregoing clause (1)
have been taken. The Company shall further provide counsel to the Initial
Purchasers, as soon as it is available, a copy of the related opinion of counsel
contemplated by Section 7.11(i) of the Indenture. To the extent not covered in
the opinion described in the previous sentence, the Company shall also provide
counsel to the Initial Purchasers, concurrently with the furnishing of such
opinion, a list of the recording information for all such filings.

                  6.       Representations and Warranties of the Company: The
Company represents and warrants to, and agrees with, the Initial Purchasers
that:

                  (a)      Each of the Preliminary Offering Memorandum and the
Offering Memorandum does not, and any supplement or amendment to it will not,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this Section 6(a)
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum and the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchasers furnished to the
Company in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, has been issued.

                  (b)      The documents incorporated by reference in the
Preliminary Offering Memorandum and the Offering Memorandum, when they were
filed (or, if an amendment with respect to any such document was filed, when
such amendment was filed) with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and any further documents so filed and
incorporated by reference will, when they are filed with the Commission, conform
in all material respects to the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder; none of such
documents, when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact required to be

                                       7

<PAGE>

stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading.

                  (c)      The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Michigan and has all requisite authority to own or lease its properties and
conduct its business as described in the Preliminary Offering Memorandum and the
Offering Memorandum and to consummate the transactions contemplated hereby, and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business as described in the
Preliminary Offering Memorandum and the Offering Memorandum or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company.

                  (d)      This Agreement has been duly authorized, executed and
delivered by the Company.

                  (e)      The Bonds are in the form contemplated by the
Indenture and have been duly authorized by the Company. At the Closing Date, the
Restricted Bonds will have been duly executed and delivered by the Company and,
when authenticated by the Trustee in the manner provided for in the Indenture,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity), and will be entitled to the security afforded
by the Indenture equally and ratably with all securities outstanding thereunder.
The Bonds conform in all material respects to the descriptions thereof in the
Preliminary Offering Memorandum and the Offering Memorandum.

                  (f)      The Registration Rights Agreement has been duly
authorized by the Company. At the Closing Date, the Registration Rights
Agreement will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity). The Registration Rights Agreement conforms in
all material respects to the description thereof in the Preliminary Offering
Memorandum and the Offering Memorandum.

                  (g)      The Indenture has been duly authorized by the
Company. At the Closing Date, the Indenture will have been duly executed and
delivered by the Company and will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is

                                       8

<PAGE>

considered in a proceeding at law or in equity); the Indenture conforms in all
material respects to the description thereof in the Preliminary Offering
Memorandum and the Offering Memorandum; and the Indenture conforms to the
requirements of the Trust Indenture Act of 1939, as amended (the "TIA").

                  (h)      The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct business in the manner described in the Preliminary Offering Memorandum
and the Offering Memorandum, except to the extent that the failure to obtain or
file would not have a material adverse effect on the Company.

                  (i)      An appropriate order has been entered by the Federal
Energy Regulatory Commission under the Federal Power Act authorizing the
issuance and sale of the Bonds and such order is in full force and effect. No
other order, license, consent, authorization or approval of, or exemption by, or
the giving of notice to, or the registration with, any federal, state, local or
other governmental department, commission, board, bureau, agency or
instrumentality, and no filing, recording, publication or registration in any
public office or any other place, was or is now required to be obtained by the
Company to authorize its execution or delivery of, or the performance of its
obligations under, this Agreement or any of the other Operative Documents,
except such as have been obtained or may be required under state securities or
blue sky laws or as referred to in the Offering Memorandum.

                  (j)      None of the issuance and sale of the Bonds, or the
execution or delivery by the Company of, or the performance by the Company of
its obligations under, this Agreement or the other Operative Documents, did or
will conflict with, result in a breach of any of the terms or provisions of, or
constitute a default or require the consent of any party under, the Company's
Articles of Incorporation or by-laws, any material agreement or instrument to
which the Company is a party, any existing applicable law, rule or regulation or
any judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or assets, or, except as described in the Offering Memorandum, did or
will result in the creation or imposition of any lien on the Company's
properties or assets.

                  (k)      Except as disclosed in the Offering Memorandum, there
is no action, suit, proceeding, inquiry or investigation (at law or in equity or
otherwise) pending or, to the knowledge of the Company, threatened against the
Company by any governmental authority that (i) questions the validity,
enforceability or performance of this Agreement or any of the other Operative
Documents or (ii) if determined adversely, is likely to have a material adverse
effect on the business or financial condition of the Company, or have a material
adverse effect on the ability of the Company to perform its obligations
hereunder or the ability of the Company to consummate the transactions
contemplated by this Agreement.

                  (l)      There has not been any material and adverse change in
the business, properties or financial condition of the Company from that set
forth or incorporated by reference

                                       9

<PAGE>

in the Offering Memorandum (other than changes referred to in or contemplated by
the Offering Memorandum).

                  (m)      Except as set forth in the Offering Memorandum, no
event or condition exists that constitutes, or with the giving of notice or
lapse of time or both would constitute, a default or any breach or failure to
perform by the Company in any material respect under any indenture, mortgage,
loan agreement, lease or other material agreement or instrument to which the
Company is a party or by which it may be bound.

                  (n)      The Offering Memorandum, as of its date, contained
all the information specified in, and met the requirements of, Rule 144A(d)(4)
under the Act.

                  (o)      When the Restricted Bonds are issued and delivered
pursuant to this Agreement, the Restricted Bonds will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of the Company
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system. Except for the $250,000,000 aggregate principal amount of the
Company's 4.25% First Mortgage Bonds due 2008, Series A and the $375,000,000
aggregate principal amount of the Company's 5.375% First Mortgage Bonds due
2013, Series B, each issued on April 30, 2003 pursuant to an exemption from the
Act, and the Company's 4.00% First Mortgage Bonds due 2010, Series E, issued on
May 23, 2003 pursuant to an exemption from the Act, no securities of the same
class as the Restricted Bonds have been issued and sold by the Company within
the six-month period immediately prior to the date hereof.

                  (p)      Neither the Company nor any affiliate (as defined in
Rule 144 under the Act) of the Company has directly, or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Act) which is or will be integrated
with the sale of the Restricted Bonds in a manner that would require the
registration under the Act of the Restricted Bonds or (ii) engaged in any form
of general solicitation or general advertising in connection with the offering
of the Restricted Bonds (as those terms are used in Regulation D under the Act),
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act, including, but not limited to, publication or release of articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.

                  (q)      Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.

                  (r)      None of the Company nor any of its affiliates (as
defined in Rule 144 under the Act) or any person acting on its or their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S under the Act with respect to the Restricted
Bonds.

                  (s)      No registration under the Act of the Restricted Bonds
is required for the sale of the Restricted Bonds to the Initial Purchasers as
contemplated hereby or for the Exempt

                                       10

<PAGE>

Resales (assuming the accuracy of the Initial Purchasers' representation and
warranty and agreement set forth in Section 7 hereof).

                  (t)      The Company, after giving effect to the offering and
sale of the Restricted Bonds, will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

                  (u)      The Company has good and marketable title to all its
important properties described in the Offering Memorandum and to substantially
all other real estate and property specifically described in the Indenture as
subject to the lien thereof except (a) that released or retired in accordance
with the provisions of the Indenture, (b) leased offices, garages and service
buildings, (c) leased nuclear fuel, (d) certain electric substations and gas
regulator stations and other facilities erected on sites under leases,
easements, permits or contractual arrangements, (e) certain pollution control
facilities, which are subject to security interests granted to various
municipalities and economic development corporations under installment sales
contracts, (f) as to electric and gas transmission and distribution lines, many
of such properties are constructed on rights-of-way by virtue of franchises or
pursuant to easements only, and (g) as to certain gas storage fields, the
Company's interest in certain of the gas rights and rights of storage and other
rights incidental thereto are in the nature of an easement or leasehold interest
only. The Indenture constitutes, as security for the Restricted Bonds, a valid
direct first mortgage lien on the real estate, property and franchises, subject
only to excepted encumbrances as defined therein and except as otherwise
expressly stated therein and subject to Michigan Compiled Laws Annotated Section
324.20138, which provides under certain circumstances for the creation of
priority liens on property of the Company in favor of the State of Michigan
covering reimbursement for any expense incurred in a response activity under the
Michigan Environmental Response Act. The Indenture is effective to create the
lien intended to be created thereby. Real estate, property or franchises in the
State of Michigan hereafter acquired by the Company will become subject to the
lien of the Indenture, at the time of acquisition, subject to liens existing
thereon at the time of acquisition, and subject to excepted encumbrances, and
subject to any necessary filing and recording before the intervention of any
lien not expressly excepted thereby, and subject to the qualification above with
respect to the enforceability of the Indenture.

                  The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 10 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.

                  7.       Initial Purchasers' Representations and Warranties:
Upon the authorization by the Initial Purchasers of the release of the
Restricted Bonds, the Initial Purchasers propose to offer the Restricted Bonds
for sale upon the terms and conditions set forth in this Agreement and the
Offering Memorandum and the Initial Purchasers hereby represent and warrant to,
and agree with, the Company that:

                  (a)      they each will offer and sell the Restricted Bonds
only to Eligible Purchasers;

                                       11

<PAGE>

                  (b)      they each are Accredited Investors (as defined in
Regulation D under the Act); and

                  (c)      they each will not offer or sell the Restricted Bonds
by any form of general solicitation or general advertising, including, but not
limited to, the methods described in Rule 502(c) under the Act.

                  8.       Indemnification:

                  (a)      The Company agrees, to the extent permitted by law,
to indemnify and hold harmless each of the Initial Purchasers and each person,
if any, who controls any such Initial Purchaser within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act or otherwise, and to reimburse the Initial
Purchasers and such controlling person or persons, if any, for any legal or
other expenses incurred by them in connection with defending any action, suit or
proceeding (including governmental investigations) as provided in Section 8(c)
hereof, insofar as such losses, claims, damages, liabilities or actions, suits
or proceedings (including governmental investigations) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Memorandum or Offering Memorandum, or, if
the Preliminary Offering Memorandum or Offering Memorandum shall be amended or
supplemented, in the Preliminary Offering Memorandum or Offering Memorandum as
so amended or supplemented or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission which was made in the Preliminary Offering Memorandum or
Offering Memorandum or in the Preliminary Offering Memorandum or Offering
Memorandum as so amended or supplemented, in reliance upon and in conformity
with information furnished in writing to the Company by, or on behalf of, any
Initial Purchaser expressly for use therein and except that this indemnity shall
not inure to the benefit of any Initial Purchaser (or any person controlling
such Initial Purchaser) on account of any losses, claims, damages, liabilities
or actions, suits or proceedings arising from the sale of the Restricted Bonds
to any person if a copy of the Offering Memorandum, as the same may then be
supplemented or amended (excluding, however, any document then incorporated or
deemed incorporated therein by reference), was not sent or given by or on behalf
of such Initial Purchaser to such person (i) with or prior to the written
confirmation of sale involved or (ii) as soon as available after such written
confirmation, relating to an event occurring prior to the payment for and
delivery to such person of the Restricted Bonds involved in such sale, and the
omission or alleged omission or untrue statement or alleged untrue statement was
corrected in the Offering Memorandum as supplemented or amended at such time.

                  The Company's indemnity agreement contained in this Section
8(a), and the covenants, representations and warranties of the Company contained
in this Agreement, shall remain in full force and effect regardless of any
investigation made by or on behalf of any person, and shall survive the delivery
of and payment for the Restricted Bonds hereunder, and the indemnity agreement
contained in this Section 8 shall survive any termination of this

                                       12

<PAGE>

Agreement. The liabilities of the Company in this Section 8(a) are in addition
to any other liabilities of the Company under this Agreement or otherwise.

                  (b)      Each Initial Purchaser agrees severally and jointly,
to the extent permitted by law, to indemnify, hold harmless and reimburse the
Company, each other Initial Purchaser, and each person, if any, who controls the
Company or such other Initial Purchaser within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
the Preliminary Offering Memorandum or Offering Memorandum or in the Preliminary
Offering Memorandum or Offering Memorandum, as amended or supplemented (if
applicable), in reliance upon and in conformity with information furnished in
writing to the Company by such Initial Purchaser expressly for use therein.

                  The indemnity agreement on the part of each Initial Purchaser
contained in this Section 8(b) and the representations and warranties of such
Initial Purchaser contained in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any other person, and shall survive the delivery of and payment for the
Restricted Bonds hereunder, and the indemnity agreement contained in this
Section 8(b) shall survive any termination of this Agreement. The liabilities of
each Initial Purchaser in this Section 8(b) are in addition to any other
liabilities of each Initial Purchaser under this Agreement or otherwise.

                  (c)      If a claim is made or an action, suit or proceeding
(including governmental investigations) is commenced or threatened against any
person as to which indemnity may be sought under Section 8(a) or 8(b) hereof,
such person (the "Indemnified Person") shall notify the person against whom such
indemnity may be sought (the "Indemnifying Person") promptly after any assertion
of such claim threatening to institute an action, suit or proceeding or if such
an action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by any Initial
Purchaser in the case of parties indemnified pursuant to Section 8(b) hereof and
by the Company in the case of parties indemnified pursuant to Section 8(a)
hereof. Any Indemnified Person shall have the right to participate in such
litigation or proceeding and to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include (x) the
Indemnifying Person and (y) the Indemnified Person and, in the written opinion
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or likely conflicts of
interest between them, in either of which cases the reasonable fees and expenses
of counsel (including disbursements) for such

                                       13

<PAGE>

Indemnified Person shall be reimbursed by the Indemnifying Person to the
Indemnified Person. If there is a conflict as described in clause (ii) above,
and the Indemnified Persons have participated in the litigation or proceeding
utilizing separate counsel whose fees and expenses have been reimbursed by the
Indemnifying Person and the Indemnified Persons, or any of them, are found to be
solely liable, such Indemnified Person shall repay to the Indemnifying Person
such fees and expenses of such separate counsel as the Indemnifying Person shall
have reimbursed. It is understood that the Indemnifying Person shall not, in
connection with any litigation or proceeding or related litigation or
proceedings in the same jurisdiction as to which the Indemnified Persons are
entitled to such separate representation, be liable under this Agreement for the
reasonable fees and out-of-pocket expenses of more than one separate firm
(together with not more than one appropriate local counsel) for all such
Indemnified Persons. Subject to the next paragraph, all such fees and expenses
shall be reimbursed by payment to the Indemnified Persons of such reasonable
fees and expenses of counsel promptly after payment thereof by the Indemnified
Persons.

                  In furtherance of the requirement above that fees and expenses
of any separate counsel for the Indemnified Persons shall be reasonable, the
Initial Purchasers and the Company agree that the Indemnifying Person's
obligations to pay such fees and expenses shall be conditioned upon the
following:

                                    (i)      in case separate counsel is
         proposed to be retained by the Indemnified Persons pursuant to clause
         (ii) of the preceding paragraph, the Indemnified Persons shall in good
         faith fully consult with the Indemnifying Person in advance as to the
         selection of such counsel;

                                    (ii)     reimbursable fees and expenses of
         such separate counsel shall be detailed and supported in a manner
         reasonably acceptable to the Indemnifying Person (but nothing herein
         shall be deemed to require the furnishing to the Indemnifying Person of
         any information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                                    (iii)    the Company and the Initial
         Purchasers shall cooperate in monitoring and controlling the fees and
         expenses of separate counsel for Indemnified Persons for which the
         Indemnifying Person is liable hereunder, and the Indemnified Person
         shall use every reasonable effort to cause such separate counsel to
         minimize the duplication of activities as between themselves and
         counsel to the Indemnifying Person.

                  The Indemnifying Person shall not be liable for any settlement
of any litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees, subject to the
provisions of this Section 8, to indemnify the Indemnified Person from and
against any loss, damage, liability or expenses by reason of such settlement or
judgment. The Indemnifying Person shall not, without the prior written consent
of the Indemnified Persons, effect any settlement of any pending or threatened
litigation, proceeding or claim in respect of

                                       14

<PAGE>

which indemnity has been properly sought by the Indemnified Persons hereunder,
unless such settlement includes an unconditional release by the claimant of all
Indemnified Persons from all liability with respect to claims which are the
subject matter of such litigation, proceeding or claim.

                  (d)      If the indemnification provided for in Section 8
above is unavailable to or insufficient to hold harmless an Indemnified Person
under this Section 8 in respect of any losses, claims, damages or liabilities
(or actions, suits or proceedings (including governmental investigations) in
respect thereof) referred to therein, then each Indemnifying Person under this
Section 8 above shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Indemnifying Person on the one hand and
the Indemnified Person on the other from the offering of the Restricted Bonds.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each Indemnifying Person shall contribute
to such amount paid or payable by such Indemnified Person in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of each Indemnifying Person, if any, on the one hand and the Indemnified
Person on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions, suits or
proceedings (including governmental investigations) in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Initial Purchasers on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the total discounts or
commissions received by the Initial Purchasers, in each case as set forth in the
Offering Memorandum, bear to the aggregate offering price of the Restricted
Bonds. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Initial Purchasers on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an Indemnified Person as a result of the losses, claims, damages
or liabilities (or actions, suits or proceedings (including governmental
proceedings) in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Person in connection with investigating or defending any such
actions, suits or proceedings (including governmental proceedings) or claims,
provided that the provisions of this Section 8 above have been complied with (in
all material respects) in respect of any separate counsel for such Indemnified
Person. Notwithstanding the provisions of this Section 8(d), no Initial
Purchaser shall be required to contribute any amount greater than the excess of
(i) the total price at which the Restricted Bonds sold and distributed by it to
the public were offered to the public over (ii) the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)

                                       15

<PAGE>

of the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.

                  The agreement with respect to contribution contained in this
Section 8(d) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or the Initial Purchasers, and
shall survive delivery of and payment for the Restricted Bonds hereunder and any
termination of this Agreement.

                  9.       Survival: The respective indemnities, agreements,
representations, warranties and other statements of the Company and the Initial
Purchasers as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of the Initial Purchasers or any controlling person of the
Initial Purchasers, the Company, or any officer, director or controlling person
of the Company, and shall survive delivery of and payment for the Bonds.

                  10.      Conditions of Initial Purchasers' Obligations: The
several obligations of the Initial Purchasers shall be subject to the condition
that all representations and warranties and other statements of the Company
herein are, at and as of the Closing Date, true and correct, the condition that
the Company shall have performed all of its obligations hereunder theretofore to
be performed, and the following additional conditions:

                  (a)      That all legal proceedings to be taken in connection
with the issue and sale of the Restricted Bonds shall be reasonably satisfactory
in form and substance to Pillsbury Winthrop LLP, counsel to the Initial
Purchasers.

                  (b)      That, at the Closing Date, the Initial Purchasers
shall be furnished with the following opinions, dated the Closing Date:

                                    (i)      opinions of Skadden, Arps, Slate,
         Meagher & Flom LLP, counsel to the Company, substantially to the effect
         set forth in Exhibit B-1 and Exhibit B-2 to this Agreement;

                                    (ii)     opinion of Pillsbury Winthrop LLP,
         counsel to the Initial Purchasers, as to such matters as the Initial
         Purchasers shall reasonably request; and

                                    (iii)    opinion of Robert C. Shrosbree,
         Assistant General Counsel of CMS Energy Corporation, the parent of the
         Company, substantially to the effect set forth in Exhibit C to this
         Agreement.

                  (c)      (i) That on the date of the Offering Memorandum and
on the Closing Date, the Initial Purchasers shall have received a letter from
Ernst & Young LLP in form and substance satisfactory to the Initial Purchasers,
dated as of such respective dates, (A) confirming that they are independent
public accountants with respect to the Company within the meaning of the Act and
the applicable rules and regulations adopted by the Commission thereunder, (B)
stating that in their opinion the financial statements examined by them and
included or incorporated by

                                       16

<PAGE>

reference in the Preliminary Offering Memorandum or Offering Memorandum, as the
case may be, complied as to form in all material respects with the applicable
accounting requirements of the Commission, including the applicable rules and
regulations adopted by the Commission, and (C) covering, as of a date not more
than three business days prior to the date of such letter, such other matters as
the Initial Purchasers reasonably request.

                           (ii)     That on the date of the Offering Memorandum,
the Initial Purchasers shall have received a letter from PricewaterhouseCoopers
LLP in form and substance satisfactory to the Initial Purchasers, dated as of
such date, (A) confirming that they are independent public accountants with
respect to the Company and the Midland Cogeneration Venture Limited Partnership
within the meaning of the Act and the applicable rules and regulations adopted
by the Commission thereunder, (B) stating that in their opinion the financial
statements examined by them and referred to in the letter of Ernst &Young LLP
complied as to form in all material respects with the applicable accounting
requirements of the Commission, including the applicable rules and regulations
adopted by the Commission, and (C) covering, as of a date not more than three
business days prior to the date of such letter, such other matters as the
Initial Purchasers reasonably request.

                  (d)      That, between the date of the execution of this
Agreement and the Closing Date, no material adverse change shall have occurred
in the business, properties or financial condition of the Company, taken as a
whole, which, in the reasonable judgment of the Initial Purchasers, impairs the
marketability of the Restricted Bonds (other than changes referred to in or
contemplated by the Offering Memorandum).

                  (e)      That, at the Closing Date, the Company shall have
delivered to the Initial Purchasers a certificate of an executive officer of the
Company to the effect that, to the best of his or her knowledge, information and
belief, there shall have been no material adverse change in the business,
properties or financial condition of the Company from that set forth in the
Offering Memorandum (other than changes referred to in or contemplated by the
Offering Memorandum).

                  (f)      That the Company shall have executed and delivered
the Registration Rights Agreement and shall have furnished the Initial
Purchasers signed counterparts of the Supplemental Indenture.

                  (g)      That the Company shall have performed such of its
obligations under this Agreement as are to be performed at or before the Closing
Date by the terms hereof.

                  (h)      That the Company shall have complied with the
provisions of Section 5(c) hereof with respect to the furnishing of the Offering
Memorandum.

                  (i)      That, at the Closing Date, the Restricted Bonds shall
be rated at least BBB- by S&P, Baa3 by Moody's and BB+ by Fitch, and the Company
shall have delivered to the Initial Purchasers a letter, dated the Closing Date,
from each such rating agency, or other evidence reasonably satisfactory to the
Initial Purchasers, confirming that the Restricted Bonds have been assigned such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading or withdrawal in the rating assigned to the Restricted Bonds or any
of the Company's other securities by any nationally recognized statistical
rating agency, and no

                                       17

<PAGE>

such rating agency shall have publicly announced that it has under surveillance
or review, with possible negative implications, its rating of the Restricted
Bonds or any of the Company's other securities.

                  (j)      That any additional documents or agreements
reasonably requested by the Initial Purchasers or their counsel to permit the
Initial Purchasers to perform their obligations or permit their counsel to
deliver opinions hereunder shall have been provided to them.

                  11.      Effectiveness and Termination of Agreement; Initial
Purchasers Default:

                  (a)      This Agreement shall become effective upon the
execution and delivery of this Agreement by the parties hereto.

                  (b)      This Agreement may be terminated at any time prior to
the Closing Date by the Initial Purchasers if, prior to such time, any of the
following events shall have occurred: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange; (ii) a
suspension or material limitation in trading in the Company's securities on any
exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities or a material disruption in
commercial banking or securities settlement or clearance services in the United
States; (iv) any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the Initial Purchasers' judgment, impracticable
to market such Restricted Bonds; or (v) a downgrading or withdrawal in the
rating assigned to the Restricted Bonds or any of the Company's other securities
by any nationally recognized statistical rating agency, or a public announcement
by any such rating agency that it has under surveillance or review, with
possible negative implications, its rating of the Restricted Bonds or any of the
Company's other securities.

                  If any of the Initial Purchasers elect to terminate this
Agreement, as provided in this Section 11, they will promptly notify the Company
by telephone or telecopy, confirmed by letter. If this Agreement shall not be
carried out by the Initial Purchasers for any reason permitted hereunder, or if
the sale of the Restricted Bonds to the Initial Purchasers as herein
contemplated shall not be carried out because the Company is not able to comply
with the terms hereof, the Company shall not be under any obligation under this
Agreement except as provided in Section 5(g) hereof and shall not be liable to
the Initial Purchasers for the loss of anticipated profits from the transactions
contemplated by this Agreement and the Initial Purchasers shall be under no
liability to the Company.

                  (c)      If on the Closing Date any one or more of the Initial
Purchasers shall fail or refuse (otherwise than for some reason sufficient to
justify in accordance with the terms hereof, the termination of its obligations
hereunder) to purchase Restricted Bonds which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of the Restricted
Bonds which such defaulting Initial Purchaser or Initial Purchasers, as the case
may be, agreed but failed or refused to purchase is not more than one-tenth of
the aggregate principal amount of the Restricted Bonds to be purchased on such
date by all Initial Purchasers, each non defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the
Restricted Bonds set forth opposite its name in Schedule A bears to the
aggregate principal

                                       18

<PAGE>

amount of the Restricted Bonds which all the non-defaulting Initial Purchaser or
Initial Purchasers, as the case may be, agreed but failed or refused to purchase
on such date; provided that in no event shall the aggregate principal amount of
the Restricted Bonds which any Initial Purchaser has agreed to purchase pursuant
to Section 2 hereof be increased pursuant to this Section 11(c) by an amount in
excess of one-ninth of such principal amount of the Restricted Bonds which such
Initial Purchaser agreed to purchase without the written consent of such Initial
Purchaser. If on the Closing Date any Initial Purchaser or Initial Purchasers
shall fail or refuse to purchase Restricted Bonds and the aggregate principal
amount of the Restricted Bonds with respect to which such default occurs is more
than one-tenth of the aggregate principal amount of the Restricted Bonds to be
purchased by all Initial Purchasers and arrangements satisfactory to the Initial
Purchasers and the Company for purchase of such Restricted Bonds are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Initial Purchaser and the Company.
In any such case which does not result in the termination of this Agreement,
either the Initial Purchasers or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this Section 11(c) shall
not relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.

                  (d)      Notwithstanding the foregoing, the provisions of
Sections 5(e), 5(i), 8 and 9 shall survive any termination of this Agreement.

                  12.      Miscellaneous: Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to Consumers Energy Company, One Energy Plaza, Jackson, Michigan 49201,
Attention: Executive Vice President and Chief Financial Officer (Telecopy
517-788-2186), and (ii) if to the Initial Purchasers, to (A) Banc One Capital
Markets, Inc., 1 Bank One Plaza, Suite IL 1-0595, Chicago, Illinois 60670,
Attention: Structuring & Execution (Telecopy 312-732-4773), (B) Barclays Capital
Inc., 200 Park Avenue, New York, New York 10166, Attention: Syndicate Department
(Telecopy 212-412-7305) and (C) J.P. Morgan Securities Inc., 270 Park Avenue,
New York, New York 10017, Attention: Transaction Execution Group, 7th Floor
(Telecopy 212-834-6702), or in any case to such other address as the person to
be notified may have requested in writing.

                  Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the
Restricted Bonds from an Initial Purchaser merely because of such purchase.

                  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

                  This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.

                                       19

<PAGE>

                  Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.

                                       Very truly yours,

                                       CONSUMERS ENERGY COMPANY

                                       By: /s/ Thomas J. Webb
                                           ------------------------------------
                                           Name: Thomas J. Webb
                                           Title: Executive Vice President and
                                                  Chief Financial Officer

Accepted:

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
ABN AMRO INCORPORATED, INC.
HUNTINGTON CAPITAL CORP.
TOKYO-MITSUBISHI INTERNATIONAL PLC
WACHOVIA SECURITIES, LLC
COMERICA SECURITIES, INC.
FIFTH THIRD SECURITIES, INC.BY: BANC ONE CAPITAL MARKETS, INC.

By: /s/ Robert Nordlinger
    --------------------------
    Name: Robert Nordlinger
    Title: Managing Director

<PAGE>

                                   SCHEDULE A

<TABLE>
<CAPTION>
                                          Principal Amount of Series G     Principal Amount of Series I
     Initial Purchasers                      Bonds to be Purchased             Bonds to be Purchased
     ------------------                      ---------------------             ---------------------
<S>                                       <C>                              <C>
Banc One Capital Markets, Inc.                    $ 50,000,000                      $ 50,000,000

Barclays Capital Inc.                             $ 50,000,000                      $ 50,000,000

J.P. Morgan Securities Inc.                       $ 50,000,000                      $ 50,000,000

ABN AMRO Incorporated                             $ 10,000,000                      $ 10,000,000

Huntington Capital Corp.                          $ 10,000,000                      $ 10,000,000

Tokyo-Mitsubishi International plc                $ 10,000,000                      $ 10,000,000

Wachovia Securities, LLC                          $ 10,000,000                      $ 10,000,000

Comerica Securities, Inc.                         $  5,000,000                      $  5,000,000

Fifth Third Securities, Inc.                      $  5,000,000                      $  5,000,000
                                                  ------------                      ------------

                                                  $200,000,000                      $200,000,000
                                                  ============                      ============
</TABLE>

                                      A-1

<PAGE>

                                    EXHIBIT A

         This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 26, 2003, by Consumers Energy Company, a Michigan
corporation (the "Company"), and Banc One Capital Markets, Inc., Barclays
Capital Inc., J.P. Morgan Securities Inc., ABN AMRO Incorporated, Huntington
Capital Corp., Tokyo-Mitsubishi International plc, Wachovia Securities, LLC,
Comerica Securities, Inc. and Fifth Third Securities, Inc. (each an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), which have agreed to
purchase the Company's $200,000,000 4.80% First Mortgage Bonds due 2009, Series
G (the "Series G Bonds") and $200,000,000 6.00% First Mortgage Bonds due 2014,
Series I (the "Series I Bonds" and together with the Series G Bonds, the
"Restricted Bonds") pursuant to the Purchase Agreement (as defined below).


         This Agreement is made pursuant to the Purchase Agreement, dated August
19, 2003 (the "Purchase Agreement"), by the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to purchase the Restricted Bonds, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers in the Purchase Agreement.

         The parties hereby agree as follows:

SECTION 1. DEFINITIONS

         Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:

         Act: The Securities Act of 1933, as amended.

         Advice: As defined in Section 6(d) hereof.

         Agreement: As defined in the first paragraph hereof.

         Bonds: The Restricted Bonds and the Exchange Bonds.

         Broker-Dealer: Any broker or dealer registered under the Exchange Act.

         Broker-Dealer Transfer Restricted Securities: Exchange Bonds that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Restricted
Bonds that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Restricted
Bonds acquired directly from the Company or any of its affiliates).

         Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the primary corporate trust office of the
Trustee, on which banks are authorized to close.

         Certificated Securities: Bonds that are not in Global Bond form.

                                       A-1

<PAGE>

         Closing Date: The date hereof.

         Commission: The Securities and Exchange Commission.

         Company: As defined in the first paragraph hereof.

         Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of the Series H Bonds in the same aggregate
principal amount as the aggregate principal amount of the Series G Bonds
tendered by Holders thereof and the delivery by the Company to the Registrar of
the Series J Bonds in the same aggregate principal amount as the aggregate
principal amount of the Series I Bonds tendered by holders thereof, in each
case, pursuant to the Exchange Offer.

         Damages Payment Date: With respect to the Restricted Bonds, each
Interest Payment Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Exchange Bonds: The Series H Bonds and the Series J Bonds.

         Exchange Offer: The Series G Exchange Offer and/or the Series I
Exchange Offer, as the case may be.

         Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

         Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Restricted Bonds to certain "qualified institutional
buyers", as such term is defined in Rule 144A under the Act, or to persons who
are not "U.S. persons", as such term is defined in Regulation S under the Act.

         Global Bond: As defined in the Bonds.

         Global Bond Holder: As defined in the Bonds.

         Holder: As defined in Section 2 hereof.

         Indemnified Holder: As defined in Section 8(a) hereof.

         Indemnified Person: As defined in Section 8(c) hereof.

         Indemnifying Person: As defined in Section 8(c) hereof.

                                      A-2

<PAGE>

         Indenture: Indenture dated as of September 1, 1945, between the Company
and the Trustee, as supplemented by various supplemental indentures.

         Initial Purchaser: As defined in the first paragraph hereof.

         Initial Purchasers: As defined in the first paragraph hereof.

         Interest Payment Date: As defined in the Bonds.

         NASD: National Association of Securities Dealers, Inc.

         Person: An individual, partnership, corporation, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof.

         Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

         Purchase Agreement: As defined in the second paragraph hereof.

         Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Bonds on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.

         Registrar: As defined in the Indenture.

         Registration Default: As defined in Section 5 hereof.

         Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

         Restricted Bonds: As defined in the first paragraph hereof.

         Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.

         S-3 Ineligibility Date: As defined in Section 12(l) hereof.

         Series G Bonds: As defined in the first paragraph hereof.

         Series G Exchange Offer: The registration by the Company under the Act
of the Series H Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series G

                                      A-3

<PAGE>

Bonds the opportunity to exchange all such outstanding Transfer Restricted
Securities relating to Series G Bonds for Series H Bonds in an aggregate
principal amount equal to the aggregate principal amount of the Transfer
Restricted Securities relating to Series G Bonds tendered in such exchange offer
by such Holders.

         Series I Bonds: As defined in the first paragraph hereof.

         Series I Exchange Offer: The registration by the Company under the Act
of the Series J Bonds pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities relating to Series I Bonds the opportunity to
exchange all such outstanding Transfer Restricted Securities relating to Series
I Bonds for Series J Bonds in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities relating to
Series I Bonds tendered in such exchange offer by such Holders.

         Series H Bonds: The Company's 4.80% First Mortgage Bonds due 2009,
Series H, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Series G Bonds covered by a Shelf
Registration Statement, in exchange for such Series G Bonds.

         Series J Bonds: The Company's 6.00% First Mortgage Bonds due 2014,
Series J, to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any holder of Series I Bonds covered by a Shelf
Registration Statement, in exchange for such Series I Bonds.

         Shelf Filing Date: As defined in Section 4(a) hereof.

         Shelf Registration Statement: As defined in Section 4(a) hereof.

         TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
as in effect on the date of the Indenture.

         Transfer Restricted Securities: Each Restricted Bond, until the
earliest to occur of (a) the date on which such Restricted Bond is exchanged in
the Exchange Offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Restricted Bond has been disposed of in accordance with a
Shelf Registration Statement, (c) the date on which such Restricted Bond is
disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery of
the Prospectus contained therein) or (d) the date on which such Restricted Bond
is distributed to the public pursuant to Rule 144 under the Act.

         Trustee: JPMorgan Chase Bank (ultimate successor to City Bank Farmers
Trust Company), as trustee under the Indenture.

         Underwritten Offering or Underwritten Registration: An offering or
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

                                      A-4

<PAGE>

SECTION 2. HOLDERS

         A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

         (a)      Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 240 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 330
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Bonds to be made under the blue sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Bonds to be offered in
exchange for the Restricted Bonds that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.

         (b)      The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Bonds shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 days thereafter.

         (c)      The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Restricted Bonds
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Restricted Bonds (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Bond received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such

                                      A-5

<PAGE>

Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Bonds held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.

         The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated.

         The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

         (a)      Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the Exchange Bonds
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a)(i) hereof have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Bonds acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, the Company shall, provided that the Company is then eligible to use Act
Form S-3 and subject to Section 12(l) hereof, (x) cause to be filed on or prior
to 90 days after the date on which the Company determines that it is not
required to file the Exchange Offer Registration Statement pursuant to clause
(i) above or 90 days after the date on which the Company receives the notice
specified in clause (ii) above (each such date, a "Shelf Filing Date") a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 180 days after the
Shelf Filing Date. Subject to Section 12(l) hereof, if the Company is not
eligible to use Act Form S-3 on a Shelf Filing Date, then its obligation to file
a Shelf Registration Statement shall be deferred until the 30th day after the
earliest time that such eligibility is restored. If, after the Company has filed
an Exchange Offer Registration Statement which satisfies the requirements of
Section 3(a) hereof, the Company is required to file and make effective a Shelf
Registration Statement solely because the

                                      A-6

<PAGE>

Exchange Offer shall not be permitted under applicable federal law, then the
filing of the Exchange Offer Registration Statement shall be deemed to satisfy
the requirements of clause (x) above. Such an event shall have no effect on the
requirements of clause (y) above. The Company shall use its reasonable best
efforts to keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i) hereof)
following the date on which such Shelf Registration Statement first becomes
effective under the Act.

         (b)      Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K for use in connection with
any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information. Each Holder as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.

SECTION 5. LIQUIDATED DAMAGES

         If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 calendar days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded within 15 Business Days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective within five Business Days (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company agrees to pay
liquidated damages in the form of additional interest on the Transfer Restricted
Securities to each Holder of Transfer Restricted Securities, from and including
the date on which any Registration Default shall occur to, but excluding, the
date on which such Registration Default has been cured, at a rate of 0.50% per
annum. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause (ii) above,
(3) upon Consummation of the Exchange Offer, in the case of clause (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional

                                      A-7

<PAGE>

Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable, in the case of clause (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.

         All additional interest shall be paid on each payment date to the
Global Bond Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses on the books of the Company or the Trustee for such
payment. All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

         (a)      Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its reasonable best efforts to effect such
exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:

                  (i)      If, following the date hereof, there has been
         published a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         hereby agrees to seek a no-action letter or other favorable decision
         from the Commission allowing the Company to Consummate an Exchange
         Offer for the Restricted Bonds. The Company hereby agrees to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company hereby agrees to take all
         such other actions as are reasonably requested by the Commission or
         otherwise required in connection with the issuance of such decision,
         including without limitation (A) participating in telephonic
         conferences with the Commission, (B) delivering to the Commission staff
         an analysis prepared by counsel to the Company setting forth the legal
         bases, if any, upon which such counsel has concluded that such an
         Exchange Offer should be permitted and (C) diligently pursuing a
         resolution (which need not be favorable) by the Commission staff of
         such submission.

                  (ii)     As a condition to its participation in the Exchange
         Offer pursuant to the terms of this Agreement, each Holder of Transfer
         Restricted Securities shall furnish upon the request of the Company,
         prior to the Consummation of the Exchange Offer, a written
         representation to the Company (which may be contained in the letter of
         transmittal contemplated by the Exchange Offer Registration Statement)
         to the effect that (A) it is not an affiliate of the Company, (B) it is
         not engaged in, and does not intend to engage in, and has no
         arrangement or understanding with any Person to participate in, a
         distribution of the Exchange Bonds to be issued in the Exchange Offer
         and (C) it is acquiring the Exchange

                                      A-8

<PAGE>

         Bonds in its ordinary course of business. Each Holder hereby
         acknowledges and agrees that any Broker-Dealer and any such Holder
         using the Exchange Offer to participate in a distribution of the
         securities to be acquired in the Exchange Offer (1) could not under
         Commission policy as in effect on the date of this Agreement rely on
         the position of the Commission enunciated in Morgan Stanley and Co.
         Inc. (available June 5, 1991) and Exxon Capital Holdings Corp.
         (available May 13, 1988), as interpreted in the Commission's letter to
         Shearman & Sterling (available July 2, 1993), and similar no-action
         letters (including, if applicable, any no-action letter obtained
         pursuant to clause (i) above), and (2) must comply with the
         registration and prospectus delivery requirements of the Act in
         connection with a secondary resale transaction and that such a
         secondary resale transaction must be covered by an effective
         registration statement containing the selling security holder
         information required by Item 507 or 508, as applicable, of Regulation
         S-K if the resales are of Exchange Bonds obtained by such Holder in
         exchange for Restricted Bonds acquired by such Holder directly from the
         Company or an affiliate thereof.

                  (iii)    Prior to effectiveness of the Exchange Offer
         Registration Statement, the Company shall provide a supplemental letter
         to the Commission (A) stating that the Company is registering the
         Exchange Offer in reliance on the position of the Commission enunciated
         in Exxon Capital Holdings Corp. (available May 13, 1988), Morgan
         Stanley and Co. Inc. (available June 5, 1991) and, if applicable, any
         no-action letter obtained pursuant to clause (i) above, (B) including a
         representation that the Company has not entered into any arrangement or
         understanding with any Person to distribute the Exchange Bonds to be
         received in the Exchange Offer and that, to the best of the Company's
         information and belief, each Holder participating in the Exchange Offer
         is acquiring the Exchange Bonds in its ordinary course of business and
         has no arrangement or understanding with any Person to participate in
         the distribution of the Exchange Bonds received in the Exchange Offer
         and (C) any other undertaking or representation required by the
         Commission as set forth in any no-action letter obtained pursuant to
         clause (i) above.

         (b)      Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.

         (c)      General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the

                                      A-9

<PAGE>

related Prospectus, to the extent that the same are required to be available to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers), the Company shall:

                  (i)      use its best efforts to keep such Registration
         Statement continuously effective and provide all requisite financial
         statements for the period specified in Section 3 or 4 hereof, as
         applicable. Upon the occurrence of any event that would cause any such
         Registration Statement or the Prospectus contained therein (A) to
         contain a material misstatement or omission or (B) not to be effective
         and usable for resale of Transfer Restricted Securities during the
         period required by this Agreement, the Company shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), using its best efforts to cause such
         amendment to be declared effective and such Registration Statement and
         the related Prospectus to become usable for their intended purpose(s)
         as soon as practicable thereafter;

                  (ii)     prepare and file with the Commission such amendments
         and post-effective amendments to the Registration Statement as may be
         necessary to keep the Registration Statement effective for the
         applicable period set forth in Section 3 or 4 hereof, or such shorter
         period as will terminate when all Transfer Restricted Securities
         covered by such Registration Statement have been sold; cause the
         Prospectus to be supplemented by any required Prospectus supplement,
         and as so supplemented to be filed pursuant to Rule 424 under the Act,
         and to comply fully with Rules 424, 430A and 462, as applicable, under
         the Act in a timely manner; and comply with the provisions of the Act
         with respect to the disposition of all securities covered by such
         Registration Statement during the applicable period in accordance with
         the intended method or methods of distribution by the sellers thereof
         set forth in such Registration Statement or supplement to the
         Prospectus;

                  (iii)    advise the underwriter(s), if any, and selling
         Holders promptly and, if requested by such Persons, confirm such advice
         in writing, (A) when the Prospectus or any Prospectus supplement or
         post-effective amendment has been filed, and, with respect to any
         Registration Statement or any post-effective amendment thereto, when
         the same has become effective, (B) of any request by the Commission for
         amendments to the Registration Statement or amendments or supplements
         to the Prospectus or for additional information relating thereto, (C)
         of the issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement under the Act or of the
         suspension by any state securities commission of the qualification of
         the Transfer Restricted Securities for offering or sale in any
         jurisdiction, or the initiation of any proceeding for any of the
         preceding purposes, (D) of the existence of any fact or the happening
         of any event that makes any statement of a material fact made in the
         Registration Statement, the Prospectus, any amendment or supplement
         thereto or any document incorporated by reference therein untrue, or
         that requires the making of any additions to or changes in the
         Registration Statement in order to make the statements therein not
         misleading, or that requires the making of any additions to or changes
         in the Prospectus in order to make the statements therein, in the light

                                      A-10

<PAGE>

         of the circumstances under which they were made, not misleading. If at
         any time the Commission shall issue any stop order suspending the
         effectiveness of the Registration Statement, or any state securities
         commission or other regulatory authority shall issue an order
         suspending the qualification or exemption from qualification of the
         Transfer Restricted Securities under state securities or blue sky laws,
         the Company shall use its best efforts to obtain the withdrawal or
         lifting of such order at the earliest possible time;

                  (iv)     furnish to the Initial Purchaser(s), each selling
         Holder named in any Registration Statement or Prospectus and each of
         the underwriter(s) in connection with such sale, if any, before filing
         with the Commission, copies of any Registration Statement or any
         Prospectus included therein or any amendments or supplements to any
         such Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders and underwriter(s) in connection with such sale, if
         any, for a period of at least five Business Days, and the Company will
         not file any such Registration Statement or Prospectus or any amendment
         or supplement to any such Registration Statement or Prospectus
         (including all such documents incorporated by reference) to which the
         selling Holders of the Transfer Restricted Securities covered by such
         Registration Statement or the underwriter(s) in connection with such
         sale, if any, shall reasonably object within five Business Days after
         the receipt thereof;

                  (v)      promptly prior to the filing of any document that is
         to be incorporated by reference into a Registration Statement or
         Prospectus, provide copies of such document to the selling Holders and
         to the underwriter(s) in connection with such sale, if any, make the
         Company's representatives available for discussion of such document and
         other customary due diligence matters, and include such information in
         such document prior to the filing thereof as such selling Holders or
         underwriter(s), if any, reasonably may request;

                  (vi)     make available at reasonable times for inspection by
         the selling Holders, any managing underwriter participating in any
         disposition pursuant to such Registration Statement and any attorney or
         accountant retained by such selling Holders or any of such
         underwriter(s), all financial and other records, material corporate
         documents and properties of the Company and cause the Company's
         officers, directors and employees to supply all information reasonably
         requested by any such Holder, underwriter, attorney or accountant in
         connection with such Registration Statement or any post-effective
         amendment thereto subsequent to the filing thereof and prior to its
         effectiveness;

                  (vii)    if requested by any selling Holders or the
         underwriter(s) in connection with such sale, if any, promptly include
         in any Registration Statement or Prospectus, pursuant to a supplement
         or post-effective amendment if necessary, such information as such
         selling Holders and underwriter(s), if any, may reasonably request to
         have included therein, including, without limitation,

                                      A-11

<PAGE>

         information relating to the "Plan of Distribution" of the Transfer
         Restricted Securities, information with respect to the principal amount
         of Transfer Restricted Securities being sold to such underwriter(s),
         the purchase price being paid therefor and any other terms of the
         offering of the Transfer Restricted Securities to be sold in such
         offering; and make all required filings of such Prospectus supplement
         or post-effective amendment as soon as practicable after the Company is
         notified of the matters to be included in such Prospectus supplement or
         post-effective amendment;

                  (viii)   if requested in writing by any selling Holder and
         each of the underwriter(s) in connection with such sale, if any,
         furnish, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                  (ix)     if requested in writing by any selling Holder and
         each of the underwriter(s), if any, deliver, without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company hereby consents to the use (in accordance with
         law) of the Prospectus and any amendment or supplement thereto by each
         of the selling Holders and each of the underwriter(s), if any, in
         connection with the offering and the sale of the Transfer Restricted
         Securities covered by the Prospectus or any amendment or supplement
         thereto;

                  (x)      enter into such agreements (including an underwriting
         or similar agreement) and make such representations and warranties and
         take all such other actions in connection therewith in order to
         expedite or facilitate the disposition of the Transfer Restricted
         Securities pursuant to any Registration Statement contemplated by this
         Agreement as may be reasonably requested by any Holder of Transfer
         Restricted Securities or underwriter in connection with any sale or
         resale pursuant to any Registration Statement contemplated by this
         Agreement, and in such connection, whether or not an underwriting or
         similar agreement is entered into and whether or not the registration
         is an Underwritten Registration, the Company shall:

                           (A)      furnish (or in the case of clauses (2) and
                  (3) below, use its best efforts to furnish) to each selling
                  Holder and each underwriter, if any, upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                    (1)      a certificate, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company by
                           (x) the President or any Vice President and (y) a
                           principal financial or accounting officer of the
                           Company, confirming, as of the

                                      A-12
<PAGE>

                           date thereof, the matters set forth in Sections 10(d)
                           and 10(e) of the Purchase Agreement and such other
                           similar matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request;

                                    (2)      an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company covering
                           matters similar to those set forth in Section
                           10(b)(i) of the Purchase Agreement and such other
                           matters as the Holders, underwriter(s) and/or
                           Restricted Broker-Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company,
                           representatives of the independent public accountants
                           for the Company and have considered the matters
                           required to be stated therein and the statements
                           contained therein, although such counsel has not
                           independently verified the accuracy, completeness or
                           fairness of such statements; and that such counsel
                           advises that, on the basis of the foregoing (relying
                           as to materiality to a large extent upon facts
                           provided to such counsel by officers and other
                           representatives of the Company and without
                           independent check or verification), no facts came to
                           such counsel's attention that caused such counsel to
                           believe that the applicable Registration Statement,
                           at the time such Registration Statement or any
                           post-effective amendment thereto became effective
                           and, in the case of the Exchange Offer Registration
                           Statement, as of the date of Consummation of the
                           Exchange Offer, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           required to be stated therein or necessary to make
                           the statements therein not misleading, or that the
                           Prospectus contained in such Registration Statement
                           as of its date and, in the case of the opinion dated
                           the date of Consummation of the Exchange Offer, as of
                           the date of Consummation, contained an untrue
                           statement of a material fact or omitted to state a
                           material fact necessary in order to make the
                           statements therein, in the light of the circumstances
                           under which they were made, not misleading. Without
                           limiting the foregoing, such counsel may state
                           further that such counsel assumes no responsibility
                           for, and has not independently verified, the
                           accuracy, completeness or fairness of the financial
                           statements, Bonds and schedules and other financial
                           data included in any Registration Statement

                                      A-13

<PAGE>

                           contemplated by this Agreement or the related
                           Prospectus; and

                                    (3)      a customary comfort letter, dated
                           as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with primary underwritten offerings, and
                           affirming the matters set forth in the comfort
                           letters delivered pursuant to Section 10(c)(i) and
                           Section 10(c)(ii) of the Purchase Agreement, without
                           exception;

                           (B)      set forth in full or incorporate by
                  reference in the underwriting or similar agreement, if any, in
                  connection with any sale or resale pursuant to any Shelf
                  Registration Statement, the indemnification provisions and
                  procedures of Section 8 hereof with respect to all parties to
                  be indemnified pursuant to said Section 8; and

                           (C)      deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, the underwriter(s), if any, and Restricted
                  Broker-Dealers, if any, to evidence compliance with clause (A)
                  above and with any customary conditions contained in the
                  underwriting agreement or other agreement entered into by the
                  Company pursuant to this clause (C);

the above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company contemplated in clause (A)(1)
above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer
promptly and, if requested by such Persons, shall confirm such advice in
writing;

                  (xi)     prior to any public offering of Transfer Restricted
         Securities, cooperate with the selling Holders, the underwriter(s), if
         any, and their respective counsel in connection with the registration
         and qualification of the Transfer Restricted Securities under the
         securities or blue sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Transfer Restricted Securities covered by the
         applicable Registration Statement; provided, however, that the Company
         shall not be required to register or qualify as a foreign corporation
         where it is not now so qualified or to take any action that would
         subject it to the service of process in suits or to taxation, other
         than as to matters and transactions relating to the Registration
         Statement, in any jurisdiction where it is not now so subject;

                                      A-14

<PAGE>

                  (xii)    (A)      issue, upon the request of any Holder of
         Series G Bonds covered by any Shelf Registration Statement contemplated
         by this Agreement, Series H Bonds having an aggregate principal amount
         equal to the aggregate principal amount of Series G Bonds surrendered
         to the Company by such Holder in exchange therefor or being sold by
         such Holder; such Series H Bonds to be registered in the name of such
         Holder or in the name of the purchaser(s) of such Bonds, as the case
         may be; in return, the Series G Bonds held by such Holder shall be
         surrendered to the Company for cancellation;

                           (B)      issue, upon the request of any Holder of
         Series I Bonds covered by any Shelf Registration Statement contemplated
         by this Agreement, Series J Bonds having an aggregate principal amount
         equal to the aggregate principal amount of Series I Bonds surrendered
         to the Company by such Holder in exchange therefor or being sold by
         such Holder; such Series J Bonds to be registered in the name of such
         Holder or in the name of the purchaser(s) of such Bonds, as the case
         may be; in return, the Series I Bonds held by such Holder shall be
         surrendered to the Company for cancellation;

                  (xiii)   in connection with any sale of Transfer Restricted
         Securities that will result in such securities no longer being Transfer
         Restricted Securities, cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Transfer Restricted Securities to
         be sold and not bearing any restrictive legends; and to register such
         Transfer Restricted Securities in such denominations and such names as
         the Holders or the underwriter(s), if any, may request at least two
         Business Days prior to such sale of Transfer Restricted Securities;

                  (xiv)    use its best efforts to cause the disposition of the
         Transfer Restricted Securities covered by the Registration Statement to
         be registered with or approved by such other governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Transfer Restricted Securities, subject to the proviso contained in
         clause (xi) above;

                  (xv)     subject to clause (i) above, if any fact or event
         contemplated by clause (iii)(D) above shall exist or have occurred,
         prepare a supplement or post-effective amendment to the Registration
         Statement or related Prospectus or any document incorporated therein by
         reference or file any other required document so that, as thereafter
         delivered to the purchasers of Transfer Restricted Securities, the
         Prospectus will not contain an untrue statement of a material fact or
         omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading;

                  (xvi)    provide CUSIP numbers for all Transfer Restricted
         Securities not later than the effective date of a Registration
         Statement covering such Transfer Restricted Securities and provide the
         Trustee with printed certificates for the

                                      A-15

<PAGE>

         Transfer Restricted Securities which are in a form eligible for deposit
         with The Depository Trust Company;

                  (xvii)   cooperate and assist in any filings required to be
         made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use its best efforts to cause
         such Registration Statement to become effective and approved by such
         governmental agencies or authorities as may be necessary to enable the
         Holders selling Transfer Restricted Securities to consummate the
         disposition of such Transfer Restricted Securities;

                  (xviii)  otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission, and make generally
         available to its security holders with regard to any applicable
         Registration Statement, as soon as practicable, a consolidated earning
         statement meeting the requirements of Rule 158 under the Act (which
         need not be audited) covering a twelve-month period beginning after the
         effective date of the Registration Statement (as such term is defined
         in paragraph (c) of Rule 158 under the Act);

                  (xix)    cause the Indenture to be qualified under the TIA not
         later than the effective date of the first Registration Statement
         required by this Agreement and, in connection therewith, cooperate with
         the Trustee and the Holders of Bonds to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the Trustee to execute all documents that may be
         required to effect such changes and all other forms and documents
         required to be filed with the Commission to enable such Indenture to be
         so qualified in a timely manner; and

                  (xx)     provide promptly to each Holder upon request each
         document filed with the Commission pursuant to the requirements of
         Section 13 or Section 15(d) of the Exchange Act.

         (d)      Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of a notice of actions to be
taken as referred to in Section 6(c)(i) hereof or any notice from the Company of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration

                                      A-16

<PAGE>

Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.

SECTION 7. REGISTRATION EXPENSES

         (a)      All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses of
compliance with federal securities and state blue sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Bonds
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and (other than in connection with the Exchange Offer) the Holders
of Transfer Restricted Securities; (v) all application and filing fees, if any,
in connection with listing the Bonds on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

         The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

         (b)      In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit the Shelf Registration Statement is being prepared in consultation
with the Company.

SECTION 8. INDEMNIFICATION AND CONTRIBUTION

         (a)      The Company agrees, to the extent permitted by law, to
indemnify and hold harmless each Holder and each Person, if any, who controls
any Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or
otherwise ("Indemnified Holder"), and to reimburse the Holders and such
controlling Person or Persons, if any, for any legal or other expenses incurred
by them in connection with defending any action, suit or proceeding (including
governmental investigations) as provided in Section 8(c) hereof, insofar as such
losses, claims, damages, liabilities or actions, suits or proceedings (including
governmental investigations) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, or, if any Registration Statement shall be amended or supplemented,
in the Registration Statement as so amended or supplemented, or arise out of or
are based upon any omission or

                                      A-17

<PAGE>

alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission which was made in the Registration Statement or in the
Registration Statement as so amended or supplemented, in reliance upon and in
conformity with information furnished in writing to the Company by any Holder
expressly for use therein.

         The Company's indemnity agreement contained in this Section 8(a), and
the covenants, representations and warranties of the Company contained in this
Agreement, shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person, and the indemnity agreement contained in
this Section 8 shall survive any termination of this Agreement. The liabilities
of the Company in this Section 8 are in addition to any other liabilities of the
Company under this Agreement or otherwise.

         (b)      Each Holder agrees, severally and not jointly, to the extent
permitted by law, to indemnify, hold harmless and reimburse the Company and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent and upon the same
terms as the indemnity agreement of the Company set forth in Section 8(a)
hereof, but only with respect to alleged untrue statements or omissions made in
the Registration Statement or in the Registration Statement, as amended or
supplemented (if applicable), in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein.

         The indemnity agreement on the part of each Holder contained in this
Section 8(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any other Person, and the
indemnity agreement contained in this Section 8(b) shall survive any termination
of this Agreement.

         (c)      If a claim is made or an action, suit or proceeding (including
governmental investigations) is commenced or threatened against any person as to
which indemnity may be sought under Section 8(a) or 8(b) hereof, such Person
(the "Indemnified Person") shall notify the Person against whom such indemnity
may be sought (the "Indemnifying Person") promptly after any assertion of such
claim threatening to institute an action, suit or proceeding or, if such an
action, suit or proceeding is commenced against such Indemnified Person,
promptly after such Indemnified Person shall have been served with a summons or
other first legal process, giving information as to the nature and basis of the
claim. Failure to so notify the Indemnifying Person shall not, however, relieve
the Indemnifying Person from any liability which it may have on account of the
indemnity under Section 8(a) or 8(b) hereof if the Indemnifying Person has not
been prejudiced in any material respect by such failure. Subject to the
immediately succeeding sentence, the Indemnifying Person shall assume the
defense of any such litigation or proceeding, including the employment of
counsel and the payment of all expenses, with such counsel being designated,
subject to the immediately succeeding sentence, in writing by a majority in
principal amount of the Holders in the case of parties indemnified pursuant to
Section 8(b) hereof and by the Company in the case of parties indemnified
pursuant to Section 8(a) hereof. Any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person
shall have mutually

                                      A-18

<PAGE>

agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include (x) the Indemnifying Person
and (y) the Indemnified Person and, in the written opinion of counsel to such
Indemnified Person, representation of both parties by the same counsel would be
inappropriate due to actual or likely conflicts of interest between them, in
either of which cases the reasonable fees and expenses of counsel (including
disbursements) for such Indemnified Person shall be reimbursed by the
Indemnifying Person to the Indemnified Person. If there is a conflict as
described in clause (ii) above, and the Indemnified Persons have participated in
the litigation or proceeding utilizing separate counsel whose fees and expenses
have been reimbursed by the Indemnifying Person, and the Indemnified Persons, or
any of them, are found to be solely liable, such Indemnified Person shall repay
to the Indemnifying Parties such fees and expenses of such separate counsel as
the Indemnifying Person shall have reimbursed. It is understood that the
Indemnifying Person shall not, in connection with any litigation or proceeding
or related litigation or proceedings in the same jurisdiction as to which the
Indemnified Persons are entitled to such separate representation, be liable
under this Agreement for the reasonable fees and out-of-pocket expenses of more
than one separate firm (together with not more than one appropriate local
counsel) for all such Indemnified Persons. Subject to the next paragraph, all
such fees and expenses shall be reimbursed by payment to the Indemnified Persons
of such reasonable fees and expenses of counsel promptly after payment thereof
by the Indemnified Persons.

         In furtherance of the requirement above that fees and expenses of any
separate counsel for the Indemnified Persons shall be reasonable, the Holders
and the Company agree that the Indemnifying Person's obligations to pay such
fees and expenses shall be conditioned upon the following:

                  (1)      in case separate counsel is proposed to be retained
         by the Indemnified Persons pursuant to clause (ii) of the preceding
         paragraph, the Indemnified Persons shall in good faith fully consult
         with the Indemnifying Person in advance as to the selection of such
         counsel;

                  (2)      reimbursable fees and expenses of such separate
         counsel shall be detailed and supported in a manner reasonably
         acceptable to the Indemnifying Person (but nothing herein shall be
         deemed to require the furnishing to the Indemnifying Person of any
         information, including, without limitation, computer print-outs of
         lawyers' daily time entries, to the extent that, in the judgment of
         such counsel, furnishing such information might reasonably be expected
         to result in a waiver of any attorney-client privilege); and

                  (3)      the Company and the Holders shall cooperate in
         monitoring and controlling the fees and expenses of separate counsel
         for Indemnified Persons for which the Indemnifying Person is liable
         hereunder, and the Indemnified Person shall use every reasonable effort
         to cause such separate counsel to minimize the duplication of
         activities as between themselves and counsel to the Indemnifying
         Person.

         The Indemnifying Person shall not be liable for any settlement of any
litigation or proceeding effected without the written consent of the
Indemnifying Person, but if settled with such consent or if there be a final
judgment against the Indemnified Person, the Indemnifying Person agrees, subject
to the provisions of this Section 8, to indemnify the Indemnified Person

                                      A-19

<PAGE>

from and against any loss, damage, liability or expenses by reason of such
settlement or judgment. The Indemnifying Person shall not, without the prior
written consent of the Indemnified Persons, effect any settlement of any pending
or threatened litigation, proceeding or claim in respect of which indemnity has
been properly sought by the Indemnified Persons hereunder, unless such
settlement includes an unconditional release by the claimant of all Indemnified
Persons from all liability with respect to claims which are the subject matter
of such litigation, proceeding or claim.

         (d)      If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an Indemnified Person under this
Section 8 in respect of any losses, claims, damages or liabilities (or actions,
suits or proceedings (including governmental investigations) in respect thereof)
referred to therein, then each Indemnifying Person under this Section 8 shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Person on the one hand and the Indemnified Person on the
other from the sale of the Transfer Restricted Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each Indemnifying Person shall contribute to such amount
paid or payable by such Indemnified Person in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of each
Indemnifying Person, if any, on the one hand and the Indemnified Person on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, suits or proceedings
(including governmental investigations) in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Holders on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 8. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages or liabilities (or
actions, suits or proceedings (including governmental proceedings) in respect
thereof) referred to in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such actions, suits or proceedings (including
governmental proceedings) or claims, provided that the provisions of this
Section 8 have been complied with (in all material respects) in respect of any
separate counsel for such Indemnified Person. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute any amount greater
than the excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent

                                      A-20

<PAGE>

misrepresentation. The Holders' obligations in this Section 8 to contribute are
several in proportion to their respective obligations and not joint.

         The agreement with respect to contribution contained in this Section 8
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any Holder, and shall survive any termination of
this Agreement.

SECTION 9. RULE 144A

         The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10. UNDERWRITTEN REGISTRATIONS

         No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

         For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. The Holders of Transfer Restricted
Securities included in any such Underwritten Offering shall be responsible for
paying all underwriting or placement fees charged, or costs or expenses
incurred, by such investment bankers and managers in connection with such
Underwritten Offering. Such investment bankers and managers are referred to
herein as the "underwriters".

SECTION 12. MISCELLANEOUS

         (a)      Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, in the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by the Company of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

                                      A-21

<PAGE>


         (b)      No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.

         (c)      Adjustments Affecting the Bonds. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Bonds
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

         (d)      Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.

         (e)      Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:

                  (i)      if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar; and

                  (ii)     if to the Company:

                           Consumers Energy Company
                           One Energy Plaza
                           Jackson, Michigan 49201
                           Telecopier No.: (517) 788-2186, Attention: Chief
                                           Financial Officer

                  With a copy at the same address to:

                           Robert C. Shrosbree, Esq.
                           Telecopier No.: (313) 436-9225

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the

                                      A-22

<PAGE>

mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.

         Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

         (f)      Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

         (g)      Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

         (h)      Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (i)      Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

         (j)      Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

         (k)      Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.

         (l)      S-3 Ineligibility. If the Company becomes required to file a
Shelf Registration Statement but is not eligible to use Act Form S-3 by the
240th day after the date of this Agreement (the "S-3 Ineligibility Date"), the
Company shall (A) cause to be filed as soon as practicable after the S-3
Ineligibility Date a Shelf Registration Statement containing a resale prospectus
on whatever Act form the Company is then eligible to use relating to all
Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof and (B) use its best
efforts to cause such Shelf Registration Statement to become effective as soon
as practicable.

                                      A-23

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                        CONSUMERS ENERGY COMPANY

                                        By: ______________________________
                                            Name: Thomas J. Webb
                                            Title: Executive Vice President and
                                                   Chief Financial Officer

BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL INC.
J.P. MORGAN SECURITIES INC.
ABN AMRO INCORPORATED
HUNTINGTON CAPITAL CORP.
TOKYO-MITSUBISHI INTERNATIONAL PLC
WACHOVIA SECURITIES, LLC
COMERICA SECURITIES, INC.
FIFTH THIRD SECURITIES, INC.

By: Banc One Capital Markets, Inc.

By: ________________________________
    Name:
    Title:

                                      A-24

<PAGE>

                                   EXHIBIT B-1

1.       The offer, sale and delivery of the Restricted Bonds to the Initial
Purchasers in the manner contemplated by the Purchase Agreement and the Offering
Memorandum and the initial resale of the Restricted Bonds by the Initial
Purchasers in the manner contemplated in the Offering Memorandum and the
Purchase Agreement, do not require registration under the Act and the
Supplemental Indenture does not require qualification under the TIA, it being
understood that we do not express any opinion as to any subsequent reoffer or
resale of any of the Restricted Bonds.

2.       The Registration Rights Agreement is a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.

                                     B-1-1

<PAGE>

                                   EXHIBIT B-2

No facts have come to our attention that have caused us to believe that the
Offering Memorandum, as of its date and as of the date hereof, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (except that in each
case we do not express any view as to the financial statements, schedules and
other financial data and financial projections included therein or excluded
therefrom). For purposes of the foregoing, we note that the Offering Memorandum
has been prepared in the context of a Rule 144A transaction and not as part of a
registration statement under the Act and does not contain all the information
that would be required in a registration statement under the Act.

                                     B-2-1

<PAGE>


                                    EXHIBIT C

1.       The Company is a duly organized, validly existing corporation in good
standing under the laws of the State of Michigan.

2.       All legally required corporate proceedings in connection with the
authorization, issuance and validity of the Restricted Bonds and the sale of the
Restricted Bonds by the Company in accordance with the Purchase Agreement have
been taken and an appropriate order has been entered by the Federal Energy
Regulatory Commission under the Federal Power Act authority for the issuance and
sale of the Restricted Bonds and such order is in full force and effect; and no
approval, authorization, consent or other order of any governmental regulatory
body is required with respect to the issuance and sale of the Restricted Bonds
(other than in connection with or in compliance with the provisions of the
securities or blue sky laws of any state, as to which I express no opinion).

3.       I do not know of any legal or governmental proceedings that would be
required to be described in the Offering Memorandum if it were a registration
statement filed by the Company under the Act that are not described as required,
nor of any contracts or documents of a character so required to be described in
the Offering Memorandum that are not described as required.

4.       The statements made in the Offering Memorandum under the caption
"Description of the Bonds" constitute summaries of legal matters or documents
referred to therein and are accurate in all material respects; and the
Restricted Bonds conform as to legal matters to the descriptions thereof and to
the statements in regard thereto contained in such section of the Offering
Memorandum.

5.       Each document incorporated in the Offering Memorandum as such document
was originally filed pursuant to the Exchange Act (except for (i) the operating
statistics, financial statements and schedules contained or incorporated by
reference therein (including the notes thereto and the auditors' reports
thereon), (ii) the other financial or statistical information contained or
incorporated by reference therein and (iii) the exhibits thereto, as to which I
express no opinion) complied as to form when so filed in all material respects
with the Exchange Act and the applicable rules and regulations of the Commission
thereunder.

6.       The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

7.       The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization, execution and
delivery thereof by the Initial Purchasers, is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).

8.       The Indenture has been duly authorized, executed and delivered by the
Company and, assuming due authorization, execution and delivery of the Indenture
by the Trustee, will be a

                                       C-1

<PAGE>

valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or by general principles of
equity (regardless of whether enforcement is considered in a proceeding at law
or in equity).

9.       The Indenture complies as to form in all material respects with the
requirements of the TIA and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder. It is not necessary in
connection with the offer, sale and delivery of the Restricted Bonds to the
Initial Purchasers in the manner contemplated by the Purchase Agreement or in
connection with the Exempt Resales to qualify the Indenture under the TIA.

10.      The Restricted Bonds are in the form contemplated by the Indenture,
have been duly authorized, executed and delivered by the Company and, assuming
the due authentication thereof by the Trustee and upon payment and delivery in
accordance with the Purchase Agreement, will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity); the Restricted Bonds are entitled to the security afforded by the
Indenture equally and ratably with all securities presently outstanding
thereunder, and no stamp taxes in respect of the original issue thereof are
payable.

11.      The Company has good and marketable title to all its important
properties described in the Offering Memorandum and to substantially all other
real estate and property specifically described in the Indenture as subject to
the lien thereof except (a) that released or retired in accordance with the
provisions of the Indenture, (b) leased offices, garages and service buildings,
(c) leased nuclear fuel, (d) certain electric substations and gas regulator
stations and other facilities erected on sites under leases, easements, permits
or contractual arrangements, (e) certain pollution control facilities, which are
subject to security interests granted to various municipalities and economic
development corporations under installment sales contracts, (f) as to electric
and gas transmission and distribution lines, many of such properties are
constructed on rights-of-way by virtue of franchises or pursuant to easements
only, and (g) as to certain gas storage fields, the Company's interest in
certain of the gas rights and rights of storage and other rights incidental
thereto are in the nature of an easement or leasehold interest only; the
Indenture constitutes, as security for the Restricted Bonds, a valid direct
first mortgage lien on the real estate, property and franchises, subject only to
excepted encumbrances as defined therein and except as otherwise expressly
stated therein and subject to Michigan Compiled Laws Annotated Section
324.20138, which provides under certain circumstances for the creation of
priority liens on property of the Company in favor of the State of Michigan
covering reimbursement for any expense incurred in a response activity under the
Michigan Environmental Response Act; the Indenture is effective to create the
lien intended to be created thereby; and real estate, property or franchises in
the State of Michigan, hereafter acquired by the Company, will become subject to
the lien of the Indenture, at the time of acquisition, subject to liens existing
thereon at the time of acquisition, and subject to excepted encumbrances, and
subject to any necessary filing and recording before the intervention of any
lien not expressly excepted thereby, and subject to the qualification above with
respect to the enforceability of the Indenture.

                                       C-2

<PAGE>

12.      The Exchange Bonds are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming the due delivery and execution
thereof by the Company and the due authentication thereof by the Trustee in
accordance with the Registration Rights Agreement, will constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).

13.      The issuance and sale of the Restricted Bonds in accordance with the
terms of the Indenture and the Purchase Agreement do not violate the provisions
of the Restated Articles of Incorporation or the Bylaws of the Company, and will
not result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party.

14.      The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

15.      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, and (ii) is currently exempt from all
provisions of the Public Utility Holding Company Act of 1935, as amended, except
Section 9(a)(2) thereof.

16.      No registration under the Act of the Restricted Bonds is required for
the sale of the Restricted Bonds to the Initial Purchasers as contemplated by
the Purchase Agreement or for the Exempt Resales assuming (i) that each of the
Initial Purchasers is an Eligible Purchaser or an Accredited Investor (as
defined in Regulation D under the Act), (ii) the accuracy of, and compliance
with, the Initial Purchasers' representations and agreements contained in
Section 7 of the Purchase Agreement, and (iii) the accuracy of the
representations of the Company set forth in Sections 5(e), 5(n), 6(n), 6(p),
6(q), and 6(r)of the Purchase Agreement.

17.      Nothing has come to my attention that would lead me to believe that the
Offering Memorandum (other than (i) the operating statistics, financial
statements and schedules contained or incorporated by reference therein
(including the notes thereto and the auditors' reports thereon), (ii) the other
financial or statistical information contained or incorporated by reference
therein and (iii) the exhibits thereto, as to which I express no opinion), as of
its date or at the date hereof contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

                                      C-3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>13
<FILENAME>k80589exv31wxay.txt
<DESCRIPTION>302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>

                                                                 Exhibit (31)(a)

                        CERTIFICATION OF KENNETH WHIPPLE

I, Kenneth Whipple, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
         Corporation;

     2.  Based on my knowledge, this 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 report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
         such disclosure controls and procedures to be designed under our
         supervision, 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 report is being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures and presented in this report our conclusions
         about the effectiveness of the disclosure controls and procedures, as
         of the end of the period covered by this report based on such
         evaluation; and

                  c) Disclosed in this report any change in the registrant's
         internal control over financial reporting that occurred during the
         registrant's most recent fiscal quarter (the registrant's fourth fiscal
         quarter in the case of an annual report) that has materially affected,
         or is reasonably likely to materially affect, the registrant's internal
         control over financial reporting; and

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

                  a) All significant deficiencies and material weaknesses in the
         design or operation of internal control over financial reporting which
         are reasonably likely to adversely affect the registrant's ability to
         record, process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal control over financial reporting.

Dated: November 12, 2003                       By: /s/ Kenneth Whipple
                                                   -----------------------------
                                                        Kenneth Whipple
                                                   Chairman of the Board and
                                                    Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>14
<FILENAME>k80589exv31wxby.txt
<DESCRIPTION>302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>

                                                                 Exhibit (31)(b)

                         CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of CMS Energy
         Corporation;

     2.  Based on my knowledge, this 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 report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
         such disclosure controls and procedures to be designed under our
         supervision, 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 report is being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures and presented in this report our conclusions
         about the effectiveness of the disclosure controls and procedures, as
         of the end of the period covered by this report based on such
         evaluation; and

                  c) Disclosed in this report any change in the registrant's
         internal control over financial reporting that occurred during the
         registrant's most recent fiscal quarter (the registrant's fourth fiscal
         quarter in the case of an annual report) that has materially affected,
         or is reasonably likely to materially affect, the registrant's internal
         control over financial reporting; and

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

                  a) All significant deficiencies and material weaknesses in the
         design or operation of internal control over financial reporting which
         are reasonably likely to adversely affect the registrant's ability to
         record, process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal control over financial reporting.

Dated: November 12, 2003                      By: /s/ Thomas J. Webb
                                                  ------------------------------
                                                         Thomas J. Webb
                                                   Executive Vice President and
                                                      Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(C)
<SEQUENCE>15
<FILENAME>k80589exv31wxcy.txt
<DESCRIPTION>302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>

                                                                 Exhibit (31)(c)

                        CERTIFICATION OF KENNETH WHIPPLE

I, Kenneth Whipple, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Consumers Energy
         Company;

     2.  Based on my knowledge, this 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 report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
         such disclosure controls and procedures to be designed under our
         supervision, 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 report is being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures and presented in this report our conclusions
         about the effectiveness of the disclosure controls and procedures, as
         of the end of the period covered by this report based on such
         evaluation; and

                  c) Disclosed in this report any change in the registrant's
         internal control over financial reporting that occurred during the
         registrant's most recent fiscal quarter (the registrant's fourth fiscal
         quarter in the case of an annual report) that has materially affected,
         or is reasonably likely to materially affect, the registrant's internal
         control over financial reporting; and

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

                  a) All significant deficiencies and material weaknesses in the
         design or operation of internal control over financial reporting which
         are reasonably likely to adversely affect the registrant's ability to
         record, process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal control over financial reporting.

Dated: November 12, 2003                      By: /s/ Kenneth Whipple
                                                  ------------------------------
                                                        Kenneth Whipple
                                                    Chairman of the Board and
                                                     Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(D)
<SEQUENCE>16
<FILENAME>k80589exv31wxdy.txt
<DESCRIPTION>302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>

                                                                 Exhibit (31)(d)

                         CERTIFICATION OF THOMAS J. WEBB

I, Thomas J. Webb, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Consumers Energy
         Company;

     2.  Based on my knowledge, this 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 report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
         such disclosure controls and procedures to be designed under our
         supervision, 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 report is being prepared;

                  b) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures and presented in this report our conclusions
         about the effectiveness of the disclosure controls and procedures, as
         of the end of the period covered by this report based on such
         evaluation; and

                  c) Disclosed in this report any change in the registrant's
         internal control over financial reporting that occurred during the
         registrant's most recent fiscal quarter (the registrant's fourth fiscal
         quarter in the case of an annual report) that has materially affected,
         or is reasonably likely to materially affect, the registrant's internal
         control over financial reporting; and

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

                  a) All significant deficiencies and material weaknesses in the
         design or operation of internal control over financial reporting which
         are reasonably likely to adversely affect the registrant's ability to
         record, process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal control over financial reporting.

Dated: November 12, 2003                      By: /s/ Thomas J. Webb
                                                  ------------------------------
                                                        Thomas J. Webb
                                                  Executive Vice President and
                                                     Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(A)
<SEQUENCE>17
<FILENAME>k80589exv32wxay.txt
<DESCRIPTION>CMS 906 CERTIFICATION OF CEO & CFO
<TEXT>
<PAGE>

                                                                 Exhibit (32)(a)

                    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 Quarterly Report on Form 10-Q of CMS Energy Corporation
(the "Company") for the quarterly period ended September 30, 2003 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:  November 12, 2003

   /s/ Thomas J. Webb
- ----------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  November 12, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.(B)
<SEQUENCE>18
<FILENAME>k80589exv32wxby.txt
<DESCRIPTION>CONSUMERS ENERGY 906 CERTIFICATION OF CEO & CFO
<TEXT>
<PAGE>

                                                                 Exhibit (32)(b)

                    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 Quarterly Report on Form 10-Q of Consumers Energy Company
(the "Company") for the quarterly period ended September 30, 2003 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:  November 12, 2003

   /s/ Thomas J. Webb
- ----------------------------
Name:  Thomas J. Webb
Title: Executive Vice President and
       Chief Financial Officer
Date:  November 12, 2003

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
